Culled—Proshare

October 2, 2020

by FBNQuest Research

Our manufacturing Purchasing Managers’ Index (PMI), the first of its genre in Nigeria, picked up from 52.3 to 54.8 in September. Our partner, NOI Polls, has gathered the data. The index can be found in advanced economies such as the ISM’s in the US, larger EMs like China, India and Brazil, and some other frontier markets. It is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted. Our highest reading was 68.7 in December 2017 and our lowest 43.3 during selective lockdown in May this year.               

In our unweighted model (that of the Institute for Supply Management), respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have increased over the previous month, are unchanged or have declined. A headline reading of 50 (ex 100) is neutral, and anything higher points to expansion in the sector.

Our sample of respondents is a representative mix of small, medium-sized and large companies across the six geopolitical zones.

PMIs, unlike the national accounts, are forward-looking indicators with a proven record of moving financial markets in advanced economies. and the largest EMs such as China. There have been some very large monthly swings this year due to Covid-19. The official index in China soared from a record low of 35.7 in February due to lockdown to 52.0 in March on its lifting. 

Our own index posted a ten-point move in June to 53.9 as Nigeria exited its own lockdown. The headline has since moved within a narrow range.

The swings in our headline PMI reading have been less sharp than in China and the advanced economies because Nigerian manufacturing produces for the domestic market and so is little affected by the collapse in external demand. Also, it is dominated by consumer goods firms, many of which produce core elements in the household shopping basket.

The interesting question is why our readings do not reflect the fx shortages, given that the CBN is now providing just token supply to the investors’ and exporters’ window after supplying nothing for five months. All five sub-indices are above the neutral 50 and new orders is close to 60. The optimistic explanation is that surveyed companies have made the transition from imported to local inputs. At the same time, some firms may have tweaked the combination of raw materials they use.

Relatively few firms are moving the dial. The most popular response is ‘no change’, which accounts for at least 60 per cent of answers in all five cases.

On a 12-month moving average basis, the headline index slipped marginally from 52.2 to 52.1 in September.