Tag: inflation

  • Stanbic IBTC Bank Nigeria PMI dips to 17-month low in June

    Stanbic IBTC Bank Nigeria PMI dips to 17-month low in June

    The Nigerian private sector remained in growth territory at the end of the second quarter, although recent challenges around cash shortages led to weaker new order growth and a renewed decline in output. As a result, business conditions improved at the weakest rate for almost a-year-and-a-half. Companies responded by raising their staffing levels, purchases and stocks of inputs at softer rates in June.

    On the price front, steep cost pressures persisted with overall input price inflation quickening to a four-month high.

    The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

    At 50.9 in June, down from 53.9 in May, the headline PMI signaled a twenty-fourth successive monthly improvement in business conditions in Nigeria’s private sector. That said, the latest result was indicative of the weakest improvement for 17 months.

    Central to the moderation was a renewed contraction in output which fell for the first time in 19 months. Although marginal overall, the latest fall contrasted with sharp expansions in recent months. Firms overwhelmingly blamed weaker inflows of new work, but there were also mentions of cash shortages.

    Meanwhile, new orders rose for the twenty-fourth month in a row. The rate of growth was marginal and eased to the softest in this sequence, however, as elevated costs deterred some clients from placing orders.

    Turning to prices, overall input price inflation quickened from May, and was the fourth- steepest in the series’ history. Firms reported higher purchase costs (particularly for fuel and raw materials) and rising staff costs.

    Subsequently, and in line with weaker inflows of new work, purchasing activity rose at the weakest pace since January 2021. Stocks of purchases continued to rise sharply, however, and at a rate that was in line with the long-run series average.

    Staffing levels rose for the seventeenth month in succession during June amid efforts to boost output. That said, the rate of growth was modest with some firms engaging in restructuring efforts.

    Modest expansions in new business, paired with another uptick in headcounts led to a twenty-fifth successive reduction in backlogs. Shortages of some key parts resulted in the weakest decline in backlogs for 17 months.

    Finally, sentiment regarding output in the year ahead remained firmly in positive territory in June. Although, there were some signs that soaring inflation weighed slightly on hopes with the degree of optimism moderating from May.

  • Manufacturing Sector Struggling to Survive the Numerous Strangulating Fiscal and Monetary Policy Measures – Ajayi-Kadir

    Manufacturing Sector Struggling to Survive the Numerous Strangulating Fiscal and Monetary Policy Measures – Ajayi-Kadir

    The Director-General of the Manufacturing Association of Nigeria, Segun Ajayi-Kadir, mni, has called on the Central Bank of Nigeria to consider her stand regarding the Fiscal and Monetary Policy Measures and Reforms that have made survival difficult for the manufacturing sector. This was disclosed in a statement made available to News Wings NG.

    The entire statement of the DG is reproduced below

    THE PRELIMINARY POSITION OF MAN ON THE MAY 24, 2022 DECISION OF THE MONETARY POLICY COMMITTEE (MPC) OF THE CENTRAL BANK OF NIGERIA

    1.0 Preamble

    In response to the domestic economic conditions in Q1 2022 and other related challenges, especially those associated with the prevailing international financial and economic environment, the Monetary Policy Committee (MPC) recently reviewed its previous decisions. The Committee decided to deepen its contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 13.5% from 11.5%, which was fixed since September 2020.

    The key rationale for upscaling the MPR stems from the need to curb the rising rate of inflation that recently peaked at 16.8%, ensure relative stability, and sustain economic growth in the face of the high-level uncertainties in the global economy. The MPC however, retained the asymmetric corridor of +100/-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27.5% and Liquidity Ratio was also retained at 30%.

    2.0 Implications for the economy and manufacturing sector

    • This is another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding-out effect on the private sector businesses as firms have lesser access to funds in the credit market
    • It will spur an upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs Northward
    • Intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds
    • Lead to the rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products
    • Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses
    • Further reduce capacity utilization, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained
    • Reduce the pace of full recovery of the real sector, make manufacturing performance remain lackluster and of course, lead to leaner contribution to the GDP.

