FX stability, key driver of manufacturing growth- Analysts

…As PMI closes at 56.8point, improves for 19th consecutive month
Following the closure of the Manufacturing Purchasing Managers’ Index (PMI) in October at 56.8 index points from 56.2 index points in September, finance analysts have said that the continued FX stability and availability remain the critical driver of business health across the Manufacturing and Non-manufacturing space.

The PMI of the Central Bank of Nigeria (CBN) in October stood at 56.8 index points, indicating expansion in the manufacturing for the 19th consecutive month.

The PMI latest report showed that sector production level, new orders, supplier delivery time and inventories grew at a faster rate, while the employment level grew at a slower rate during the month under review.

The CBN had reported 56.2 index points in September as against 57.1 Index points recorded in August, compared to 56.8 points in July, which was better than 57 index points in June and 56.6 index points recorded in May.

With this latest survey, Nigeria’s business landscape, in the last quarter of 2018, is off to a great start, precisely, both the manufacturing and non-manufacturing PMIs expanded at a faster pace compared with the slower increases recorded in the prior month.

The Manufacturing and Non-Manufacturing PMI Report on businesses are based on survey responses, indicating the changes in the level of business activities in the current month compared with the preceding month.

For each of the indicators measured, this report shows the diffusion index of the responses.

The diffusion index is computed as the percentage of responses with positive change plus half of the percentage of those reporting no change, except for supplier delivery time, which is computed as the percentage of responses with negative change plus half of the percentage of those reporting no change.

The apex bank PMI statistics report stated: “The survey further stated that the composite PMI for the non-manufacturing sector stood at 57.0 points in October 2018, indicating expansion in the Non-manufacturing PMI for the eighteenth consecutive month.

“The index grew at a faster rate when compared to its level in September 2018. Thirteen of the 17 subsectors recorded growth in the following order: repair, maintenance/washing of motor vehicles; agriculture; wholesale/retail trade; information & communication;

educational services; management of companies; utilities; finance & insurance; arts, entertainment & recreation; accommodation & food services; health care & social assistance; real estate rental & leasing; and construction.”

It stated further that water supply, sewage & waste management; professional, scientific, & technical services; transportation & warehousing; and electricity, gas, steam & air conditioning supply subsectors recorded contraction in the review period.

Finance analysts at Cordros Capital, however, believe that continued FX stability and availability remain the key driver of business health across the Manufacturing and Non-manufacturing space, adding that: “We believe the commencement of the festive quarter must have boosted business sentiments as Q4 average PMI is historically the strongest.

‘’In the face of the renewed uptick in inflation, sustained improvement in PMI have thus far coincided with improved FX stability and availability, which continue to drive positive business sentiment.

“Hence, we expect the PMIs to remain strong through the rest of the year, with the imminent festive period also supporting sentiments.

“In our views, high crude oil prices, together with the possibility of inflows from Eurobond, will support CBN’s goal of keeping FX rates mostly stable and liquid across all segments.

“Importantly, with Manufacturing, Service, and Agriculture contributing 9.3 per cent, 37.5 per cent, and 22.9 per cent respectively to GDP, we expect the resilience of these sectors will support overall growth in Q3-18 and Q4 of 2018.