The latest PMI report from the Central Bank of Nigeria indicates that the agricultural sector has continued to expand despite Nigeria’s Purchasing Manager Index dipping for the second consecutive month.
The report, released on Friday, showed that Nigeria’s composite PMI contracted for the second month in a row to settle at 48.9 points in November compared to 49.6 points in October, implying a 1.2 ppt shortfall.
PMI is used to gauge the direction of economic activities in Nigeria for a month. The survey conducted by the CBN covered 1,900 respondents who are companies purchasing and supply executives drawn from three sectors of the economy, namely industry, services, and agriculture.
The agriculture sector index at 51.0 points indicated expansion in activities in November 2024.
Output, new orders, employment, and stock of raw materials all grew at 51.4, 51.2, 50.6, and 51.0 index points, respectively, in the month under review.
Among the five subsectors surveyed, three recorded expansion while two contracted. The report revealed that crop production was the subsector with the highest expansion while fishing/fish farming recorded the highest contraction.
Business activities were muted in the industry and services sectors, given their respective PMI scores of 49.3 and 47.4 points.
Further assessment of the sectoral PMI readings revealed that the contraction in the industry segment came on the back of underwhelming performance in New Orders (47.1 points), Employment Level (49.3 points), Raw Materials Purchase (49.1 points), and Services Delivery Time (49.1 points) sub-activities. However, the Industry Output sub-activity recorded expansion, as seen in its sub-PMI score of 52.0 points.
Some analysts inferred from this reading that manufacturers were aggressive with offloading their finished product inventories to avoid incurring full cost loss (that is, they pushed to convert finished product inventories to receivables).
For the services sector, downbeat performance was recorded across component activities—output (47.4 points), new orders (46.8 points), employment level (48.0 points), and raw material purchase (47.6 points).
Analysts at Afrinvest, in their Weekly Update, stated, “We believe that this broad-based lacklustre performance reflects the negative knock-on effects of the unabating inflation and exchange rate shocks on both the demand and supply sides of the economy as well as other lingering structural challenges.”
On the expansion in the agricultural sectors, the market watchers said, “Beyond the essential nature of agricultural outputs as a basic necessity for all (which by default makes demand inelastic), we perceived that the sustained expansion in the sector (its fourth consecutive monthly expansion) may have also been due to the deliberate frontloading of food demand ahead of the yuletide season to avoid further negative price movement. Overall, barring a strong rebound in the composite PMI reading in December, the successive contraction in October and November could snowball into a lower-than-expected GDP expansion in Q4 2024 (Afrinvest projection: 3.9%), all things being equal.”
Analysts at Meristem Securities said that weak consumer demand, supply chain disruptions, and macroeconomic challenges drove the PMI contraction in Nigeria.
Looking ahead, the analysts said, “We expect near-term PMI figures to show improvement, supported by pent-up consumer demand associated with the festive season and increased economic activity during this period. However, structural challenges such as supply chain disruptions and macroeconomic pressures may temper the pace of recovery.”
