Business sentiment for Nigeria fell to 58.8 in January, after reaching a series-high of 69.6 in December. All five components that make up the headline BSI fell in January, reflecting challenging conditions.
However, 21 out of the total 31 indicators remain above the key 50 level denoting ‘expansion’
Razia Khan, managing director, head, Africa Macro Global Research, standard Chartered Bank, London said, although oil contributes only 14.4 per cent of Nigeria’s rebased GDP, the slide in oil prices has likely significantly weakened Nigerian business sentiment and, most likely, growth.
The Standard Chartered-MNI Business Sentiment Indicator (BSI) fell sharply in January to 58.8, after having touched a series-high of 69.6 in December. The BSI is now at its second-lowest level since the survey began in March 2014.
Given the sharp falls across a number of categories, the sustainability of the BSI above the key 50 level, which typically correlates with an expansion in economic growth, is uncertain. Nigeria’s official growth forecast stands at 5.5 per cent for 2015, but is likely to be revised down if weak oil prices persist.
“Our own forecast is 4.7 per cent, although elections, still scheduled to begin on 14 February, are a source of uncertainty and may contribute to further downside risks”, said Khan.
Nonetheless, growth is slowing. The 3-month average of the BSI decelerated to 64.1 in January, from 66.7 in December. However, even given more difficult external conditions, some level of corporate optimism persists. 21 out of the total 31 indicators remain above the key 50 level that separates expansion from contraction.

Overall business conditions remained strong
While overall business conditions remained strong, current conditions weakened sharply in January. For now, she said they are not reading too much into this, as future expectations are still holding up. The current conditions print of 71.7, far above the 50 level, was still consistent with strong economic growth.
Production fell dramatically
Current conditions fell sharply to 69.3 in January, from an elevated 82.1 in December. Expectations were off their earlier highs – above 90 – but at 78.3, future expectations for production continued to hold up at a high level.

A more subdued January
January was a more subdued month, with new orders falling to 65.4. Future expectations were down from the series-high of 91.9 in November, but held up at a strong level. Conditions in the domestic economy appear sufficiently robust to compensate for some of the external weakness Nigeria is facing. This external weakness may persist if a prolonged period of weaker oil prices starts to impact government spending more severely.
Below are sentiments concerning some selected sectors

Export orders were below 50, in contractionary territory
Current conditions export orders fell sharply in January to 46.7, in contractionary territory below 50, from 70.7 prior. This is a new series-low.

Productive capacity remained strong
While future expectations were down from the series-high of 86.6 reached in November, productive capacity held up at a strong level in January.

NGN continued to languish at low levels
Most companies reported that the NGN exchange rate level was hurting their business, which did not come as a surprise to us. Current conditions in January were not significantly different from the series-low seen in April.
Employment fell into contractionary territory
Current conditions for employment slipped below the key 50 level in January. Given Nigeria’s demographic challenges, this will concern policymakers. We expect further measures aimed at supporting sectors that are likely to boost employment, most probably through the extension of
subsidised bank credit.
Interest rates paid fell into contractionary territory
Despite Nigeria’s monetary policy tightening in November to defend the exchange rate, companies – interestingly – reported lower interest rates paid. Current conditions fell below 50 in January, suggesting that the majority of companies reported lower interest rates paid. This was a new series-low, and provides useful insight into how tight actual monetary conditions in Nigeria are.