Private Sector Productivity Grew in April as Cash Crunch Eases

Dike Onwuamaeze

The easing of cash crunch that prevailed in the first quarter this year has restored the Nigerian private sector on the growth path as the productivity of the sector rose from 42.3 points in March to 53.8 points in April.  

This was revealed by the recently released Stanbic IBTC Bank’s Nigeria’s Purchasing Manager’s Index (PMI) for the month of April 2023, which stated that there were signs of recovery in the Nigerian private sector in April as the cash crisis eased.

It said that Nigerian companies recorded a renewed expansion in purchasing activity at the start of the second quarter, thereby ending a two-month sequence of decline. It also attributed the higher input buying to improving customer demand.

The PMI stated, “business activity in Nigeria returned to growth at the start of the second quarter of the year as improvements in cash availability helped lead to an increase in customer numbers.

“The sharp rise in output was the first in three months, and most pronounced since April last year. Rebounds in activity were seen across each of the agriculture, manufacturing, services and wholesale and retail

“Improving demand amid an easing of the cash crisis and signs of business conditions normalising supported a renewed expansion in new orders in April. As was the case with output, growth of new business ended a two-month sequence of decline. Moreover, the pace of increase was substantial.”

The report also said that the rise in total new business was supported by a marked improvement in new export orders as April saw new business from abroad increase for the second month running, with the rate of expansion accelerating from that seen in the previous survey period.

According to the Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, firms in the private sector reported renewed expansions in new business and output amid improved access to funds.

Oni added, “the headline PMI moved back above the 50.0 no-change mark for the first time in three months during April. At 53.8, the index was up from 42.3 in March and pointed to a solid overall improvement in business conditions in the private sector.

“There were mixed trends in terms of prices at the start of the second quarter. Input costs increased at a sharper rate, but further efforts to attract customers led firms to increase their selling prices at the softest pace for three years. It should be stated that headline figure is derived from the survey is the PMI and readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.”

He said that the recovery in operating conditions reflected an easing of the cash crisis, which has severely affected the economy in recent months.

Therefore, “panelists (respondents to PMI’s survey) reported a more normal business environment as customer numbers improved in line with greater access to cash. As a result, both output and new business expanded sharply in April, ending two-month sequences of decline in each case. Rebounds in activity were seen across each of the agriculture, manufacturing, services and wholesale and retail sectors,” he said.

Oni, however, stated that, “business sentiment remained subdued in April, despite a slight pick-up from March. In fact, optimism was among the lowest seen since the survey began in January 2014. The relatively subdued outlook meant that companies remained cautious with regards to hiring, and reduced employment marginally for the third month in a row. Meanwhile, backlogs of work fell slightly.

“Companies did increase their purchasing activity, however, in response to higher new orders, with inventories also expanding.   Efforts to secure inputs were helped by an improvement in suppliers’ delivery times.”

Oni said: “Higher wages often reflected efforts to help staff with increased living costs. In contrast to the picture for input costs, the rate of output price inflation moderated, easing for the fourth month running to a three-year low. Some firms reported having offered discounts to try and stimulate demand.”

The PMI further revealed that rates of increase in both purchase prices and staff costs quickened over the month as firms attributed increase in purchase prices (inflation) to higher raw material costs and Naira’s weakness in the foreign exchange market.