By Okafor Joseph Afam
December 4, 2024

Employment in Nigeria’s private sector has slowed for the first time in seven months, as businesses grapple with the dual challenges of a depreciating naira and a staggering 80% hike in fuel prices over just two months. These factors have significantly driven up input costs, leaving companies struggling to balance their books.

The recently released Stanbic IBTC Purchasing Managers Index (PMI) highlights the downturn. Though the reduction in employment was marginal, the report notes that the decline was concentrated in service-oriented firms.

“Employment was also down, thereby ending a six-month sequence of job creation,” the report stated. “Companies continued to lower their backlogs of work, while there was also a lack of pressure on capacity at suppliers.”

This decline aligns with unemployment data from the National Bureau of Statistics (NBS), which indicated that the percentage of people actively seeking work dropped to 4.3% in the second quarter of 2024. However, experts argue that this figure masks the broader challenges of underemployment and job scarcity.

Rising Costs, Falling Demand

The survey also revealed that escalating input costs are squeezing businesses. Companies are increasingly passing these costs to consumers, but higher output prices are deterring many customers, resulting in dwindling sales.

“The inflationary environment and muted demand conditions meant that business activity continued to fall for the fifth month,” the report noted. This underscores the persistent struggles of the private sector, with output declining in wholesale, retail, and services, even as agriculture and manufacturing reported modest growth.

A Trifecta of Economic Challenges

Nigerian firms are reeling under the weight of three key challenges:

1. High Inflation: Fuel price surges and exchange rate volatility have significantly driven up production costs.
2. Exchange Rate Instability: The weak naira is compounding import costs for raw materials.
3. Rising Interest Rates: Higher borrowing costs are stifling business expansion.

“Purchase costs rose rapidly again in November amid currency weakness and higher prices for fuel and raw materials. Although slowing slightly for the second month running, the pace of inflation remained elevated,” the report indicated.

Additionally, businesses are increasing staff wages to cushion employees against higher living and transportation costs, further stretching their resources.

The PMI Decline

The PMI declined to 49.6 in November, down from 46.9 in October, marking the fifth consecutive month of contraction. This is below the neutral 50.0 threshold, signaling a continued deterioration in business conditions.

While some companies reported “tentative signs of demand improving,” the broader outlook remains challenging.

The Way Forward

For Nigeria’s private sector to regain stability, policymakers must address the root causes of the current economic malaise. Ensuring currency stability, reducing inflation, and improving the ease of doing business are critical to attracting investors, boosting employment, and fostering economic growth.

The challenges may be daunting, but with decisive actions, Nigeria’s private sector can recover and pave the way for sustainable economic development.