Business
Stanbic IBTC Bank Nigeria PMI® – Unprecedented Rise in Input Costs in Nigeria’s Private Sector
Stanbic IBTC Bank Nigeria PMI®: Unprecedented Rise in Input Costs in Nigeria’s Private Sector
A surge in price pressures within the private sector in February brought with it previously unheard-of challenges to Nigeria’s economic landscape. This surge in input costs and output prices, at rates never seen before, has had a profound impact on the overall business environment, affecting demand and business operations significantly.
NewsReport Nigeria reports that, as indicated by the Purchasing Managers’ IndexTM (PMI®), a key metric that gauges business conditions, February saw a notable decline in the headline figure to 51.0 from 54.5 in January. While the reading remained above the 50.0 threshold, indicating growth, the pace of improvement was the slowest since the sector’s recovery began in December.
The primary driver behind this surge in input costs was the weakening exchange rate, leading to higher material costs and increased fuel prices. In fact, the overall increase in input costs in February was the steepest recorded since data collection began in January 2014, with a significant majority of respondents reporting cost escalations.
Consequently, firms had to pass on these rising input costs to consumers, resulting in a record high in output price inflation. This inflationary pressure, while reflecting the cost realities faced by businesses, also acted as a deterrent to new orders, slowing down the pace of expansion in the private sector.
The repercussions of these price pressures were felt across various sectors, with contrasting performances in agriculture, services, manufacturing, and wholesale & retail. While some sectors saw growth, others experienced declines, reflecting the nuanced impact of the prevailing economic conditions.
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, highlighted the challenges faced by businesses, attributing the slowdown to local currency depreciation, increasing fuel and food costs, and overall cost pressures. These factors, combined with weakening demand, are likely to constrain growth prospects in the first quarter of 2024.
Notably, the decline in business confidence to record lows in February underscores the prevailing uncertainties and challenges faced by companies. Despite this, firms remain cautiously optimistic about future prospects, driven by expansion plans and hopes for an economic upturn in the coming months.
The ripple effects of these unprecedented inflationary pressures were also evident in employment trends, with a marginal decrease in staffing levels for the first time in ten months. Purchasing activity was scaled back, and inventories were increased to meet new orders promptly, reflecting a strategic response to the evolving business environment.
In conclusion, the surge in input costs and output prices in February has posed significant challenges to Nigeria’s private sector, impacting business operations, demand dynamics, and the overall economic outlook. As businesses navigate these turbulent times, strategic planning, cost management, and adaptive strategies will be crucial to weathering the storm and positioning for future growth and resilience.