    3.0 The Position of MAN

    Clearly, the increase in MPR has widened the journey farther away from the preferred single-digit interest rate regime. It is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector. MAN, is therefore, concerned about the ripple effects of this decision and its implications for the manufacturing sector which is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms.

    Consequently, manufacturers are hopeful that the stringent conditionalities for accessing available development funding windows with the CBN will be relaxed to improve the flow of long-term loans to the manufacturing sector at single-digit interest rates. The expectation is that MPC will ensure that future adjustments of MPR take into consideration the trend of core inflation rather than basing decisions on the headline and food inflation. This will no doubt shield the sector from the backlashes from the 13.5% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.

  • Feature- As Ikeja Electric bill is now more than the Minimum Wage

    Feature- As Ikeja Electric bill is now more than the Minimum Wage

    By Abolade Ademola

    In Laaga community, located around Ewu-Elepe, a suburb of Ikorodu, residents have been made to pay an estimated bill that is more than the minimum wage of the entire country, Nigeria. The steady rise in the bill is very discomforting in a country where the rate of inflation keeps rising without a commensurate rise in income.

    The residents of a community with few pre-paid meters have been suffering in silence for some months now but it has become very unbearable with the bill sent for January 2022 in the last few days, a whopping sum of N23,000 (twenty-three thousand naira) only! It is such an exasperating amount that everyone is lamenting this outrageous amount that was sent.

    From findings, this rate is not just for Laaga community, the rate is also applicable to other adjoining communities. These include Mowo Kekere; Oke Eletu; Eleshin amongst others. This means it has become general exploitation to residents of Ikorodu most especially all those on Ijede road.

    Our rights as Electricity consumers in Nigeria have been trampled upon- new electricity connections are not done strictly based on metering before connection. The community is filled up with new customers that were connected to Ikeja Electric without a meter first being installed at the premises. As customers, we do not have an understanding of transparent electricity billing at the current rate. We are being overbilled unjustly and we are exercising our rights to contest any electricity bill.

    Between October and December 2021, the bill was hovering around N12,000 (twelve thousand naira) only and when the December bill was sent in January, it was N18,000 (Eighteen thousand naira) only and the January bill was N23,000. This progression is alarming, the residents feel slighted and offended at this daylight robbery.

    In January, after receiving the bill, residents went to the Omitoro undertaking office to complain and they were told that the hike was because of the electric consumption in December. Grudgingly, people accepted but that of January cannot be justified. In the last two weeks, residents of Laaga have been battling low voltage and disruption in the availability of electricity because of the malfunctioning transformer. How can the consumption be the same when we are not having light? That means the assumed estimated billing being done from the transformer is not being done and we are just being exploited.

    Historically, the old transformer was taken away but PHCN/Ikeja Electric workers and the community was left in darkness. It took the efforts of the community residents to purchase the currently malfunctioning transformer. All the electric poles and cables within the community were bought with communal efforts and people are still suffering from outrageous bills like this. 

    Asides from this, they provide security on their own, streetlights, grade their road network from time to time amongst others.

    Many of the residents of Laaga are civil servants and private sector people who leave their residents in the morning and return home late in the evening. It is evident in the way they troupe out and during the day. The Small and Medium Scale enterprises (MSMEs) in the neighbourhood have been grounded to a halt because they cannot power their businesses except the big ones who have generating sets. So, what we are made to pay has gone beyond the minimum wage of Nigeria and we are also not “heavy-users” of electricity like the industrial areas.

    The request from pre-paid meters is also accompanied by its own herculean tasks. Meters are now being paid for- a-one phase meter at about 70,000 (seventy thousand naira) only while a-three phase meter is about 120,000 (one hundred and twenty thousand naira) only excluding the possibility of bribing one’s way to fast-track purchase and installation.

    It is also rather unfortunate that Nigerians are made to still fill, KYC (Know Your Customer) form online and there is a time lag, which cannot be determined, on the period when mapping will be done and the metering will eventually be done.

