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NIGERIA PMI - Sub-50 readings wrap up dire quarter

Albeit higher than February readings, March Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) fell short of the 50-threshold, indicating another m/m deterioration in the business environment. Manufacturing PMI clocked in at 47.7 (February: 44.6) and Non-Manufacturing registered 47.1 (February: 44.5) in March. As a result, headline PMI readings for Q1’17 were all below 50, reinforcing the view that Q1’17 GDP growth will come in negative y/y (Vetiva estimate: -0.7%).

Beginning February 21, 2017, the Central Bank of Nigeria has consistently sold foreign exchange (FX) in both spot and forward markets in a bid to improve FX liquidity and close the gap between the official and parallel markets. Roughly $2.5 billion has been sold in a six-week period, compared to under $1 billion in January. March PMI readings show no visible impact of these FX sales as the headline indices continue to contract. Moreover, non-manufacturing imports (34.5) are yet to improve whilst prices continue to rise despite a falling parallel market exchange rate. Nevertheless, we anticipate some lag from this policy action and point out that the liquidity boost is good for the FX market and should help prop up the economy in the coming months.

The economic parameters for Q2’17 are looking decent – oil prices and production remain favorable and FX liquidity is improving. With the Forcados terminal also expected to come online fully in this quarter, we can expect a mild improvement in the business climate. A note of caution – rigid m/m inflation and continued delays to passing the 2017 Budget could dampen business sentiment.