Nigeria’s manufacturing sector contracts, as key components shrink

The Central Bank of Nigeria (CBN) Purchasing Managers’ Index shows that Nigeria’s manufacturing sector slowed down in the month of September 2019.

According to the CBN report, the manufacturing sector Purchasing Managers’ Index (PMI) stood at 57.7 index points, as against 57.9 index points posted in the previous month.

Manufacturing Sector: According to the latest PMI report, the manufacturing sector grew at a slower rate, as major manufacturing sector’s components shrunk within the period. The slower growth recorded in the manufacturing sector was triggered by weaker quantity of purchases, export, production, employment and raw materials level.

  • The breakdown shows that new export orders declined the most by -0.9 points index. Other manufacturing sector indices that declined include production level which dropped by -0.2 point index, employment (-0.5 points) and raw materials declined by -0.6 index point.
  • Several businesses responsible for the drop in production level include cement, electrical equipment, food, beverage and tobacco products. All these businesses declined.
  • The employment level was also down and this emanated from the cement business, chemical and pharmaceutical products.
  • For raw materials, major declines were recorded in food, beverage and tobacco products, furniture products and non-metallic mineral products.

Non-Manufacturing PMI: The composite PMI for the nonmanufacturing sector also slowed as it stood at 58.0 points in September 2019, indicating slow expansion in the Non-manufacturing sector. The index grew at a slower rate when compared to its level in August 2019. Fourteen of the 17 surveyed subsectors recorded growth in the following order:

  • utilities;
  • information & communication;
  • wholesale/retail trade;
  • arts, entertainment & recreation;
  • transportation & warehousing;
  • agriculture;
  • repair, maintenance/washing of motor vehicles;
  • construction;
  • finance & insurance;
  • accommodation & food services;
  • educational services;
  • health care & social assistance;
  • real estate rental & leasing; and
  • electricity, gas, steam & air conditioning supply.

Few bright spots: One of the key indicators in determining whether a business is witnessing decline or not is the inventory. Companies make money when they sell products and services, and for those whose inventories pile up, it is a sign that sales will decline.

The rise in orders is evidently a sure sign that businesses are attracting the right customers and consequently recording growth.

While the manufacturing sector slowed, the CBN report shows that 2 sub sectors in the manufacturing sector recorded fast growth in ‘new orders’, and this implies improved business transactions. According to the report, the sectors include chemical and pharmaceutical products and non-metallic mineral products, while most products grew at a slower pace.

The implications: For the manufacturing sector, any reading above 50 is considered a good number as it signals a healthy expansion. Hence, the CBN PMI at 57.7 index points means the manufacturing sector is growing but at a slower pace.

  • Meanwhile, the slow down also suggests that businesses in the manufacturing sector witnessed a decline and this may dampen the outlook of the sector. Recall that in Q2 2019, the manufacturing sector suffered a -0.13% contraction, from 0.81% in the previous quarter.
  • One factor that may be responsible for the slow growth in the sector in Q2 is over-dependence on imported manufactured goods. For instance, between January to June 2019, Nigeria imported N5.2 trillion worth of imported goods. This further reinforces the concerns of manufacturers’ association on the need for Nigeria to tread cautiously in implementing the continental free trade agreement.
  • Hence, while the import of manufactured goods is rising, this may frustrate local manufacturers of similar goods, and eventually result in further contraction of Nigeria’s manufacturing sector.
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