    Silently and unfortunately, there has been an increase in electricity tariff in the last four months but it needs to be in tandem with the economic realities of the time. The rate was 23.30 before it was increased to 25.3 but the February bill is at 27.22. It is really a breach of contract as our rights to adequate information have been violated over and over. The suffering and smiling mode are already on the extreme and the residents of the community are ready to take the bull by the horn by disconnecting electricity and resolving to generators like it is being in some houses. In the last two weeks, when we have been on low voltage, we have survived and without electricity from Ikeja Electric, we will resolve to be Independent Power Generating Houses. 

    We would call on Ikeja Electric and the Nigerian Electricity Regulatory Commission to come to our aid so as not to discourage tax-paying Nigerians from being customers of the Power Holding Company of Nigeria (PHCN). Of what good will it do all these organizations if all people who provided electricity infrastructure for themselves are being deprived of it?

    We need our pre-paid meters now or Ikeja Electric should keep their low voltage while we become our Independent Power Generating Houses.

    Abolade Ademola is a Public Affairs Specialist and a resident of Laaga Community, via Ewu-Elepe, Ikorodu, Lagos, Nigeria.

  • Stanbic IBTC Bank Nigeria PMI®: Private sector activity continues to expand but intense cost pressures weigh on growth

    Stanbic IBTC Bank Nigeria PMI®: Private sector activity continues to expand but intense cost pressures weigh on growth

    Nigeria’s private sector concluded the third quarter of 2021 with a modest expansion in business conditions. Quicker uplifts were seen in new orders, employment, and stocks of purchases, but output growth moderated for the second month running. Nevertheless, optimism improved to a seven-month high. Material scarcity and unfavourable exchange rate movements exerted upward pressures on costs, however, leading to a record rate of purchase price inflation.

    Subsequently, this fed through to a steep rise in selling prices. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI®). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. The headline PMI registered at 52.3 in September, little[1]changed from 52.2 in August, and indicative of a fifteenth consecutive monthly expansion.

    Central to the improvement was a solid and accelerated rise in new orders, which panellists mostly linked to the securing of new clients. Contrary to the improvement in domestic sales, exports fell, and at the quickest rate since December amid persisting international COVID-19 restrictions. Nevertheless, to meet demand firms increased their output levels, but the pace of expansion was only modest and much softer than the rate of new order growth.

    Cash and material shortages reportedly hindered some firms’ ability to raise output. All four of the monitored sub-sectors recorded expansions, with manufacturers seeing the strongest uplift, followed by wholesale & retail, services and agriculture, respectively. Firms raised their buying activity sharply in September. Anecdotal evidence suggested efforts to mitigate against future supply and price shocks led to stockpiling.

    As a result, stocks of purchases rose at the fastest rate since October 2020. Meanwhile, vendor performance benefitted from quieter road conditions and advance payments.

    Furthermore, suppliers’ delivery times improved to the greatest extent since last December. Higher raw material and commodity costs as well as unfavourable naira-dollar exchange rate movements led to a substantial increase in input expenses. In fact, purchase costs rose at the quickest rate in nearly eight years of data collection. Firms were able to pass on part of the increase to clients however, with charge inflation the second-strongest in the series to date.

    Finally, after moderating in August, sentiment improved to a seven-month high amid plans to increase marketing, open more stores and broaden product offerings.

  • Feature: How MSMEs Can Help Curb Inflation in Nigeria

    Feature: How MSMEs Can Help Curb Inflation in Nigeria

    Inflation generally refers to a rapid increase in the general price of goods and services in the country over a certain period of time. Inflation in Nigeria has doubled since 2016 reaching 17.33% in 2021. The current COVID-19 pandemic has contributed immensely to the recent spike, as oil prices plunged thereby leading to reduced profits in export. These reduced exports have been met with increasing imports over the months leading to a kind of inflation known as imported inflation.

    Imported inflation is a kind of inflation induced by heavy dependence on imported products. When there are more imports than exports into the country, it simply means that the forex reserve is being depleted more quickly than it is being replenished; leading to a rise in the price of the dollar against the naira. The implication of this is that more Naira needs to be exchanged for the same quantity of products.

