Report: Private Sector Productivity Contracted in August amidst FX, Inflationary Pressures

Dike Onwuamaeze

Business activities in the Nigerian private sector declined in August due to severe and strengthening inflation pressures that reduced consumers’ demand of goods and services.

This was disclosed in Purchasing Managers’ Index (PMI) report of the Stanbic IBTC Bank Plc for the month of August 2023, which stated that “the headline PMI dropped for the third month running to 50.2 in August, from 51.7 in July, and was the lowest in the current five-month sequence of improving business conditions.”

The index, according to the report, signaled only a marginal monthly strengthening of the health of the private sector.

The PMI’s report also stated that, “business activity decreased slightly midway through the third quarter, ending a four- month period of expansion. Sector data pointed to a drop in activity in wholesale and retail and no change in services. Meanwhile, agriculture and manufacturing continued to see output increase.”

According to the report, overall input costs and output charges increased to the largest extent since the survey began almost a decade ago.

It said that the rising inflation was occasioned by higher transportation costs as a result of the removal of the fuel subsidy, plus currency weakness, which also caused supplier delivery delays.

The PMI said: “The rate of overall input cost inflation hit a fresh record high in August as some 59 per cent of respondents posted an increase over the course of the month. Rapid rises were recorded across all four broad sectors covered by the survey, with the sharpest pace of inflation in wholesale and retail.  

“Purchase costs continued to rise rapidly midway through the third quarter, with the pace of inflation ticking up to a one-year high. Price rises were often linked to higher fuel costs and currency weakness, while a number of respondents pointed to increases in raw material prices.

“In order to help employees with higher transportation costs, firms increased pay during August. As a result, staff costs rose markedly, and to the greatest extent in the survey’s history, surpassing the previous record posted in February 2014. Just over 9.0 per cent of respondents noted a rise in employee expenses over the month.”

“In the same manner, Nigerian companies responded to higher input costs by increasing their own selling prices accordingly. In line with the picture for input prices, the rate of charge inflation hit a new survey record in August. Exactly 55 per cent of panelists raised their output prices, against less than 1.0 per cent that lowered charges,” the report said.

The Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, commented that marked inflationary pressures remained a key hindrance to businesses in August.

Oni noted that, “overall input costs increased to the greatest extent since the survey began in January 2014 as close to three-fifths of respondents posted a rise over the month. Rates of increase in both purchase prices and staff costs accelerated, the latter hitting a new survey peak. Higher transportation costs were central to rising prices, while there were also reports of currency weakness adding to inflationary pressures.”

He added, “steep price rises presented a challenge for firms to secure new orders,” and as a result “August saw only a marginal increase in new business, with the rate of expansion the softest in the current five-month sequence of growth. Similarly, employment also rose only marginally.”

In spite of the constraint from the mounting inflationary pressure, companies continued to expand their purchasing activity, with stocks of inputs rising accordingly.  

Output

However, “business activity decreased slightly in the Nigerian private sector during August, the first fall in five months. Panelists reported lower customer numbers, as demand was hit by strong price pressures. Wholesale and retail drove the overall decline, while services activity was unchanged. (But) output continued to rise in the agriculture and manufacturing sectors.”  

New export orders

The PMI reported that new business from abroad increased for the second successive month in August. It, however, noted that the pace of expansion softened from that seen in July and was modest even though panelists reported improvements in demand in international markets.

Employment

The August data pointed to a marginal monthly rise in employment in the Nigerian private sector, with the rate of job creation the weakest in four months. While some firms took on additional workers in response to higher new orders, others reported that high staff costs led them to cut back on employment levels.