Nigeria’s private sector continued to expand in May, marking the sixth consecutive month of growth in business conditions even as businesses grapple with elevated inflationary pressures and, for the first time in six months, a dip in employment.
This was indicated in the latest Stanbic IBTC Purchasing Managers’ Index released on Monday. The PMI, which is a key indicator of the private sector’s health, registered 52.7 in May. While remaining above the 50.0 no-change mark that signals improvement, this figure is down from 54.2 in April. This indicates a solid strengthening of business conditions over the month, but it was the least marked improvement since January.
The decline in the overall growth was evident in both output and new orders, which saw their slowest rates of increase in four months. Despite this slowdown, businesses reported improved customer demand, higher client numbers, and successful new product launches as drivers for the continued expansion. A growth in output was recorded across all four broad sectors covered by the report, with the wholesale, retail, and manufacturing sectors experiencing the sharpest increases.
Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, commenting on the report, said that business conditions remain in the expansionary territory due to continued improvement in customer demand and new product launches. However, he also noted that the pace of improvement slowed relative to April, and some firms suggested that market conditions are softening.
“Business conditions remain in the expansionary territory for the sixth consecutive month in May amid continued improvement in customer demand, which is also ensuring businesses launch new products. However, the pace of improvement in business conditions slowed relative to April, pointing to the least marked improvement since January. While new orders have now increased each month since November 2024, some firms implied that market conditions are softening. Hence, the pace of improvement in new orders during May eased to the weakest level in four months,” Oni said.
A significant challenge highlighted in the report is the persistence of elevated inflationary pressures. Purchase costs saw a rapid increase in May. This surge was driven by higher raw material prices, currency weakness, and increased transportation costs. While input costs eased slightly compared to April, the pace of price increases remained significantly above the series average. Staff costs also rose, though at a slower rate than seen since March 2023. As a direct consequence of these rising costs, companies maintained sharp output prices, passing on the increased purchase costs to their customers.
However, the report noted that the pace of output price inflation eased to a two-year low in May, with some firms indicating that they charged lower prices specifically to attract customers.
Adding to the mixed picture, employment fell in May for the first time in six months. This decrease in workforce numbers was attributed by some firms to difficulties in paying staff, which subsequently led to resignations. The reduction in employment did, however, contribute to limiting the rise in wage bills. The combination of staff shortages and delays in payments from customers also contributed to operational challenges. Respondents indicated that delays in payments from customers were the main factor holding up the completion of projects.
This resulted in a second successive rise in backlogs of work, marking the sharpest increase in outstanding business since February 2023. Despite the challenges posed by rising costs and a dip in employment, companies continued to demonstrate a degree of optimism and strategic activity. Firms expanded their purchasing activity at a rapid pace, indicating a need to meet both current and future client requirements.
This led to a rise in stocks of purchases, which increased at the fastest pace in three months. Competition among suppliers and prompt payments from companies resulted in a further shortening of suppliers’ delivery times.
However, overall business confidence weakened for the fourth consecutive month in May and was among the lowest on record. Nevertheless, companies remained optimistic that output would expand over the coming year. This positive sentiment was linked to planned business expansion, marketing efforts, and restocking activities.
Oni added that Nigeria’s business condition is on course to end the second quarter on a positive momentum, “albeit relatively weaker than witnessed in Q1:25. This is as currency weakness, higher raw material costs, and increased transport prices have been more pronounced than seen in Q1:25. However, as inflation is expected to remain softer compared to the 2024 average, interest rates are likely to be lower this year, thereby helping to support the medium-term economic growth path.”
He maintained optimism that the Nigerian economy is likely to grow by 3.5 per cent year-on-year in real terms in 2025 relative to the 3.4 per centr-on-year growth in 2024.
