Nigeria’s Private Sector Is Growing, But Growth Must Now Become More Inclusive

By Enam Obiosio

We should not dismiss Nigeria’s latest private-sector numbers as another statistical improvement. The August Purchasing Managers’ Index (PMI) gives us something more consequential: evidence that demand, production and business activity are gaining traction at a time when the economy is still carrying substantial cost pressures.

We saw the headline PMI rise from 52.5 in July to 54.3 in August, extending private-sector expansion to seven consecutive months. I regard the acceleration in new orders as the most important feature of the survey. New orders reached their strongest growth rate since the beginning of 2024, signalling that businesses were not merely producing more in anticipation of demand; customers were actually placing more orders.

We can interpret stronger demand, improved material availability and increased purchasing as signs of a recovery becoming more firmly rooted in private-sector activity. Companies responded to the stronger order pipeline by raising output and inventories. Business activity expanded across agriculture, manufacturing, wholesale and retail, and services, with agriculture and manufacturing recording particularly strong increases.

Output has now expanded for 21 consecutive months. We should therefore recognise that this is no longer a short-lived statistical rebound. There is evidence of sustained operating momentum.

But we should also resist the temptation to call this a broad-based prosperity story.

The employment numbers expose one of the recovery’s weakest points. Companies increased staffing for the 15th consecutive month, yet job creation remained modest relative to the expansion in output and new orders. Wholesale and retail employment actually declined.

I see this as a critical warning. An economy can expand while generating insufficient employment if businesses are relying more heavily on productivity, technology, existing capacity and tighter cost management. Such growth may be efficient, but it risks becoming less inclusive.

The decline in backlogs for the first time in seven months offers another important clue. Companies appear to have gained enough capacity to absorb stronger demand. That is positive for operational efficiency, but it also means the immediate pressure to hire may remain limited.

We should pay equal attention to what is happening on the cost side.

Purchase-cost inflation accelerated in August, driven by fuel, transportation and raw-material expenses. Businesses responded by raising selling prices, with agriculture recording the steepest increase. Staff-cost inflation eased to a nine-month low, but that relief did not offset broader input-cost pressures.

This is where I believe the durability of the recovery will be tested.

We cannot sustainably build stronger domestic demand if businesses must continually transfer rising operating costs to consumers. Higher prices can eventually weaken the very purchasing power that is currently supporting new orders. The present combination of stronger demand and accelerating input costs therefore presents policymakers with a difficult balancing act.

Muyiwa Oni, Head of Equity Research, West Africa at Stanbic IBTC Bank, provides an important forward-looking interpretation. He expects the third-quarter PMI performance to support full-year Gross Domestic Product growth of about 4.1% in 2026, with the non-oil economy outperforming oil.

We should pay particular attention to that composition. Oni projects non-oil growth of 4.11%, up from 3.71% in 2025, while oil-sector growth could slow to 3.45% from 8.50%. Manufacturing, information and communications technology, trade, real estate, and finance and insurance are expected to remain important contributors.

If that projection materialises, we would be looking at a potentially significant structural feature of the recovery: growth becoming increasingly dependent on domestic production and services rather than hydrocarbons alone.

Yet the August data also tell us that confidence remains conditional. Business optimism stayed positive, but fell to a three-month low. Companies still expect to expand into new locations, increase exports and hire more workers, but their caution suggests that businesses remain conscious of the cost and demand environment.

I therefore think the central question is no longer whether Nigeria’s private sector is expanding. The evidence increasingly says it is.

The more difficult question is whether we can convert that expansion into durable investment, stronger employment and improved household purchasing power.

We have the beginnings of a more credible growth cycle: new orders are rising, output has remained in expansion for almost two years, purchasing is accelerating, inventories are rebuilding and supplier performance is improving. But we also have rising input costs, uneven employment gains and lingering inflationary pressures.

We should judge the recovery by what happens next.

If stronger demand encourages productive investment, manufacturing expansion, export growth and meaningful job creation, the current PMI momentum could become the foundation for a more resilient economy. If rising costs continue to erode margins and household purchasing power while employment remains subdued, the headline expansion could prove less transformative than the numbers suggest.

For us, the August PMI is therefore neither a reason for complacency nor a cause for pessimism. It is evidence of momentum, but momentum that still needs to be converted into productivity, investment and jobs.

That is the real test of Nigeria’s private-sector recovery.