Christmas returns to Nigeria: Demand and output indicators at year’s high

Sentiment in Nigeria improved in November. Standard Chartered MNI Business Sentiment Indicator (BSI) rose 6.5 percent to 60.9 as the upcoming holiday season boosted business activity; both production and demand rose sharply. However, while the majority of indicators improved, signs of weakness remain. Nigerian firms are still concerned about the deteriorating credit environment – interest rates paid rose to a record high while credit availability slumped to a series low. Cost pressures also remain elevated given Nigeria’s current FX regime.

November business sentiment in Nigeria rose to 60.9 from 57.2 in October. New orders and production indicators were the major drivers of sentiment . Rising interest costs and declining access to credit are constraining business activity

Nigerian businesses reported improved sentiment during November. The Standard Chartered MNI Business Sentiment Indicator (BSI) rose 6.5 percent m/m to 60.9 on the back of improved business activity ahead of the holiday season in December. The production and new orders indicators, which together account for 60 percent of the headline indicator, rose sharply, to their highest levels since December 2015.

In all, 9 of the 15 current conditions indicators registered increases. For future expectations indicators, 10 of 15 were also up, indicating a more upbeat assessment of business activity in the next three months. Nonetheless, signs of weakness remain: 4 indicators were below the neutral 50 threshold, with 3 (availability of credit, inventories, and order backlogs) at series lows.

The results from our BSI surveys in October and November support a more positive growth outlook for Q4-2016, following a 2.24 percent y/y GDP contraction in Q3-2016. Production expanded to a 2016 high in November following a strong rebound in the previous month. Productive capacity is also at its highest level since October 2015.

The surge in production has largely been supported by stronger domestic demand as spending usually picks up towards the holiday season. Current conditions for new orders were up 10.6 percent m/m and future expectations point towards a sustained increase in demand in the next three months. Export orders recorded the largest gain, increasing 39.5 percent to a 13-month high after 5 consecutive months of contraction.