In the month of October, the Nigerian private sector faced significant challenges as soaring input costs took a toll on customer demand, resulting in a contraction in business performance.
According to the Nigeria Purchasing Managers’ Index (PMI) report from Stanbic IBTC Bank, the surge in input prices discouraged businesses from procuring essential materials, leading to delays in order fulfillment. However, amidst these challenges, there was a glimmer of positivity, as employment continued to rise due to the expansion plans of many companies.
For the first time in seven months, the headline PMI fell below the critical 50.0 mark, signifying a decline in the private sector’s business conditions, with a reading of 49.1 in October, down from September’s 51.1. Readings above 50.0 indicate an improvement, while those below 50.0 signify deterioration.
The report highlighted that the most significant hurdle for businesses in October was the sharpest increase in input prices since the survey’s inception nearly a decade ago. This surge was attributed to the rapid increase in purchase costs, primarily due to currency devaluation and the lingering effects of the fuel subsidy removal.
Furthermore, the rising living costs, particularly related to transportation, prompted companies to significantly raise their staff salaries in October. Inflation also reached a new survey peak. As input costs continued to surge, Nigerian firms adjusted their selling prices accordingly, contributing to a steep inflationary environment that dampened customer demand during the month.
New business saw a substantial decrease, ending a six-month growth streak, marking the most significant contraction in three months and the largest since the cash crisis earlier in the year. A combination of lower new orders and elevated input prices prompted companies to scale back their purchasing activities for the first time in seven months.
In certain cases, the inability to secure necessary inputs led to project delays, and some customers faced difficulties making payments. Consequently, backlogs of work increased for the second consecutive month, reaching levels not seen since February. Despite these challenges, employment levels continued to rise for the sixth month in a row, albeit at a solid pace. Respondents noted that job creation was often tied to their business expansion plans. Furthermore, hopes of expanding operations and opening new branches contributed to cautious optimism for the year-ahead outlook, even though sentiment remained historically reserved.
Finally, supplier delivery times improved in October, primarily due to heightened competition among suppliers, prompt payments, and relatively stable road conditions.
In conclusion, the Nigerian private sector faced headwinds in October, primarily due to the unprecedented rise in input costs. While challenges persisted, employment continued to grow, and there remained a sense of optimism for the future, albeit cautiously so.
