Lower PMI affirms manufacturers’ rising inventory concerns

Frank Jacobs, MAN President

Though production level continued to grow as well as new orders, rising inventory as indicated by the Manufacturers Association of Nigeria (MAN), may be responsible for the slower movement of the nation’s Purchasing Managers’ Index (PMI) last month.

According to the latest Central Bank of Nigeria (CBN’s) Manufacturing Purchasing Managers’ Index (PMI) report, September Manufacturing PMI eased to 56.2 from 57.1 in August, indicating a slower paced growth in the manufacturing sector.

Despite logistics challenges in the country, especially in Lagos State, manufacturing supplier delivery time index stood at 56.1 points in September, indicating faster supplier delivery time for the sixteenth consecutive month.

To industry observers, an improved supplier delivery time sometimes indicate lower economic activity which eases pressure on logistics.This means that businesses are scaling back their purchases of raw materials after ramping up in recent months, therefore resulting in slow momentum in the manufacturing sector.

Immediate past President of MAN, Dr. Frank Jacobs, had noted that the food, beverages and tobacco sector experienced improved patronage and production. However, other sectors like the Basic Metal and Iron and Steel, Textile, Apparel, and Footwear, as well as Plastic and Rubber products sectors are witnessing high level of inventory mostly due to slow down in construction activities, global glut, and competition from imported items.

Similarly, Jacobs decried the poor state of infrastructure in the country, noting that the manufacturing sector is still plagued by a myriad challenges with infrastructure being the most worrisome.

“These challenges are still manifesting in the form of high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates,” he added.

Affirming the drop in prices of some commodities at the retail segment, MAN admitted that CBN’s intervention has helped in addressing some of the challenges through improved foreign exchange access, while many local producers are also intensifying their local sourcing activities.The newly inducted MAN President, Ahmed Mansur, however pledged to boost the competitiveness of the domestic manufacturing sector through greater collaboration with the Federal Government on some of the underlying issues.

The latest PMI report indicated that of the 14 subsectors surveyed, 10 reported growth in the review month while four declined. Subsectors that recorded growth, according to the report, were: electrical equipment; printing and related support activities; transportation equipment; non-metallic mineral products; chemical and pharmaceutical products; fabricated metal products; furniture and related products; textile, apparel, leather and footwear; food, beverage and tobacco products; and plastics and rubber products.

The four sub-sectors that declined in the review month were: petroleum and coal products; cement; paper products; and primary metal subsectors. Similarly, the report stated that at 58.4 points, the production level index for the manufacturing sector grew for the nineteenth consecutive month in September 2018. The index, however, indicated a slower growth in September, when compared to its level in the preceding month.It further stated that the new orders index grew to 55.3 points, expanding for the eighteenth consecutive month, indicating increase in new orders in September 2018.

Significantly, the report showed that the employment level index in September 2018 stood at 54.9 points, indicating growth in employment level for the seventeenth consecutive month.According to the report: “Of the 14 subsectors, 12 reported increased employment level, one remained unchanged, while one reported reduced employment level in the review month.”

Similarly, the CBN’s non-manufacturing report showed that the composite PMI for the non-manufacturing sector stood at 56.5 points in September, indicating expansion in the Non-manufacturing PMI for the 17th consecutive month.According to the report: “The index grew at a slower rate when compared to that in August 2018,” adding that 15 of the 17 subsectors recorded growth.

CBN, IMF, others harp on economic reforms
The Central Bank of Nigeria (CBN), International Monetary Fund (IMF), and Financial Market Dealers Association (FMDA), were unanimous in calling for a rule-based financial system, compliance and support for the nation’s economy to ensure overall stability.CBN Governor, Godwin Emefiele, said the adoption of risk-focused and rule-based regulatory framework; zero tolerance in regulatory framework for data/information rendition/reporting and infractions and strict enforcement of corporate governance principles in the banking sector have helped to stabilise the industry.

The bank chief said this at the 2018 Financial Markets Conference organised by the FMDA in Lagos, with the theme: “The Nigerian Financial Market – A Catalyst for Sustainable Economic-Growth.”Emefiele said expeditious process for rendition of returns by banks and other financial institutions through e-FASS application software, revision and updating of relevant laws for effective corporate governance and ensuring greater transparency and accountability in the implementation of banking laws and regulation have also boosted confidence in the sector.

Represented by a CBN executive, Mrs. Olatoun Akinola, he identified some key developments that contributed to the strengthening of the financial market to moderate illiquidity after the global financial crisis, like the establishment of Asset Management Corporation of Nigeria in 2010, was to soak the toxic assets of banks.He also said the “Alpha Project Initiative”, which brought about the “new banking model” structure that replaced the hitherto one-size-fits-all model, resulted to the emergence of international banks, national banks, regional banks, and specialised banks.

He noted that Nigerian banks are now ranked amongst key players in the global financial landscape, with some of them featuring amongst the First 20 banks in Africa, and among Top 1000 banks globally. “I want to say that the Nigerian capital market is not left out in terms of reforms to enhance market performance. Take for instance, since the aftermath of the effect of the global financial crisis on the capital market, the apex regulator in the capital market has stepped-up its surveillance activities and initiated different programmes.

“The 10-year capital market master plan initiated by the Securities and Exchange Commission (SEC) is the current overarching capital market development and reform plan covering the overall capital market, non-interest financial products and capital market literacy,” he said.But the IMF Country chief, Amine Mati, attested that the convergence in Nigeria’s exchange rates has been ongoing, adding that while tight monetary policy is welcome, the growth of credit to the private sector has remained low.

He pointed out that CBN’s liquidity operations and rising reserves have pushed money market rates down, urging more measures to effectively raise the country’s revenue, stabilise growth of the economy and foreign exchange issues.“Remove multiple currency practices, restrictions on foreign exchange access for 40 categories of goods, unify foreign exchange market and continue strengthening external buffers,” he said, adding that inflation tends to be significantly higher in countries with multiple exchange rate systems.

Earlier in his opening remarks, FMDA President, Samuel Ocheho, said the group will continue to play a major role in promoting economic growth, by attracting local and foreign investments, as well as enabling participations of various investors in the financial market.

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