    Micro, Small, and Medium Enterprises (MSMEs) are at forefront of these kinds of exchanges due to the heavy import duties they pay. Unfortunately, they are also at the receiving end of its negative impact because when prices rise, their expense cost increases thereby eroding profits.

    As a result, Nigerian businesses have been left with no option other than to pass down the increases in marginal costs of production to their consumers in form of price hikes on durable and non-durable consumer goods. When prices rise, the purchasing power of naira reduces.

    The best way to cut down on this kind of inflation is to reduce excessive consumption of imported goods and look out for locally produced items that can be produced at a less exorbitant cost. However, MSMEs are also facing a number of problems like financing, technological deficiencies, marketing issues, increasing domestic and global competition… especially financing. In order to overcome these issues and compete with large and global enterprises, MSMEs need to adopt innovative approaches in their operations.

    In Nigeria, small businesses are the drivers of economic growth and financial development contributing over 50% of the total GDP. (PwC’s MSME survey 2020) Yet, obtaining business funding is a major problem they face. Access to credit facilities is essential to the growth and development of small and medium enterprises in newly emerging markets and developing countries. According to the National Bureau of Statistics (NBS), 55% to 68% of MSMEs are either not served or not adequately served by financial institutions. Barely 5% of SMEs have been able to get funding to meet their day-to-day obligations, much less, expansion.

    Innovative microfinance banks in Nigeria can help mitigate funding challenges for MSMEs. One model example is Advans La Fayette Microfinance Bank, a financial partner for businesses, armed with the resources and products to offer affordable business loans of up to 75m Naira for MSMEs who require adequate capital to restructure their business processes and beat the inflationary effect of imports within Nigeria and its neighbouring countries. The Advans Group is a leading international microfinance group, currently serving clients in 9 countries, and shareholders such as the IFC (World Bank), KfW, Advans SA.

    At Advans, efforts are driven towards financial inclusion, ensuring that no matter where you are and what you do, you have access to financial services. Working together with MSMEs to fight the ailing impact of inflation, and providing adequate financing needed to fund their business operations, thereby creating a win-win situation for the suppliers and final consumers.

    Together, we can make our economy better.

  • Stanbic IBTC Bank Nigeria PMI: Business conditions continue to improve amid stronger client demand

    Stanbic IBTC Bank Nigeria PMI: Business conditions continue to improve amid stronger client demand

    February data signalled another modest expansion in the Nigerian private sector, underpinned by solid growth in new orders and output. Companies continued to expand their purchasing activity and resumed hiring efforts during the month. Signs of spare capacity were again evident, with a fresh record reduction in backlogs registered.

    Meanwhile, unfavourable exchange rate movements, higher material costs and a rise in wages added to strong inflationary pressures with overall input prices increasing at a record pace.

    The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

    The headline PMI registered at 52.0 in February, up from 50.7 in January, indicative of a stronger improvement in overall business conditions. New order inflows rose sharply, with the pace of growth accelerating during the month.

    The improving demand environment supported growth in output which was solid and extended the period of expansion to three months. Despite the continuation of coronavirus disease 2019 (COVID-19) restrictions in foreign markets, exports rose during the month, with foreign demand for Nigerian goods and services showing signs of improvement.

    To support higher output volumes, companies added to their purchasing activity for the eighth month in succession. Consequently, firms raised their inventory holdings in anticipation of greater output in the months ahead. Vendor performance also improved, although the degree at which lead times shortened eased to the softest in nine months.

     Elsewhere, further signs of spare capacity were signalled, with backlogs falling at the most marked rate in the series. Nonetheless, firms added to their workforces, with employment rising marginally. The rate of overall input price inflation quickened to the strongest in the series, largely reflecting higher purchase costs. According to panelists, higher material costs and unfavourable exchange rate movements contributed to a sharp uptick.

    However, the stronger demand environment allowed firms to pass on higher prices, with charges rising substantially. Looking ahead, sentiment regarding output over the next 12 months reached a ten-month high as business expansion plans fueled positive expectations. That said, the degree of optimism remained below the long-run series average suggesting pandemic uncertainty weighed slightly on hopes for the future.