Again, Nigeria’s Manufacturing Index Declines in August

·Naira drops to N425/$ on parallel market
Obinna Chima

The Manufacturing Purchasing Manager’s Index (PMI) declined to 42.1 index points in August 2016, compared to 44.1 in the preceding month, indicating that the manufacturing sector declined at a faster rate during the review period.
The Central Bank of Nigeria (CBN) disclosed this in the PMI report for August that was released yesterday.

According to the report, of the 16 manufacturing sub-sectors, 15 recorded a decline in August in the following order: nonmetallic mineral products; transportation equipment; petroleum and coal products; fabricated metal products; furniture and related products; cement; appliances and components; printing and related support activities; paper products; computer and electronic products; food, beverages and tobacco products; primary metal; textile, apparel, leather and footwear; plastics and rubber products; and chemical & pharmaceutical products. The electrical equipment sub-sector remained unchanged in the review period.

Also, at 40.5 index points, the report showed that the productivity index for the manufacturing sector declined for the eighth consecutive month. It declined at a faster rate than what was recorded in July 2016.

All the 16 manufacturing sub-sectors recorded declines in productivity last month in the following order: appliances and components; plastics and rubber products; petroleum and coal products; transportation equipment; nonmetallic mineral products; computer and electronic products; primary metal; paper products; electrical equipment; cement; fabricated metal products; food, beverages and tobacco products; furniture and related products; printing and related support activities; textile, apparel, leather and footwear; and chemical and pharmaceutical products.

Meanwhile, Renaissance Capital (RenCap), a research and financial advisory firm, has revised down its 2016 growth projection for Nigeria to -1.4 per cent from -0.5 per cent.
Nigeria’s economy contracted by 2.06 per cent year-on-year in the second quarter of 2016, compared with 2.4 per cent in the corresponding quarter of 2015.

The deepening of Nigeria’s economic decline was largely due to the troubled oil and gas sector, which contracted by eight per cent year-on-year in the second quarter of 2016, as against the 6.8 per cent in the comparable period in 2015.
RenCap, in a note yesterday, stated that it expects that any lift from government spending in the second half of 2016 to be offset by depressed oil production, a contracting services sector, and the dampening effect of high interest rates.

It said that there was the likelihood that the biggest contributor to growth, crop production might slow down in the second half of 2016 “because of an increased risk of flooding, according to a famine early warning network”.
“Oil output is likely to remain depressed at about 1.6mbd in the second half of 2016 (2H16), at best, versus 1.96mbd in first five months of 2015.

“The execution of the FY16 budget from June may provide a lift to public administration.
“However, as the external financing required to fund capital expenditure has yet to be raised, construction, which contracted by 6.3 per cent year-on-year in 2Q16, is likely to continue declining in 2H16.

“A troubled consumer implies wholesale and retail trade, a proxy for consumption, may see its growth turn negative in 2H16. This may in part explain the decline of the largest manufacturing sector, food and beverages, for six consecutive quarters,” Rencap added.
Also, Standard Chartered Bank’s Business Sentiment Indicator (BSI) for Nigeria released yesterday showed that the country’s non-oil Q3 growth will likely also be soft.

It noted that although hope had risen for a more robust recovery in H2-2016 following liberalisation aimed at improving FX supply in June and better implementation of the federal government budget after May, there was still need for caution.

“Our BSI strikes a note of caution. Average business sentiment in the three months to August 2016 was only 55.4 – in positive territory above the key 50 level, but implying that growth remains weak.
“So far in Q3, there is little evidence of a significant recovery momentum in the economy. Production, new orders, employment and order backlogs have all declined, according to our August survey data.

“Of the components that make up the headline BSI, only supplier delivery times increased, but after having hit a series low only a month prior. Nigeria’s traditionally buoyant expectations are starting to falter.
“Although an economic recovery is anticipated, the strength of the optimism is fading. In August, eight of the 15 current conditions indicators declined. However, 10 of the future expectations measures were down from previous levels,” the Standard Chartered report stated.

The naira fell again to N425 to the dollar on the parallel market yesterday, from N423 the previous day. But on the interbank market, the spot rate of the naira climbed to N313.31 to the dollar yesterday, compared with the N316.24 to the dollar the previous day.