April 1, 2019

March 2019; Post-election surge

Main conclusions:

  • Considerable increase in March to 56.9 for headline
  • All five sub-indices in positive territory
  • Highest for output
  • Lowest for delivery times

We release today the latest reading (no 72) of our manufacturing Purchasing Managers’ Index (PMI) for Nigeria, which takes the temperature of the sector. Our PMI was the first in Nigeria. It has developed into a useful forward indicator.

A PMI is a simple exercise. A selection of companies are asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings should be released at the very beginning of the new month, subject to public holidays.

In our case, the five variables are output, employment, new orders, delivery times from suppliers and stocks of purchases. They have equal weightings in our index. Our reports cover a representative sample of the sector with large, medium-sized and small firms. Any broad economic conclusions on the basis of our reports need to be tentative because we are operating in a statistical near-void.

The national accounts, unlike a PMI, are a historical indicator. The latest series (for Q4 2018) shows GDP growth at 2.4% y/y, compared with 1.8% in Q3 2018. The oil economy contracted by -1.6% y/y. The contraction, however, was at a slower pace than the previous quarter. For the non-oil economy, the data show y/y growth of 2.7%. Manufacturing grew by 2.4%, compared with 1.9% y/y in Q3. Its largest segment (food. beverages and tobacco) expanded by 2.2% y/y.

The headline reading increased considerably from 50.4 to 56.9 in March. This trend was mirrored across four of the five sub-indices. We attribute this visible pickup in the headline reading to a resumption in economic activity, post-election. Production slowed in January on the end of the holiday season and slowed further in February due to uncertainty surrounding the outcome and conduct of the presidential election. Whatever outcome manufacturers favoured, they would have welcomed the manageable level of disruption.

Fx is freely available to manufacturers (for their inputs). Furthermore, some large manufacturing firms have been able to boost their local substitution. However, we understand that the cost of securing locally sourced inputs (mainly agro-related) can sometimes be more expensive when compared with imported inputs, largely due to tensions in food producing regions as well as smuggling.

Click here to view the full report.