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Business outlook brightens ahead Christmas holidays - BUSINESSDAY

DECEMBER 05, 2018

Nigerian businesses are showing more optimism on the macro economy in December as the confidence index (outlook) rose to 65.6 points from 64.4 index points in the previous month. The analysis of business expansion plans by sector for December, showed that the services sector indicates greater disposition for expansion with an index of 32.1 followed by wholesale/retail trade and industrial sectors with 18.8 and 8.2 index points, respectively. 

The Central Bank of Nigeria (CBN) on Tuesday, released its business expectation survey, which showed that respondents’ overall confidence index (CI) on the macro economy in November 2018 was more optimistic at 25.9 point, when compared to its level of 23.2 index points recorded in October 2018. The optimism on the macro economy in November was driven by the opinion of respondents from services (14.9 points), industrial (7.8 points), wholesale/retail trade (2.6 points) and construction (0.5 points) sectors, whereas the drivers of the optimism for next month were services (37.0 points), industrial (19.2 points), wholesale/retail trade (6.6 points) and construction (2.8 points) sectors. 

The positive outlook by type of business in November 2018 was driven by businesses that are neither import- nor export-oriented (18.9 points), import-
oriented (4.5 points), both import- and export-oriented (1.8 points) and those that are export- related (0.7 points). However, the surveyed firms identified insufficient power supply (64.7 points), high interest rate (57.9 points), unfavourable economic climate (55.1 points), financial problems (51.2 points), unclear economic laws (51.0 points), unfavourable political climate (48.6 points), access to credit (41.3 points) and insufficient demand (41.2 points) as the major factors constraining business activity in the current month.

 “In light of the current developments in both the global and domestic economies, and based on extensive simulations, the CBN is of the view that the short-term outlook of the Nigerian economy remains good,” Godwin Emefiele, governor of the CBN said. In terms of inflation rate, respondent firms expect inflation rate to rise in both the current and next months, with confidence indices of 7.0 and 3.4 points for the current and next months, respectively. Similarly, respondent firms expect borrowing rates to rise in both the current month and next month as the confidence indices stood at 5.8 and 2.2 points, respectively. The CBN projects inflation rate to rise slightly to about 11.4 percent the rest of 2018 and towards mid-2019 and then moderate thereafter. Meanwhile, Nigeria’s manufacturing sector sustained growth as the Purchasing Managers’ Index (PMI) in November. “The headline PMI reading rose from 56.5 to 58.9 in November. 

This is the second highest reading recorded this year. We attribute this increase to a pick-up in demand on the back of the forthcoming end-year festivities. All five sub-indices rose considerably. A particularly sharp increase was recorded in the output sub-index,” FBN Quest analysts led by Gregory Kronsten said in a December 3 note. A PMI is a simple exercise. A selection of companies are asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. In Q4 there is generally a short-lived boost in demand due to preparations for end-year activities. 

We also note that the resumption of the dry season has had a positive effect on the headline reading as weather conditions cease to weigh heavy on logistics. Manufacturers continue to struggle with access to affordable credit as banks maintain a cautious approach towards lending to the private sector, to avoid growing non-performing loans. According to the National Bureau of Statistics (NBS), non-performing loans as at Q3 2018 stood at N2.2trn, which accounts for about 14 percent of total loans. Data from the same source show that in Q3 2018 loans extended by banks to the private sector rose by 2 percent to N15.6trn. The second largest recipient of loans was the manufacturing sector, which accounted for 13.8 percent of the total.

Hope Moses-Ashike

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