This reading rose strongly from 49 to 59. The principal shift was among medium-sized firms, which have a payroll of between 50 and 200 employees. The experiences of manufacturing segments differ greatly. Food, beverages and tobacco, the largest segment, contracted by -5.8% y/y in Q3 2016. We can explain this away as the consequence of the segment’s high import dependency but we are then confronted with the -6.3% y/y contraction of cement in the quarter. The softness of new orders, particularly from the tiers of government, could explain the poor performance of the cement industry, which has a very low import requirement for its production. A third segment tells a different story. Textiles, apparel and footwear contracted by just -0.9% y/y and has outperformed the sector as a whole for three successive quarters. The likely explanation lies in a number of government support schemes for the segment, notably at state level, and increasing use of local inputs.
We do not see a near-term solution to the fx scarcity. There will not be the proposed flexible, market-driven fx regime until the CBN’s modest sales are complemented by sizeable inflows from autonomous sources. The oil price has recovered by about US$10/b since our last report as a result of the OPEC accord in Vienna and the pledges of output restraint by several non-member producers. This is seemingly evident in the official reserves but does not transform fx inflows. The FGN will not take money from the IMF and is reluctant to sell state-owned assets in what is a buyers’ market. Offshore portfolio investors will have the confidence to return in large numbers when they see a succession of positive steps which amount to large fx inflows: examples are the sovereign Eurobond issue expected this quarter, the budget deficit financing under negotiation with multilaterals and possible advance payments by importers of Nigerian crude.
The output readings should be more consistent whenever the turnaround of the power sector gains greater momentum. According to one of several industry estimates in circulation, an annual investment of US$15bn for three years is required to lift generation to 8,000 megawatts (MW). The largest allocation for capital spending in the FGN’s budget proposals for 2017 is N529bn for power, works and housing but it nonetheless accounts for little more than 10% of the identified annual investment requirement.
This reading also rose strongly in December, from 45.5 to 52. The largest number of respondents (74%) reported no change. The principal trend was from lower employment to no change. Predictably, one company’s response to the “trigger” question was that it had expanded its workforce due to the “festive period”. (These questions are triggered when a reply is the same for two successive months, and then changed for the third.) It may be significant that the reading, while positive for only the second time in the year, was the weakest of the five sub-indices. Respondents’ attitude to the surge in new orders was restrained in terms of recruitment. In our view, the non-oil economy is off the bottom in the current cycle although, given the fragility of demand and the fx constraints, firms are cautious about taking on additional staff. The labour force report from the National Bureau of Statistics for Q3 2016 shows a pick-up in the unemployment rate from 13.3% in Q2 to 13.9%. A total of 27.1 million people were either unemployed or underemployed in a labour force of 108 million.