Nigeria’s Purchasing Index Hits Record Low On Dollar Supply, Power Worries

The country’s Purchasing Managers’ Index (PMI) has weakened to a record low of 45.5 in the month of February from the 47.2 in January for manufacturing sector.
The index equally slowed to 44.3 in February, down from 46.9 I. January for the non-manufacturing sector.
Analysts attributed the reaSon to the fact that manufacturers now have little access to power and dollar to import raw materials.
“The Central Bank of Nigeria (CBN), last week, released its Purchasing Managers’ Index (PMI) Report for February, 2016. The report captures the PMI for both the manufacturing and non-manufacturing sectors. Both sector PMIs dropped sharply to 45.5 (previously 47.2) and 44.3 (previously 46.9) respectively, for the second consecutive month”, said analysts at Cordros Capital.
They said, it is worthy of note that the below 50 PMI results recorded year-to-date suggest that economic activities have generally slowed down since December 2015 (where 51.2 and 53.4 manufacturing and non-manufacturing PMIs were recorded). 
“This, in our view, is a pointer to a slower Gross Domestic Product (GDP) growth in the first quarter of this year. It is also in line with the view already hinted by the Monetary Policy Committee (MPC) at the January 2016 meeting that  — “growth in the first quarter of 2016 is expected to be less robust than in the corresponding period of 2015 ( first quarter GDP of 3.96 per cent)” — and therefore adds to pressure on the Committee to provide further decisive policy support at this month’s meeting”, they said.
The 45.5 manufacturing PMI in February is at a record low level (since the CBN commenced the survey in January 2015). All the sector’s five diffusion indices — save the supplier delivery time index which improved — declined. 
“This, in our view, underscores the heightened challenges faced by manufacturers in accessing forex for their operations and the significant drop in electricity power generation and supply in the month of February”said Cordros Capital.
With regards access to the dollar to fund raw materials and other input requirements, we note particularly, the feedback from our enquiries with leading FMCG companies on the Nigerian Stock Exchange, wherein the generally held view, is that dollar supply from the CBN has fallen to below 50 per cent of their operational requirements. 
Reports show that more than 70 per cent of the manufacturing sector is severely affected by the ongoing Dollar shortage in the economy. Worthy of note also, is the adverse effect which we believe the depreciation of the Naira value to a record low level (N400/$) in the month of February must have had on manufacturing activities. In addition, on the backdrop of forex supply challenges and the impact on manufacturers, Cordros Capital notes that the recent reports by Clover, — a beverage producing company — announcing management decision to suspend future investments in Nigeria and Reuters, alleging plans by BUA Group – one of Nigeria’s largest sugar refiners by installed capacity – to temporarily shut down its sugar refining operation.
On power, the Nigerian Electricity Regulatory Commission (NERC) hinted in a press statement released on Monday last week that power supply through the national grid reduced from over 5,000mw attained early February to less than 2,800mw at the end of the month. The factor responsible — gas supply shortage to generating companies following attacks on pipelines — is the power sector’s age-long Achilles heel.
The composite PMI for the non-manufacturing sector eased to 44.3 in the review month — also a record low level (since the CBN commenced the survey in January 2015). All the sector’s four diffusion indices declined during the period, while compared to the manufacturing sector, a higher number of the non-manufacturing sector components recorded improved activities”, said Cordros Capital.

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