- Nigeria’s November PMI rose to 49.6 from 46.9 in October, marking its fifth consecutive month below the neutral 50.0 threshold.
- This reading signals an ongoing deterioration in business conditions in Africa’s biggest economy.
- Rising energy prices, expensive raw materials, and a weak naira continued to drive substantial input price inflation.
Nigeria’s private sector showed tentative signs of improvement in November 2024, as inflationary pressures eased slightly. However, steep price increases and subdued demand continued to choke businesses, pushing many to cut jobs and reduce purchasing activity.
The headline Purchasing Managers’ Index (PMI) rose to 49.6 from 46.9 in October, marking its fifth consecutive month below the neutral 50.0 threshold. This reading signals an ongoing deterioration in business conditions in Africa’s biggest economy, albeit at a slower pace.
“This less pronounced deterioration was primarily due to the return to growth of new orders in November,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank.
Persistent inflation damps Nigeria’s private sector recovery
Despite a modest uptick in new orders, high costs remained a significant barrier to stronger recovery. Rising energy prices, expensive raw materials, and a weak naira continued to drive substantial input price inflation. Though slightly lower than October’s peak, November’s inflation rate remained one of the highest on record.
“Some panellists saw signs of demand picking up, but others reported that high costs again acted to deter customers,” Oni noted.
The inflationary environment not only hampered customer purchasing power but also drove up operational costs for businesses. Companies faced heightened staff expenses as they sought to cushion workers against rising living and transportation costs, further compounding financial strains.
Sectoral disparities highlight uneven growth
Nigeria’s private sector performance varied across industries, with agriculture and manufacturing posting modest output gains. In contrast, the wholesale, retail, and services sectors experienced declines during the month, reflecting the uneven nature of the recovery.
Meanwhile, Nigeria’s non-oil sector recorded year-on-year growth of 3.37 per cent in Q3 2024, up from 2.8 per cent in the previous quarter. Key growth drivers included ICT, finance and insurance, trade, road transport, and agriculture.
However, these gains have done little to offset broader weaknesses experienced across the economy. High input costs, sluggish demand, and ongoing inflationary pressures weighed heavily on businesses’ ability to expand operations or hire additional staff.
Read also: Nigeria’s trade activity dips in September as rising inflationary pressure bites
Job cuts and reduced purchasing mark November
In response to mounting challenges, many of Nigeria’s private sector businesses scaled back on staffing and purchasing activity, the survey shows. November marked the end of a six-month streak of job creation, with employment falling marginally, particularly in the services sector.
The pace of reduction was only marginal, however, as the overall fall in staffing levels was limited to just services firms, the PMI report notes in part.
Muted demand and elevated prices also led to reductions in purchasing activity and stock levels. Companies reported a lack of capacity pressures, with backlogs of work declining and supplier delivery times improving. These dynamics underscore the cautious approach many firms are adopting as they navigate economic uncertainties.
Nigeria business confidence hits record low in November
The challenging environment has dampened business confidence, which fell to a new record low in November. While some firms remained optimistic about future output, citing expansion and investment plans, the overall sentiment remains subdued.
High inflation and currency instability have tempered expectations for a swift recovery, leaving businesses to grapple with a prolonged period of uncertainty.
Policy implications and outlook
The modest improvement in November underscores the resilience of Nigeria’s private sector but also highlights the pressing need for structural reforms to address inflation and stimulate demand.
Policymakers must prioritize measures to stabilize the naira, curb inflation, and lower production costs to create a more conducive environment for businesses. In the absence of such interventions, the private sector’s recovery is likely to remain fragile, with significant implications for employment and economic growth.
As Nigeria’s private sector enters the final month of 2024, the mixed signals paint a complex picture. While slight gains in demand provide a glimmer of hope, persistent inflation and high costs threaten to stall broader progress. For businesses and policymakers alike, the challenge lies in turning these tentative signs of recovery into sustainable growth.
Oni stated; “We expect the economy to maintain the Q3:24 growth momentum in Q4:24, supported by festive-induced increase in economic activity and sustained improvement in crude oil production. Indeed, based on the November PMI survey results, companies reported some tentative signs of demand improving although some customers were deterred by high prices. On balance, we estimate the economy to grow by 3.24 per cent y/y in real terms in Q4:24 and adjust our 2024 growth estimate upward to 3.2% (previously: 3.1 per cent).”
