Business woes deepen in H2 as PMI drops to eight-month low

• Five banks accounted for 80.8% industry PAT in 2023

Business confidence in Nigeria at the start of the second half of the year is at an all-time low, judging by July’s Purchasing Manager’s Index (PMI), which shows a steep deterioration from the preceding month of June.

According to Stanbic IBTC’s readings, headline PMI declined for the second consecutive month, at 49.2 in July, down from 50.1 in June and below the 50.0 no-change mark for the first time in eight months. The index signaled a slight deterioration in business conditions as the second half of the year gets underway.

Business operations in the private sector moved back into contraction territory in July as steep price pressures hit demand and resulted in renewed reductions in both business activity and new orders. Input costs and selling prices continued to rise rapidly, although there were some signs that efforts to secure sales resulted in a softer pace of output price inflation.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration. The renewed worsening in the health of the private sector mainly reflected the first reductions in output and new orders since November last year. In both cases, rates of decline were only modest, however.

The report added that evidence highlights the negative impact of sharp price increases on customer demand, with clients often unwilling or unable to commit to new projects. Three of the four broad sectors covered by the report saw business activity decrease in July, the exception being manufacturing where production increased.  Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, said July’s headline PMI is the lowest since November 2023.

MEANWHILE, the banking sector report published by Afrinvest Group shows that five banks, FBN Holding, United Bank for Africa (UBA), GTCO (GTB), Access Bank and Zenith Bank, also referred to as FUGAZ banks, accounted for 80.8 per cent of the banking industry profit after tax (PAT) in 2023.

The report said the FUGAZ banks also took the lion’s share of 79.3 per cent of industry profit before tax (PBT), in the same year. The report said banks gained N2.6 trillion from FX trading and revaluation owing to favourable net FX positions. It also noted that “reformsˮ targeted at accelerating the cashless economy drove a sharp upturn in deposits, up 71.7 per cent to the highest levels in well over a decade and positioned banks to rake significant gains from monetary policy rate (MPR) hikes earlier in the year.

The analysts at Afrinvest noted that the reforms initiated in 2023, following the commencement of a new political cycle and key changes to core economic management teams, promised to steer the economy back on track – but not without significant pains.

According to them, “the overdue-but-poorly-implemented policy decisions to remove energy subsidies and overhaul the exchange rate management system, among others, resulted in immediate price and currency volatilities.

“These, along with sharp interest rate hikes in H2, toughed head-winds for businesses operating in an economy without adequate infrastructure support, rife with insecurity, and in dire need of sector-specific policy rework. Expectedly, real sector players suffered historic underperformance as firms booked significant losses owing to FX and interest rate pressure, as well as pressure on sales.”

The report also said that while banking recapitalisation is instrumental to economic growth and development, it is necessary to prioritise robust yet market-supportive regulations.