Local production suffers contraction, fuels unemployment concerns

4 months ago

Affirming the Bretton Woods institutions’ concerns about recession, the latest Purchasing Managers’ Index (PMI) for the manufacturing sector has continued to reflect the sector’s weaknesses as regards production, new orders, and employment levels.

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According to the latest data released by the Central Bank of Nigeria (CBN), manufacturing in the month of June stood at 41.1 points. As key sectors continue to suffer contraction, unemployment may surge in the economy.

The Vice President, Yemi Osinbajo-led Committee on Economic Sustainability Plan, had warned that about 39.4 million people might be unemployed by the end of 2020, if the government failed to take pre-emptive measures.

The latest figure indicates contraction in the manufacturing sector for the second time, a decline compared to 42.4 and 51.1 index points recorded in May and March 2020 respectively.

Specifically, the manufacturing composite PMI contracted further to 41.1 index points in June (from 42.4 in May), the second consecutive contraction.

The contraction in manufacturing composite PMI was due to decline in new orders index to 36.4 in June (from 42.8 in May 2020), which resulted in lower production – the production index decreased further to 36.6 (from 44.5).

Producers were hit with higher costs of production (input price index rose to 67.2 from 61.4), but were unable to pass on costs to customers (output price index remained flat at 53.2) due to the drop in new orders.

According to the Manufacturers Association of Nigeria (MAN), the lockdown in some states and curfew imposed by the Federal Government continued to have a huge impact on production, while access to foreign exchange for critical raw materials remains challenging.

Supply of raw materials to manufacturers also slowed partly due to the interstate lockdown – supplier delivery time index fell to 60.9 in June (from 65.2 in May).

Given the delay from suppliers’ end, manufacturers stocked up raw materials – raw materials/work-in-progress index moved up, to 41.0 from 37.4, even as quantity of purchases index inched up to 35.8 from 26.3. Of the 14 surveyed subsectors, five sub-sectors reported growth (above 50% threshold) in the month of June in the following order: electrical equipment; cement; petroleum and coal products; transportation equipment; and paper products.

However, the remaining nine subsectors reported declines in the following order; printing and related support activities; textile, apparel, leather and footwear; primary metal; plastics and rubber products; non-metallic mineral products; fabricated metal products; food, beverage and tobacco products; chemical and pharmaceutical products; and furniture and related products.

As the manufacturing index contracted, production level, new orders, employment level, and raw material inventories all recorded slipped further compared to their May 2020 figures.

Specifically, contraction in staffing levels at manufacturers slowed despite the lower production volume – employment index rose to 38.8 points in June (compared to 24.5 points in May 2020). Cement sub-sector index (of the 14 manufacturing sub-sectors) rose sharply to 56.9 points in June from 29.0 points in May 2020.

Meanwhile, the non-manufacturing sector recorded slower contraction as its composite PMI rose to 35.7 index points in June 2020 (from 25.3 index points in May). This was driven by improved business activity to 34.3 (from 19.5).

The composite PMI for the non-manufacturing sector stood at 35.7 points in June, indicating contraction for the third consecutive month, but showing a gradual recovery in non-manufacturing activities when compared to 25.3 recorded in May 2020.

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