Nigeria’s employment decline highlights private sector struggles amid inflationary pressures

Nigeria’s private sector experienced its first drop in employment in seven months in November, reflecting the persistent economic strain caused by inflation and weakening demand.

The Stanbic IBTC Bank Purchasing Managers’ Index (PMI®) for November, released recently, underscores the complex challenges businesses face in balancing rising operating costs with tepid consumer activity.

The PMI headline index registered 49.6, indicating a marginal contraction in economic activity. Although this marks an improvement from October’s 46.9, it remains below the critical 50.0 threshold, signaling five consecutive months of negative growth.

The report revealed a slight decline in staffing levels, primarily in the services sector, marking the end of a six-month streak of job creation. While the reduction in employment was marginal, it underscores the cautious stance businesses are adopting amidst economic uncertainties.

“Employment was also down, thereby ending a six-month sequence of job creation. The pace of reduction was only marginal, however, as the overall fall in staffing levels was limited to just services firms,” the report noted.

Wholesale, retail, and services sectors bore the brunt of the contraction, grappling with weak demand and elevated costs. Despite these challenges, other sectors demonstrated resilience, supported by modest improvements in supply chain conditions, with firms reporting shorter delivery times due to reduced road congestion and competitive supplier dynamics.

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Businesses continue to battle inflation driven by currency devaluation, soaring fuel prices, and expensive raw materials. Staff costs rose as companies adjusted wages to cushion employees from higher living and transportation expenses. In response, firms increased selling prices significantly, though the rate of price hikes eased compared to October.

Although new orders returned to growth in November following a sharp decline in October, overall demand remained weak as high prices deterred customers.

Economic analysts highlighted the disconnect between the PMI data and broader economic performance. Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, noted that Nigeria’s non-oil GDP grew by 3.46% year-on-year in the third quarter of 2024, up from 3.19% in the second quarter.

“Key drivers of non-oil GDP growth include ICT, finance, trade, and agriculture. However, the PMI reflects the immediate challenges businesses face in responding to inflationary pressures,” Oni explained.

Looking ahead, Oni forecasts that Nigeria’s economy will maintain growth momentum in the fourth quarter of 2024, supported by festive season activity and a recovery in crude oil production. He revised his full-year GDP growth projection to 3.2% from an earlier estimate of 3.1%.

Despite slight improvements in supply chain conditions, business confidence fell to record lows in November, with firms expressing concerns about future inflation trends and demand recovery.

Analysts urge policymakers to intensify efforts to mitigate inflation and stimulate consumer demand. “Targeted interventions in key sectors and enhanced monetary policies are essential to stabilize the economy and ensure sustained growth into 2025,” Oni added.

The PMI findings highlight the resilience of some sectors despite challenges and signal cautious optimism for stabilization. While inflationary pressures and weak demand remain critical hurdles, sector-specific resilience and improved logistics offer hope for a gradual recovery.