The Central Bank of Nigeria (CBN) has released the latest Purchasing Managers’ Index (PMI). The report covering August 2019 shows that Nigeria’s manufacturing sector has continued to expand for the twenty-ninth consecutive months.
According to the CBN’s report, 10 out of 14 businesses in the manufacturing sector recorded improved growth in August. While some businesses grew faster, others recorded slow growth.
Basic Highlights: The apex bank’s report tracked the activities in both the manufacturing and services sector. The index tracked new orders, business activity, production levels, supply delivery time, employment and supply delivery time.
Manufacturing PMI stood at 57.9 index points in August, from 57.6 points index recorded in the previous month. This means Nigeria’s manufacturing sector grew for the 29th consecutive months. Of the 14 sub-sectors surveyed, 13 reported growth in the reviewed month in the following order:
- petroleum & coal products;
- food, beverage & tobacco products;
- transportation equipment;
- printing & related support activities;
- chemical & pharmaceutical products;
- furniture & related; products;
- fabricated metal products;
- nonmetallic mineral products;
- electrical equipment;
- textile apparel;
- leather & footwear;
- plastics & rubber products; and
- Primary metal.
Meanwhile, the manufacturing paper products sub-sector recorded a decline in the period under review. Also, other components of manufacturing PMI such as production level, new orders, supplier delivery time, employment level and raw material inventories all grew at a faster rate in August 2019.
The non-manufacturing PMI equally expanded at a faster rate in August 2019. The composite PMI for the non-manufacturing sector rose to 58.8 points as against 58.7 points recorded in the previous month. Fourteen (14) of the Seventeen (17) surveyed sub-sectors recorded growth in the following order:
- repair, maintenance/washing of motor vehicles;
- transportation & warehousing;
- information & communication;
- wholesale/retail trade;
- electricity, gas steam & air conditioning supply;
- arts, entertainment & recreation;
- real estate rental & leasing;
- accommodation & food services;
- finance & insurance;
- health care & social assistance;
- scientific & technical services;
- agriculture; and
- educational services.
Top thriving businesses: One of the key indicators in determining whether a business is witnessing decline or not is the inventory. Companies make money when they sell products and services, and for those whose inventories pile up, it is a sign that sales will decline.
The rise in orders is evidently a sure sign that businesses are attracting the right customers and consequently recording growth.
Hence, the CBN’s report shows that 10 businesses in the manufacturing sector recorded an increase in new orders, which implies improved business transactions. Below are the businesses listed by the CBN.
Businesses thriving in Nigeria’s Manufacturing Sector
- Cement production
- Chemical & pharmaceutical products
- Fabricated metal products
- Food, beverage & tobacco products
- Furniture & related products
- Nonmetallic mineral products
- Plastics & rubber products
- Primary metal
- Printing & related support activities
- Textile, apparel, leather & footwear
Businesses declining or with no change
- Petroleum & coal products
- Paper products
- Primary metal
- Electrical equipment
Understanding PMI: The PMI is very closely watched, as it shows the investor sentiment in an economy’s manufacturing sector. In terms of composition, PMI is a sentimental tracking index.
One of the reasons why PMI is one of the most followed economic indicators is because of its strong correlation with GDP while being one of the first economic indicators to be released monthly.
For the manufacturing sector, any reading above 50 is considered a good number as it signals a healthy expansion.
What the rising PMI means: The PMI for the manufacturing sector has continued to maintain a rise for over two years, and this means the sector has maintained its expansionary trend. This may translate to growing the economy.
- It should be noted that rising PMI does not necessarily mean positive growth in the manufacturing sector.
- For instance, in the third quarter of 2018, despite the rise in PMI, data showed the sector recorded a negative growth rate of 0.11%. Also, the sector grew very slowly in Q1 2019.
- Meanwhile, the slow growth recorded in the sector in Q1 2019 may be traceable to low investment.