Despite the oil price shock which became worsened in the month of November, data released by Standard Chartered Bank has once again confirmed the resilience of the Nigerian economy as Business Sentiment Indicator dropped by 2.7 basis points in the period under review(November).
Financial analysts had feared that the volatility in the oil market which has continued to ravage global economy and the attendant foreign exchange shock in the country would manifest in serious strains on the business climate in Nigeria which relies heavily on proceeds from oil sale.
However, the data released last week showed that the Standard Chartered-MNI Business Sentiment Indicator decreased to 63.9 in November, having reached a series high of 66.6 in October.
Despite this fall, the three-month average for the headline indicator remained relatively stable at 64.3, a development which, according to the bank, suggested that overall conditions are not deteriorating rapidly. “The three-month average for our Nigeria BSI is still well in ‘expansionary territory’ above 50,” the report stated.
Further analysis from the bank explained that the softening of sentiment is perceptible.
“In November, 10 of the 15 current conditions indicators declined from previous levels, as did eight of 15 future indicators. Two of the components of our headline indicator, production and new orders, which together contribute about 60 percent of the reading on the headline BSI, fell back close to September levels. The other components that make up the headline BSI – order backlogs, supplier delivery times, and employment – all increased. The overall business conditions indicator fell 5.7 percent m/m to 77.1in November, the lowest outturn since July, but a very healthy print nonetheless,” the report said.
The report said in spite of the anxiety over the effect of the global oil shock and foreign exchange movement, the good news is that confidence appears to be holding up well.
It said, “Although we have seen some moderation from the highs posted in October, 63.9 is still a respectable print, normally consistent with a fairly strong economic expansion. All six current conditions indicators that expanded at their fastest pace since the survey began in October eased a touch in November. But only three indicators (both current conditions and future expectations) were below the key 50.0 level that might normally point to an economic slowdown. Our key takeaway? Nigeria’s growth outlook remains healthy.”
The report said the survey could not reflect the effect of foreign exchange volatility which manifested few weeks back. “Even so, it is clear from the responses that FX volatility is influencing sentiment negatively. Weak oil prices and pressure on the naira (NGN) necessitated a slew of tightening measures in late November.
“Our survey, conducted earlier in the month, will not have picked up the impact of the most recent FX volatility, nor the impact of the tightening that followed. December’s BSI should provide a clearer idea of how confidence is holding up, although it will also be subject to a seasonal lift in the run-up to Christmas, and come at a time when Nigeria’s main political parties hold their primaries,” the report explained.
It added that future expectations remain robust, and have not exhibited much volatility, saying it will be watching the situation closely, given recent FX depreciation. Often, inputs for production are imported.
The Standard Chartered-MNI BSI for Nigeria is a diffusion index, summarising in a single number how optimistic businesses feel about current and future economic conditions.
The bank partner with MNI, a well-known data provider that has long produced the Chicago PMI among other indicators, to construct the Standard Chartered-MNI BSI. Each month, up to 200 formal-sector businesses, active in different segments of Nigeria’s economy, respond to questions on Nigeria’s current and future economic conditions.
Although c.80 percent of the respondents polled are Lagos-based, the businesses that they represent are active across Nigeria. Their responses are collated to generate a single number that captures sentiment. The headline BSI (current conditions index) for Nigeria is made up of a number of components, with different weights assigned: new orders (a 35 percent weight), production (25percent), employment (15 percent), order backlogs (15percent) and supplier delivery times (10 percent).
Respondents are asked whether business activity has increased, decreased, or remained the same, compared with the previous month. They are also asked about their expectations over the next quarter.