Nigeria’s Purchasing Managing Index (PMI) reached a two-year high in December 2021, which showed a robust improvement in the country’s private sector performance.
At 56.4 in December 2021, up from 55.0 in November, which averaged 53.5 from January to December 2021 in comparison to 50.2 recorded for the same period in 2020, the latest index pointed to a robust overall improvement in business conditions.
The latest quarterly reading was at 55.2 which is the highest since the final quarter of 2019.
A key driver of growth was the quickest rise in new orders for over two years. Firms mentioned fruitful marketing efforts and a general improvement in domestic and international demand.
Subsequently, firms boosted output for the thirteenth month running and at the quickest rate since August 2020.
Quicker uplifts in output and new orders as well as record inventory building were central to the improvement.
Despite the surge in new orders, firms added to their headcounts at the softest pace for 11 months but were still able to keep backlogs at bay.
Sub-sector data revealed expansions across the board, although manufacturers recorded by far the strongest increase. Wholesale and retail, services and agriculture followed, respectively.
Despite robust expansions in output, firms added to their headcounts at only a slight pace. Panel comments suggested that whilst sales had increased, firms were able to keep up with demand leading to a marked reduction in backlogs.
Meanwhile, historically elevated rates of new order growth led firms to engage in stockpiling strategies during the month. In fact, inventories increased at the quickest rate in eight years of data collection. Buying levels also increased substantially, and at the fourth-most marked rate in the series.
As for prices, purchase costs rose at a survey-record rate for the fourth month running. Higher raw material prices, fuel costs and unfavourable exchange rate movements drove the increase. Favourable demand conditions allowed for costs to be passed on to clients at a record rate in December.
Finally, firms were optimistic for output growth in 2022 amid plans to broaden product offerings, increase advertisements and expand operations to new locations.
Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, said the growth of the PMI showed consistent improvement in business conditions despite challenges.
“The PMI reaching a two-year high in December 2021 reflects the impact of relaxed public health restrictions. Indeed, strong demand and output levels have persisted over the last few months, even though growth has been somewhat constrained by significant price pressures impacting input and selling prices.
“Notably, firms have been able to pass through the increased cost without it dampening overall demand and output.
“The manufacturing sector has been one of the main drivers of growth in recent times. Truly, the sector has recorded gradual growth through the year as evidenced by the Q2:21 and Q3:21 sector growth in real terms of 3.5 per cent y/y and 4.3 per cent y/y, respectively.
The sector’s Q3:21 growth appeared to be the highest since 2014 reflecting the relatively improved FX supply to corporates during the period and the relaxed public health restrictions. While infrastructure challenges, FX illiquidity concerns and high inflation have weighed on the sector, the sector’s performance has shown resilience,” Oni said.
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Nigeria’s PMI reaches two-year high amid stronger output, new order growth
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