Inflation Strains Business Operations in November, PMI Shows Continued Decline

Nigeria’s business environment continued to face challenges in November 2024, as inflationary pressures continued to stifle operations. The Purchasing Managers’ Index (PMI), which tracks the operating conditions of businesses, remains firmly below the 50.0 threshold, signaling a continued deterioration in the business landscape.

What is PMI and Why Does it Matter? 🏢

The PMI is a key indicator that reflects the health of the business sector. A PMI reading above 50.0 indicates business expansion, while anything below 50.0 signals contraction or stagnation. Unfortunately, the PMI for November 2024 stood at 49.6, a marginal improvement from October’s 46.9. Despite this slight recovery, the PMI still suggests declining business conditions in the private sector.

Key Factors Affecting Business Operations 🏚️

According to the latest Stanbic IBTC PMI report, the main factors impacting Nigeria’s business operations are rising prices of goods and high unemployment rates, which have dampened growth in several sectors. The report states:

• Employment levels declined, and businesses continued to cut back on purchasing due to increased price pressures.
• The report also highlights a persistent reduction in business activity, marking the fifth consecutive month of decline, although the magnitude of deterioration was less severe compared to previous months.
• The return of new orders in November was a positive sign, reflecting modest growth, though demand remained muted due to high prices deterring customers.

Sectors Affected by Inflation 🏭

While some sectors saw slight improvements, the overall business climate remained difficult:

• Agriculture and manufacturing reported a growth in output, reflecting some positive movement.
• On the other hand, the wholesale and retail sectors, along with services, continued to experience declines, with business activity dropping across these areas.

Inflation’s Broader Impact on Nigeria’s Economy 💸

Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, commented on the report, noting that inflationary pressures, along with high energy costs, rising raw material prices, and the weakness of the naira, are contributing to continued price increases. These factors have weighed heavily on the private sector, causing a marginal reduction in business activity.

While new orders showed some growth in November, Oni emphasized that high costs remained a barrier to demand, keeping businesses cautious about investing and expanding operations.

Moving Forward: The Need for Economic Reforms 🚀

The November PMI report highlights a critical need for economic reforms to address persistent inflationary pressures and to stimulate demand in the market. While slight signs of recovery are visible, sustained efforts to manage rising costs and improve market liquidity will be crucial for Nigeria’s business environment in the coming months.