December 7, 2023/CSL Research

The Purchasing Managers’ Index (PMI) is an economic indicator that gives insights into the economic health of Nigeria’s manufacturing and services sectors. The PMI fell below the 50- point threshold for the second consecutive time since March 2023. The PMI reading was 48.0 in November 2023 from 49.1 in October 2023 as both output and new orders waned in the period. This indicates a contraction in the private sector. Business confidence in Nigeria has declined in recent months, due to the challenging economic environment. The depreciation of the Naira and high energy prices have resulted in an increase in the cost of production, making businesses postpone investments. On the other hand, employment levels increased in November. 

Inflationary pressures caused by the fuel subsidy removal and the devaluation of the exchange rate continue to affect the manufacturing and non-manufacturing sectors. The continuous depreciation of the Naira has significantly raised the cost of importing goods and raw materials for manufacturing. More so, insecurity challenges in certain parts of the country also continue to disrupt supply chains leading to shortages and price increases. Manufacturing companies have had to reduce the production of goods, resulting in dwindling output and new orders in November 2023. 

To reduce the cost of production, we expect many companies to pursue backward integration schemes to reduce their exposure to foreign currencies. Many companies in the consumer goods sector have already begun to adopt this approach and have started to produce many of their raw materials locally. Some others are also exploring the adoption of cheaper energy sources for production. In the near term however, we believe PMI readings will remain weak until effective measures are employed by the government to encourage business activities.