This week, we spotlight the November edition of the CBN Purchasing Manager’s Index (PMI) report and Nigeria’s Q3:2024 Merchandise trade statistics published by the NBS.
Starting with the former, Nigeria’s composite PMI – an indicator measure of the general health condition of the macroeconomic environment – contracted for the second month in a row (cumulatively, eight times YTD), as the PMI score for November settled at 48.9 points (Oct: 49.6 points), implying 1.2ppts shortfall from an expansion baseline point.
Across the three sectoral activities of the Nigerian economy, business activities were downbeat in the Industry and Services sectors, given their respective PMI scores of 49.3 and 47.4 points. Meanwhile, the Agriculture sector extended its expansion streak to the fourth consecutive month, as the segment’s PMI score came in at 51.0 points.
Further assessment of the sectoral PMI readings revealed that the contraction in the industry segment came on the back of underwhelming performance in New Orders (47.1 points), Employment Level (49.3 points), Raw Materials Purchase (49.1 points), and Services Delivery Time (49.1 points) sub-activities.
However, Industry Output sub-activity recorded expansion, evidenced by its sub-PMI score of 52.0 points. We infer from this reading that manufacturers were aggressive with offloading their finished product inventories to avoid incurring full cost loss (that is, they pushed to convert finished product inventories to receivables).
For the Services sector, we noticed downbeat performance across component activities – Output (47.4 points), New orders (46.8 points), Employment Level (48.0 points) and Raw material Purchase (47.6 points). We believe that this broad-based lacklustre performance reflects the negative knock-on effects of the unabating inflation and exchange rate shocks on both the demand and supply sides of the economy as well as other lingering structural challenges.
Conversely, all activities under the Agriculture sector – Output (51.4 points), New Orders (51.2 points), Employment level (50.6 points) and Raw material Purchase (51.0 points) – recorded expansion. Beyond the essential nature of agriculture outputs as basic necessity for all (which by default makes demand inelastic), we perceived that the sustained expansion in the sector (its fourth consecutive monthly expansion) may have also been due to the deliberate frontloading of food demand ahead of the yuletide season to avoid further negative price movement.
Overall, barring a strong rebound in the composite PMI reading in December, the successive contraction in October and November could snowball into a lower-than-expected GDP expansion in Q4:2024 (Afrinvest projection: 3.9%), all things being equal.
Shifting gears, the Q3 Merchandise trade statistics from the NBS revealed that Nigeria’s total trade with the rest of the world grossed ₦99.3tn between January and September 2024 – the highest nominal value in a comparable period in history. Positively, Nigeria posted a nominal trade surplus of ₦15.1tn, as export earnings (₦57.2tn) outweighed import bills by 35.7% over the nine months.
Despite crude oil export earnings expanding 121.1% over the corresponding period in 2023, its share in total export earnings declined to a five-year low of 72.6%. The shift in the structural composition of the export earnings was jointly due to noticeable growth in the share of non-crude oil and non-oil exports to 16.6% and 10.9% from a 5-year average of 11.9% and 10.3%. We opine that this development is a good signal for Nigeria’s economic diversification objective if sustained.
In terms of trade performance across regions, Nigeria recorded a trade surplus over Africa (₦5.0tn), America (₦5.5tn), Europe (₦8.5tn) and Oceania (₦37.4bn). However, a deficit of ₦4.0tn was booked in trades with Asia. We believe that the marked trade surplus recorded against the highlighted four regions was underpinned by the Naira’s weak valuation, as Nigeria’s non-crude exports are now relatively cheaper in the global market (NGN has lost over 40.0% against USD YTD).
This development implies that a weaker Naira could deliver sizeable FX inflows to Nigeria via an expanded trade surplus (just as the Chinese Yuan is attracting global importers to China) if the size of raw and value-added non-oil exports can be scaled up dramatically.
Spain (11.1%), the US (8.3%), and France (7.8%) were Nigeria’s largest export destinations in Q3:2024, while China (24.4%), India (11.3%), and Belgium (11.1%) were the top three import sources. We estimate the nominal trade surplus to exceed ₦18.0tn by year-end, supported by the cheaper valuation of Nigeria’s non-crude oil exports from a foreign currency holder perspective.
Afrinvest
