Culled—Proshare

June 29, 2020

By CSL Research

According to the Purchasing Managers Index (PMI) data released by the Central Bank of Nigeria (CBN) for the month of June, activity levels remained weak. Specifically, Manufacturing PMI declined to 41.1 in June from 42.4 in May, the second consecutive month of decline in the sector. However, the easing of the lockdown measures which enabled service-based organisations to restart business activities had a positive impact on the Non-manufacturing PMI, as it improved to 35.7 in June from 25.3 in May.

We believe the continued weakness in the manufacturing sector remains reflective of supply chain disruptions, FX challenges, weak production runs, subdued demand from customers brought by the novel global pandemic. Notably, the data revealed that, of the 14 surveyed subsectors in the manufacturing sector, only five sectors reported growth. Save for Raw materials/WIP Inventory (+3.6) and Employment level (+14.3) which grew due to manufacturers’ absorption of factory workers who were previously rendered redundant, the remaining three indices used in gauging the manufacturing sector weakened further in June; Production level (-7.9), New orders (-6.4), Supplier delivery time (-4.3).

Unlike the manufacturing-PMI, the non-manufacturing PMI showed broad based improvement across the four key metrics; Business Activity (19.5 to 34.3), Level of new orders (19.6 to 32.5), Inventory level (30.1 to 38.5) and Employment level (32.0 to 37.4) used in gauging activity level. We believe the sector is more sensitive to restrictive measures put in place to contain the pandemic, hence, the relaxation of the lockdown measures in May enabled most service-based organisations to improve their scale of operations.

In the short to medium term, we expect activities in the manufacturing sector to remain weak due to strains in supply chain, illiquidity in the FX market, weak demand which will weigh on inventories, production runs, employment level and importation of raw materials.