Record fall in employment as activity continues to decline in Nigeria

LAGOS, Nigeria – The Nigerian private sector has remained in decline at the end of the second quarter of the year, with the coronavirus disease 2019 (COVID-19) and associated restrictions to prevent its spread continuing to impact operations.

That said, a loosening of the lockdown led to softer declines in output and new orders. On the other hand, difficulties in paying staff led to a record fall in employment, while business confidence was the lowest in the survey so far. Firms also had to contend with a substantial increase in purchase costs, which resulted in a near-record rise in selling prices.

The headline figure derived from the survey is the Purchasing Managers’ Index (PMI), a property of Stanbic IBTC Bank PLC. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

The headline PMI rose to 46.4 in June, up from 40.7 in May to signal a softer deterioration in business conditions in the private sector. That said, operating conditions have now worsened in three consecutive months.

Both output and new orders continued to fall, albeit at reduced rates. Restrictions to prevent the spread of COVID-19, a lack of customers and insufficient funds to commit to new orders were all mentioned by respondents. New export orders also fell, and to a greater extent than total new business.

Difficulties in paying staff led to a third successive fall in employment. Moreover, the rate of job cuts was the fastest since the survey began in January 2014. A combination of pay cuts and job losses resulted in a decline in staff costs, also the sharpest on record.

In contrast to falling staff costs, purchase prices continued to increase substantially, with the rate of inflation hitting a new record for the third month running. Raw material shortages and currency weakness were reportedly behind the latest rise in purchase prices.

The strong increase in purchase costs fed through to a steep rise in selling prices, with the rate of inflation little- changed from the record posted in May.

The prospect of further price rises led some firms to purchase inputs in June to guard against this.  Both input buying  and  stocks  of  purchases  decreased only marginally. Meanwhile, suppliers’ delivery times shortened to the greatest extent in three months amid competitive pressures and a lack of capacity pressure at vendors.

The impact of COVID-19 led to a marked drop in confidence regarding the 12-month outlook for business activity. In fact, sentiment was the lowest in the survey’s six-and-a-half year history.

Commenting on the development, Gbolahan Taiwo, Economist at Stanbic IBTC Bank  said business activities in the Nigerian private sector remained firmly in contraction territory in June although the easing of containment measures have ensured activities continue to pickup month-on-month.

“The June PMI reading rose to 46.4 in June from 40.7 in May as output and new orders improved markedly. With Covid-19 incidences in Nigeria still largely on the rise, proving that community transmission is in full effect, were main cautious above the level of improvement expected over the remainder of the year.

In all likelihood, a major part of the services sector will not recover, say to their pre-Covid levels, perhaps until a vaccine is found. We believe the FX liquidity shortages in the country with increasing backlog of demand will likely continue to dampen the level of economic recovery erstwhile expected. More concerning is the employment sub-index which fell to its lowest on record in June at 47.1 as businesses continue to struggle to maintain wages during this economics lowdown.

Official unemployment numbers haven’t been published since Q3:18 which was at 23.1%.This statistic undoubtedly has worsened since the turn of the year and could in turn impact aggregate demand meaningfully, leading to lower output.”