The Purchasing Managers’ Index (PMI) of Africa’s largest economy expanded sluggishly by -2 percentage points from 59.3 percent in December 2017 to 57.3 percent in January 2018, as compiled from Central Bank of Nigeria’s (CBN) website.
While according to the FBN Quest Capital report on Nigeria PMI, the managers’ index slumped in January to 54.6percent from 68.7percent in December of the previous year.
The CBN in its January 2018 PMI report stated that, Purchasing Managers’ Index Production level, new orders, supplier delivery time, employment level and inventories grew at a slower rate in the period under review and as such the index expanded at a sluggish rate, when compared to the previous month.
According to Johnson Chukwu, a Lagos-base financial adviser of Cowry Asset, the Nigeria PMI is still expanding passing the 50 points line, but was of the opinion that the expansion is rather at a slower rate.
“According to the Q3 2017 GDP report, there is indication that the Nigeria manufacturing sector contribution to GDP has been contracting, so it is not strange that the PMI which is a component of the entire GDP of the manufacturing sector is expanding at a slow rate,” Chukwu told BusinessDay on phone.
“What we need at the moment is the recapitalization of Bank of Industry (BOI) and operationalization of the Development Bank of Nigeria. There is a need for strong support for the development and establishment of petrochemical industries in the country, which is a critical raw-material source for manufacturing, agriculture and other sectors,” Frank Jacobs, president of Manufacturers Association of Nigeria (MAN), said at the 2018 media luncheon held in Lagos.
The PMI is an indicator of the economic health of the manufacturing sector in terms of new orders, inventory levels, production, supplier deliveries and the employment.
“PMIs are forward-looking indicators of sentiment in all economies, and have the proven capacity to move financial markets in developed economies,” as compiled form the FBN Quest report.
A composite PMI above 50 points indicates that the manufacturing sector is generally expanding; 50 points indicates no change, and below 50 points indicates that it is generally contracting.
Nigeria’s Purchasing Managers’ Index has been above 50 percent since April 2017 where it was at 51.1 percent from 47.7 percent in March of the same year.
“The principal driver of this index has been the CBN’s use of multiple FX windows, which has transformed liquidity, as manufacturers, or indeed any users of FX, now have reliable access to FX provided they are comfortable with the price,” as stated by FBNQuest Capital Limited.
According to the January 2018 PMI report, of the 16 subsectors, 13 reported growth in the review month in the following order: computer & electronic products; nonmetallic mineral products; cement; textile, apparel, leather & footwear; printing & related support activities; appliances & components; primary metal; petroleum & coal products; food, beverage & tobacco products; furniture & related products; paper products; fabricated metal products; plastics & rubber products. The electrical equipment; chemical & pharmaceutical products; and transportation equipment sub sectors contracted in the review month.
Regionally, manufacturing PMI for South Africa, Africa’s second largest economy, declined to 44.9 in December of 2017 from 48.6 in the previous month.
The reading pointed to a contraction in factory activity after four consecutive months of improvements, as new sales and business activity decreased sharply.
The PMI of Kenya, an emerging East African economy, rose to 53 in December 2017 from 42.8 in the previous month, according to Markit Economics.
The growth marks the first period of expansion since April 2017, due to reduced political tensions and improved customer demand. However, this is still lower than Nigeria’s.
“The manufacturing sector is stagnant because we have open markets, and goods are moving freely across the world. Therefore, we have to be more competitive as a country,” said Phyllis Wakiaga, Kenya Association of Manufacturers chief executive, as quoted by The East African newspaper.
Nigeria’s manufacturing sector is made up 76 sub-sectors, including dairy, vehicle assembly, leather, textile, electronics, plastics, and wine, among others.
“The important thing is that PMI is expanding despite the slow rate, as it shows the potential of expanding at a better rate and faster pace,” Chukwu added