Nigeria’s PMI declines sharply in January

The FBNQuest Manufacturing Purchasing Managers' Index (PMI) for Nigeria witnessed a sharp decline to 44.5 index points in January from 55 points in December. The report highlighted that this decline is a recurring seasonal trend typically observed in January. Chinwe Egwim, an Economist at FBNQuest Merchant Bank, shared insights on the implications of this decline and the challenges faced by the manufacturing sector in a recent interview with CNBC Africa. Egwin pointed out that the January PMI reading marked the third consecutive year of double-digit declines, with the recent years showing a trend of larger drops amidst economic stagnation. She attributed the downturn to the end of the holiday season, leading to subdued consumer demand and the impact of the COVID-19 pandemic variants, prompting a return to remote work arrangements for many companies. All five sub-indices in the PMI were below the 50 mark in January, indicating contraction in manufacturing activities. Discussing the trends observed in the PMI report, Egwin highlighted that the beginning of the year typically sees a dip in demand and supply dynamics, further exacerbated by the pandemic's adverse effects. Responses from surveyed businesses pointed to challenges such as delayed business resumptions, high costs of raw materials, limited market opportunities, and constrained access to affordable credit for local manufacturers. Regarding foreign exchange access and raw material sourcing, Egwin noted that liquidity and pricing issues continue to pose challenges for manufacturers. The accessibility of forex has been constrained since the onset of the COVID-19 pandemic, forcing import-dependent manufacturers to navigate the parallel market for their currency needs. While some local manufacturers find forex in the parallel market, the efficiency and transaction volumes are inadequate to cover their dollar-denominated expenses, leading to concerns about higher production costs and competitive pricing. The resurgence of COVID-19 with new variants has further complicated business operations for manufacturers, prompting a return to remote work setups and raising concerns about potential lockdowns that could dampen economic activities. Egwin cautioned about the potential impact of renewed restrictions on the sector's performance. Looking ahead to February, Egwin expressed a modest expectation of a slight improvement from the January PMI reading, with the hope of a marginal uptick from the recorded 44.5 index points. However, she emphasized the uncertainty surrounding the economic outlook, given the challenges facing the sector and the broader economy. As Nigeria aims to navigate its economic recovery following a recession, Egwin suggested that the manufacturing sector might face contraction in the first quarter of the year. With expectations of modest growth or a possible downturn in the sector's performance, the upcoming economic data releases are anticipated to provide further insights into Nigeria's economic trajectory amidst ongoing challenges.