Down by over 37 per cent in Q2, NBS reports

Inventory accumulation, a key indicator of manufacturers’ confidence in the state of the economy and future demand, fell by as much as 37.2 per cent in the second quarter (Q2) of the year, the latest Nigeria Gross Domestic Product (Expenditure and Income Approach) report released by the National Bureau of Statistics (NBS) revealed.

In the preceding quarter (Q1), the indicator recorded 10.16 per cent, indicating that manufacturers are fast depleting their warehouses as opposed to producing for sale.

Depleting inventories suggest that manufacturers are not producing as fast as they are selling, which could be caused by a lack of confidence in future demand for the goods or a lack of productive capacity to replace the goods being sold.

In any case, companies reduce, especially variable factors of production, mainly workers, when they fall on inventories as opposed to producing to meet ongoing orders.

Hence, falling inventories could suggest that many manufacturing companies have been laying off employees.Except for Q3 when it dipped by 29.5 per cent, inventory growth was upbeat throughout last year, peaking at 38.1 per cent in the last quarter (Q4) as per year-on-year.

The trend suggests that the confidence level among manufacturers was higher last year. The data aligns with other confidence tracking surveys such as the Manufacturers Association of Nigeria (MAN) CEO Index, which has remained below average for much of the year.

In recent times, manufacturing companies have indicated plans to exit the country or change business models owing to what they have described as a poor operating environment.

The falling confidence may have equally impacted gross capital formation negatively. In Q1, it slipped by 1.6 per cent but managed to gain 1.8 per cent in Q2. Again, the indicator was better last year when it grew by between 3.5 and six per cent, except Q4 when it lost marginally (0.7 per cent).

Manufacturers, interestingly, were not motivated to produce more by the fact that Nigerians had more money at their disposal for consumption in the first half (H1).

The report said that the national disposable income grew by 8.29 per cent year-on-year in Q2 while it was 9.29 per cent up in Q1. The figures were far higher than the growth of 1.55 per cent and 1.84 per cent recorded in Q1 and Q2 recorded last year.

“The growth of national disposable income became positive after Q4 of 2021, showing a better performance in Q1 and Q2 of 2023 relative to Q1 and Q2 of 2022,” the report said.

As in the previous years, household consumption accounted for the largest share of real GDP at market prices, representing 57.18 per cent and 64.05 per cent in Q1 and Q2.

In last year’s comparative quarters, household consumption contributed 78.02 percent and 63.65 per cent to GDP respectively. “In 2020, real household consumption expenditure declined in Q1 and Q2, accounting for negative growth rates informed by the COVID-19 pandemic. However, positive growth rates were recorded from Q3 of 2020 due to recovery from the pandemic.

“Growth became negative from Q2 of 2022 to Q1 of 2023 because of rising prices, cash crunch and worsening economic conditions,” the report said.

The Central Bank of Nigeria (CBN) had argued that there was too much money in circulation in the second quarter because of the general elections.

According to data from the CBN, currency in circulation rose by 88 per cent, from N1.39 trillion in January to N2.6 trillion in June this year.

The report also said that government consumption expenditure recorded growth of 17.83 per cent and 5.79 per cent in Q1 and Q2 respectively compared to -9.91 percent and -6.23 per cent growth it recorded in Q1 and Q2 of 2022.