Nigeria’s Feb manufacturing PMI slips to 51.7, what’s reason behind the decline?

Nigeria's manufacturing Purchasing Managers' Index (PMI) for February declined to 51.7 from 53.6 in January, raising concerns about the state of the country's manufacturing sector. Chinwe Egwim, Economist at FBNQuest Merchant Bank, highlighted several key factors influencing the decline in the PMI. Typically, January and February are slow months for manufacturing due to narrow liquidity, resulting in soft demand. The headline inflation has also been high in recent months, partly due to the land border closure and the impact of the VAT rate increase, putting pressure on consumer pockets. This has led to relatively low consumer confidence in the market. On the supply side, manufacturers cited raw material costs and power supply shortages as primary reasons for reduced production. The electricity shortage in mid-February was particularly severe, impacting manufacturing operations. Looking ahead, Egwim expects minimal growth in the manufacturing sector for Q1, similar to the performance in Q4 2019. The global impact of the coronavirus outbreak is also a concern for Nigeria's manufacturing businesses. With heavy equipment and imported inputs sourced from China, any slowdown in the Chinese economy could affect the sector. Furthermore, the recent S&P downgrade of Nigeria's outlook could impact investor perception and the country's ability to issue euro bonds. Nigeria's declining official reserves and the exit of foreign portfolio investors have contributed to the downgrade, adding to the country's vulnerability to falling oil prices. The authorities had previously set crisis thresholds for reserves and oil prices, which are currently above the recommended levels, signaling a challenging economic environment for Nigeria. Overall, Nigeria's manufacturing sector faces multiple challenges including low demand, high inflation, power supply constraints, and global economic uncertainties. The government will need to address these issues to support the sector's growth and attract investment. With ongoing concerns about the impact of the coronavirus and the country's economic outlook, stakeholders in the manufacturing industry will need to remain vigilant and responsive to changing market conditions.