The Nigerian Employers’ Consultative Association (NECA) and Lagos Chamber of Commerce and Industry (LCCI) have reacted to the continued contraction of Manufacturing Purchasing Index (MPI), calling for focus on the sectors that have repeatedly recorded contraction in order to stimulate growth.
The Central Bank of Nigeria (CBN) had last Tuesday released the October PMI report showing a contraction for the 6th consecutive month, as it stood at 49.4 index points.
The report states that despite the fact that the PMI for the month of October contracted, the PMI recorded a month-on-month increase owing to improved new orders, faster manufacturing supplier delivery time, and slight changes in production and employment levels.
PMI is a measure of the prevailing direction of economic trends in manufacturing. It is based on a monthly survey of supply chain managers across 19 industries, covering both upstream and downstream activity.
The value and movements in the PMI and its components can provide useful insight to business decision makers, market analysts, and investors, and is a leading indicator of overall economic activity in Nigeria and other parts of the world.
Reacting to the report, Director-General of NECA, Dr.Timothy Olawale ,said “The Manufacturing Purchasing Managers Index (PMI) for October, 2020 stood at 49.4 index points, indicating a slow contraction but improved better when compared with the last five months: 46.9 (Sept), 48.9 (Aug), 44.9 (July), 41.1 (June), 42.4 (May).”
According to him, the slowdown was noted across eight of the 14 surveyed subsectors and was attributed to continued decline in employment level and raw material inventories.
Subsectors that experienced real growth includes: cement, chemical & pharmaceuticals, electrical equipment, printing & related support activities, textile, apparel, leather & footwear and transportation equipment.
The non-manufacturing PMI contracted for the 6th consecutively month, stood at 46.8 points. Of all the 17 sub-sectors surveyed, only three subsectors reported growth (arts, entertainment & recreation; electricity, gas, steam & air conditioning supply and healthcare & social assistance).
Other subsectors either witnessed stationary or declining direction. This was attributed to continued decline in business activity, new orders, non-manufacturing inventory and employment.
Firms should be prepared to shift their supply chains and adjust to the new business environment. For instance, as remote working becomes the new normal, the increased demand for computing infrastructure is an opportunity firms can seize.
Increased production activities would translate to increase in employment level as supplier delivery time have improved faster due to the opening of the whole economy.
Much attention should be targeted at sectors that have repeatedly experienced contraction in order to stimulate aggregate growth in the economy. The following subsectors should be given adequately attention- Construction; Management companies; Utilities; Real Estate, rental & leasing; Professional, scientific & technical services and Educational services.
The Director-General of LCCI , Dr. Muda Yusuf said “the contraction is only a reflection of the challenges of production in our environment. Of course there was the added issue of COVID 19 and the consequential shocks on the economy and manufacturing. And now we had the Endsars phenomenon and the attendant disruptions to business.
There are also structural issues of high energy cost, high logistics costs, and weak purchasing power, depreciating exchange rate and liquidity problems in the forex market.”
These issues are fundamental and until we fix them, at least substantially, the manufacturing sector would continue to stumble.
