Rising prices amid declining household incomes in August weighed heavily on economic activity in Nigeria’s manufacturing sector.
Nigeria’s purchasing managers’ index (PMI), a measure of industrial sentiment, eased to 52.3 in August 2022 from 53.2 in July, indicating further improvement in business conditions but showing weaker growth than the average for long-term streak, according to the StanbicIBTC bank PMI report for August.
“Production by Nigerian companies in the private sector increased in August for the second month in a row, although the pace of growth slowed slightly compared to July,” the report said.
The PMI report noted that firms reported that rising demand supported output growth, but the pace of expansion was weaker than the long-term series average.
“Data by subsectors shows that agricultural firms recorded the largest expansion, followed by wholesale and retail trade and services. However, producers recorded a decline in activity.”
The report also said that inflationary pressures witnessed their highest surge in August 2022 compared to previous records since November 2021.
Africa’s largest economy is facing its highest rate of inflation since October 2005, with households taking the biggest hit to their incomes.
Food inflation is at a 14-month high, hitting 22.02 percent in July, while headline inflation accelerated to 19.64, a 17-year high.
The report attributed the escalation in prices of goods and services in Nigeria during the month under review to “adverse exchange rate movements and higher commodity prices” as about 61 percent of firms recorded an increase in procurement costs while 38 percent left them unchanged. .
Fuel prices have soared since Russia invaded Ukraine in February, raising costs for firms in Nigeria, where businesses rely on diesel generators for power amid an erratic power grid.
The price of diesel fuel has soared by almost 178 percent since the beginning of the year to N800 per liter from N288 in January, forcing some firms to restructure their working hours and others to stop operations altogether.
In accordance with Manufacturers Association of Nigeria (MAN), the cost of energy accounts for 40 percent of the operating costs of plants.
“Should manufacturing companies, already suffering from multiple taxes, poor access to foreign exchange and now more than 200 percent increase in diesel price, be advised to shut down?” asked Segun Adjai-Kadir, CEO of MAN, in a July press statement.
“Should we fold our hands and let the economy slide back into recession? Is the nation well-equipped to deal with explosive inflation and unemployment?” He asked again.
The August PMI report also said that higher commodity and transportation costs for businesses put upward pressure on shopping spending.
BusinessDay’s analysis of the H1 2022 financial report of five FMCG companies listed on the Nigerian Exchange Limited (NGX), including Unilever Nigeria plc, Nestle Nigeria plc, Cadbury Nigeria plc, NASCON Allied Industries plc and Dangote Sugar Refinery plc, revealed that that the amount spent by companies on transportation costs rose to 43.19 billion news items in 2022 from 33.79 billion news items, an increase of 27 percent.
“The overall rate of resource price inflation was the second fastest in the history of the survey, ahead of only November 2021,” the report said.