North trend for business confidence

The latest data from the CBN in its Business Expectation Survey report for February 2018 show the business confidence index at 14.5 points (indicating respondents’ overall optimism on the macro economy). The survey had a sample size of 472 businesses covering services, industry, wholesale/retail trade and construction. A response rate of 77.5% was achieved.

The business climate is largely linked to a country’s macroeconomic environment; there is now a more stable macroeconomic outlook and, by extension, an uptick in business confidence.

  • The optimism in February was driven by the opinion of respondents from the services (7.7 points) and industrial (6.6 points) sectors while respondents from the construction sector represented just 0.3 points of the total confidence index.
  • For the latter, this is not surprising as business confidence for the sector is primarily tied to capital releases from the national budget (particularly for projects within the ministry of power, housing and works). Historically, budget passage has been slow.
  • Access to credit stuck out as one of the major issues for businesses being surveyed. Lending rates remain high (above 20%) from commercial banks, making it difficult for businesses to expand their operations. We understand that access to credit for funds within the N500m – N1bn range accounts for only 15% of total lending by Nigerian banks. SMEs fall within this category.
  • The outlook for the employment sub-index showed that the wholesale / retail sector carries the highest prospects for job creation at 25.0 points while services had 22.8 points. Drawing a parallel with our manufacturing Purchasing Managers Index, the employment sub-index for March showed expansion at 56.5, therefore mirroring the same trend.
  • Insufficient power supply was cited as the major constraining factor on business activities, along with soft demand. As for inflation, the general expectation is for a slowdown in the headline rate for March. This is similar to our thinking. We expect the rate to slow to 13.5% y/y, from 14.3% in February.
  • The survey also captured outlook for business confidence in March. Based on data from respondents, the business confidence index is projected at 57.8 points. The positive outlook was driven largely by export-oriented businesses.
  • Our view is that business confidence will maintain an upward trend. As for consumption trends, we see a positive trend but at a relatively slower pace as consumers remain cautious with their spending.

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