Business confidence soars to series-high as festive period looms

Business confidence entering into November has turned out to be the strongest this year as current production activity rose to a new series high.

Demand and output both increased at their fastest pace this year since March, data from Standard Chartered’s new Business Sentiment Indicator (BSI) showed.

According to survey findings, companies are experiencing a surge in orders ahead of the coming festive season. The recently celebrated Id-el-Kabir festival also contributed to the rise in output. The BSI headline indicator rose to a high of 66.6, up by 6.8 percent (month-on-month) from September’s 62.4.

In October, two of the five components of the headline indicator showed the largest increases: new orders posted rose 18.7 percent m/m, while production rose 11.2 percent m/m. Also, 6 of these indicators expanded at the fastest pace since the series began (new orders, export orders, production, productive capacity, prices received, and financial position).

A BSI score above 50 suggests that output is expanding. October’s score of 66.6 shows that output may have expanded at an accelerated rate.

However, four business metrics fell below the key 50 level in October. The Nigerian naira (NGN) FX rate – an assessment of how FX movements impact businesses, was negative, so also was interest rates paid, the availability of credit, and order backlogs. The availability of credit has only just slipped into contraction (more respondents thought this had worsened in October, relative to previous months).

The BSI was initiated March this year by Standard Chartered and MNI, a data services firm that supplies globally tracked market-moving data such as the Chicago Business Barometer, and the MNI China Business Sentiment.

In coming up with the index score, up to 200 formal-sector businesses, active in different segments of Nigeria’s economy responded to questions about Nigeria’s current and future economic conditions.

“It gives an idea of how sentiment might be changing month to month and what are the underlying factors driving that sentiment change”, said Razia Khan, head of macro research at Standard Chartered.

“GDP releases are conventionally released quarterly; business confidence surveys can shed light on what businesses are thinking between these dates”, she said.

Over time, as is the case in many other economies, the relationship between the headline BSI and GDP is likely to become clearer.

The expectation is that poll questions on future expectations three months ahead may provide an early glimpse of future economic trends.

The BSI is a part of a series of African economic indicators, including a real-time price tracker being launched by Standard Chartered and its data partners, to enhance the availability of private-sector information on African economies between official data releases.

HOPE-MOSES ASHIKE & EDOZIE IFEBI