No joking; the Nigerian economy is in trouble

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This is no longer a joke. The Nigerian economy is bleeding. If anyone had any doubt about how bad things are, just take a look at the latest Purchasing Managers Index (PMI) released by the Central Bank of Nigeria (CBN) for the month of June 2016.

The PMI is the result of survey conducted by the CBN statistics department to get the opinions of company executives on the state of their businesses using several indicators.  The CBN conducts the survey monthly among over 1950 executives from two states in each of the six geo-political zones in Nigeria. Whenever the PMI falls below 50 points, it means the economy is in trouble because businesses are not doing well. PMI’s above 50 is usually good news.  The PMI is usually measured for both manufacturing and non-manufacturing firms.

For the manufacturing PMI, CBN data shows that it stands at 41.9 points in June 2016. This is really bad news as it indicates that the Nigerian economy is in trouble. In fact, what make it more worrisome is that this is the sixth month of consistent decline in the PMI, which means that the economy has been increasingly getting worse in the last six months. The PMI actually dropped from 45.8 points in May an indication of how fast that the PMI declined in just a month.

The CBN data shows that of the 16 subsectors that are measured by the PMI, 14 of the sectors showed a decline in performance. The sectors that witnessed the most decline in order of magnitude include; electrical equipment; non-metallic mineral products; furniture and related products; fabricated metal products; chemical and pharmaceutical products; printing and related support activities; paper products; food, beverage and tobacco products; cement; computer and electronic products; plastics and rubber products; textile, apparel, leather and footwear; petroleum and coal products and primary metal. The only sectors of the economy where the managers showed some level of optimism about the economy are the; appliances and components and transportation equipment.

Specifically, players in the tracked sector reported declines in production with the production level index at a low 40.2 points, representing the sixth consecutive month of decline. “Of the sixteen manufacturing sub-sectors, twelve recorded declines in production level during the review month in the following order: furniture and related products; electrical equipment; non-metallic mineral products; fabricated metal products; printing and related support activities; primary metal; plastics and rubber products; cement; food, beverage and tobacco products; chemical and pharmaceutical products; textile, apparel, leather and footwear and paper products.”

The petroleum and coal products sub-sectors recorded no change while appliances and components; transportation equipment and computer and electronic products showed some growth.  Also of concern is the fact that New Order Index dropped to a low of 37.0 points with 13 sectors reporting declines in new orders, an indication that companies are cutting down their operations.

The employment index also continues to languish in bearish territory dropping to 42.2 points in June, the 16 th consecutive month of decline.  Of the 16 sectors tracked, 12 of the sectors recorded decline in the employment index, meaning that more Nigerians are losing their jobs are about to lose it.  Not surprisingly, the raw material inventory index is also down to 39.4 points, representing the sixth consecutive month of decline. Also of the 16 sectors tracked, 13 sectors showed declines in the raw materials index.

But the non-manufacturing sector is also showing signs of distress with an index level of 42.2 points in June down from 44.3 points in May.  The CBN says of the 18 non-manufacturing sectors tracked in June, 14 actually recorded declines in business activities.

The sectors that showed the most decline in business activities in order of severity include; construction; professional services, scientific, and  technical services; management of companies; utilities; accommodation and  food services; real estate, rental  and  leasing; electricity, gas, steam and air conditioning supply; educational services; wholesale trade; public administration; information  and  communication; finance  and insurance; repair, maintenance and washing of motor vehicles; and arts, entertainment  and  recreation.

The health care and social assistance sub-sector remained unchanged, while the remaining three subsectors recorded growth in the order: water supply, sewage and waste management; agriculture; transportation and warehousing.

The clear message from the CBN PMI figures is that the Nigerian economy is already in trouble and needs a strong stimulus to put it back on track. This will require the Federal Government spending big and also radically improving the business environment. But the chances of the government spending big has been made difficult by the significant shortfall in government revenues due to low crude oil prices and the trouble in the Niger Delta, which is making it more challenging to finance the 2016 budget.

Borrowing is an option, hence the government’s plan to borrow heavily from the international and domestic markets. However, borrowing from the international market comes with conditions which the government may be reluctant to implement. Though the truth is that Nigeria has already implemented some of the conditions like flexible exchange rates, the treasury single account and the deregulation of the downstream sector, which will enable it borrow from the international markets. Urgently, Nigeria has to spend big and fast to start digging itself out the recession hole it has plunged into. Sadly, the government seen not to have realized the urgency of severity of the situation facing the country and as such the response has been very slow.