September 3, 2020
The recovery in the Nigerian private sector gathered momentum in August as demand improved following the easing of restrictions related to the coronavirus disease 2019 (COVID-19). Output and new orders rebounded, rising sharply from July. Employment was broadly stable, although excess capacity remained as a result of the severe declines in new businesses during the second quarter.
Currency weakness led to another record increase in purchase costs, in turn leading to a rise in selling prices unprecedented since the survey began in January 2014.
The headline figure derived from the survey is the Nigeria Purchasing Managers’ Index™ (PMI®), a property of Stanbic IBTC Bank PLC. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
The headline PMI rose sharply in August to 54.6, up from 50.4 in July. The reading signaled a marked improvement in business conditions, following a return to growth in the previous month.
The rebound in new orders continued midway through the third quarter as client demand strengthened, following the easing of COVID-19 restrictions. New businesses increased for the second month running, and to the greatest extent since January.
A similar picture was evident with regards to business activities, which rose at a substantial pace that was much stronger than seen in the previous month.
Despite strong rises in workloads during August, data suggested that the steep contractions seen during the second quarter, left residual spare capacity. Companies were therefore able to continue depleting backlogs of work while leaving staffing levels broadly unchanged. The stability of employment did bring a four-month sequence of job cuts to an end, however.
Spare capacity was also reported at suppliers. This, alongside relatively quiet road conditions, meant that vendors were able to speed up deliveries in spite of a marked increase in purchasing activities. Stocks of purchases meanwhile rose sharply for the second month running.
Overall, input cost inflation quickened to a fresh series record in August, despite a reduction in staff costs. The rise in overall input prices was driven by a record increase in purchase costs, in turn largely the result of currency weakness. In response to higher raw material prices, companies raised their own charges. As was the case with input costs, the increase in selling prices was the quickest since the survey began.
Subdued business sentiment was registered again amid concerns around the lasting impact of COVID-19.