High Costs Slash Business Activity in Nigeria, PMI Drops to 49.2 in July

Business activity in Nigeria has taken a significant hit as steep price pressures have driven the Purchasing Managers’ Index (PMI) down to 49.2 in July, the lowest level in eight months.

The latest monthly report by Stanbic IBTC Bank reveals that the headline index has dipped below the crucial 50.0 no-change mark for the first time since November 2023, indicating a contraction in the private sector.

The PMI, which measures the performance of Nigeria’s private sector through a survey of 400 companies across various industries, showed that the ongoing inflationary pressures have severely impacted demand.

With rising costs, customers are increasingly unwilling or unable to commit to new projects, resulting in renewed reductions in both business activity and new orders.

Three of the four broad sectors covered by the report saw a decline in business activity in July, with the manufacturing sector being the sole exception, where production managed to increase.

This decrease in business activity is largely attributed to the continued surge in input costs and selling prices, although there were some signs of a softer pace of output price inflation as companies made efforts to secure sales.

“Input costs and selling prices continued to rise rapidly, further straining businesses,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank. “While some companies have tried to attract customers by lowering charges, the overall impact of sharp price increases has been negative.”

The report noted that the rise in employee expenses remained in line with previous months as companies continued to support workers facing higher living costs, particularly in transportation.

However, the ongoing currency depreciation and higher raw material costs have only exacerbated the situation, pushing purchase price inflation to a four-month high.

Business confidence has also been affected, reaching its lowest level since the survey began. Despite some optimism about long-term growth and expansion plans, the immediate outlook remains challenging for many Nigerian businesses.

The PMI is a composite index based on five individual indexes: new orders, output, employment, suppliers’ delivery times, and stock of items purchased.

The index is a key indicator of the economic health of the private sector, and its decline signals growing concerns about Nigeria’s economic stability amid persistent inflationary pressures.

As the year progresses, experts are closely monitoring whether the inflationary effects of fuel subsidy removal and currency depreciation will begin to ease.

However, for now, Nigerian businesses are bracing for continued challenges as they navigate an increasingly difficult economic landscape.