Business activities in Nigeria have witnessed an upswing in recent months, rebounding from the cash scarcity crisis experienced earlier this year when the Naira redesign policy was issued. Stanbic IBTC Bank most recent monthly Purchasing Managers’ Index (PMI) showed the increase to be the highest growth seen so far this year. The headline PMI for May 2023 rose to 54.0 on Thursday from 53.8 in April. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
After dropping twice in February and March due to the cash shortage, it grew for a second consecutive month in April and May. According to Stanbic IBTC Bank head of equity research in West Africa, Muyiwa Oni, the Nigerian private sector has maintained its recovery from the cash crisis, with May PMI marking the highest level thus far in 2023. He indicated that the shortage of banknotes felt by consumers and businesses alike in the first quarter of the year was the direct outcome of the government’s decision to demonetize the naira.
Activity has increased but at a slower rate than in April.
Increased availability of cash in May enabled businesses to better engage for new deals and increase their monthly number of orders. This is the quickest rate of increase in new business since April of 2022, he said. For the second month in a row, business activity has increased, Oni said, but at a slower rate than in April. The wholesale and retail sectors experienced the most growth, but the expansion was felt throughout all four sectors.
The private sector performance index is based on responses from four hundred businesses in the sectors of agriculture, manufacturing, services, construction, and retail. The index is a weighted average of five sub-indices that reflect the following factors: new orders (30 percent), output (25 percent), employment (20 percent), supplier delivery times (15 percent), and Stock of Items Purchased (10 percent), with the Delivery Times index inverted to ensure that it also trends in the same direction.
New orders grew at their fastest pace in 13 months.
Millions of Nigerians’ livelihoods were affected by the Central Bank of Nigeria’s (CBN) naira redesign policy in the first quarter of this year, which hampered economic activities. From N1.39 trillion in the prior months, currency in circulation fell to N982.1 billion in February, the lowest level in 14 years and five months according to data from the CBN. The National Bureau of Statistics reports that annual economic growth slowed in Q1 to 2.31 percent, down from 3.52 percent in Q4 2022 and 3.11 percent in the first quarter of the previous year.
In response to a Supreme Court ruling in March, the CBN released more naira notes and prolonged the legal tender status of certain naira and this in turn increased currency in circulation by 71.41 percent to N1.68 trillion. The PMI indicator showed that new orders grew at their fastest pace in 13 months, although employment increased just little in the face of a more gloomy outlook. Despite enterprises increasing employment for the first time in four months due to stronger new orders in May, the rate of job creation was only modest, the report said, suggesting that spare capacity persisted in the private sector.
With rising cost of inputs, product prices have also increased.
Author of the report claimed that a less optimistic prognosis for the coming year contributed to the slow rate of job growth. Although optimistic expectations were bolstered by plans for corporate expansion and predictions of further improvements in new orders, confidence plummeted and was at its second lowest on record, they said. Oni of Stanbic IBTC Bank, also noted the rising cost of inputs, product prices have also increased. However, the forfeiture of petroleum products subsidies might have a major influence on transport and food prices, posing large upside risks to inflation in the coming months.