Nigeria's manufacturing turns positive

Nigeria's manufacturing sector has shown promising signs of revival as the GDP returned to positive territory in the first quarter of 2017 after four consecutive quarters of negative growth. Usman Ulubajov, a research analyst at ARM, provided insights into the sector's outlook and offered a preview of the trading day on CNBC Africa. Ulubajov highlighted the key factors contributing to the positive momentum in the manufacturing space. One significant improvement has been in the effects supply, which had previously been a major constraint for the sector. Companies heavily reliant on imported raw materials struggled to access foreign exchange, leading to production challenges. However, the recent enhancement in effects supply, facilitated by the Central Bank of Nigeria's efforts since February, has bolstered production activities. The recent Manufacturing Purchasing Managers' Index (PMI) for April also indicated expansion, indicating a potential for sustained growth in the sector. Ulubajov emphasized the critical role of continued support from the CBN in providing foreign exchange to the market to maintain this positive trajectory. The analyst noted that if the CBN can sustain selling around $2.1 billion per month until December without depleting reserves significantly, coupled with improvements in oil production and potential inflows into the Nigerian market, the effects supply could remain stable in the near term. Regarding the performance of corporates in the sector, Ulubajov acknowledged that investors had been cautious due to previous effects challenges. Many companies had reported losses attributed to effects fluctuations. However, with the recent stability in the effects market and better input supply, there is optimism that some firms may begin to report effects gains in the coming periods. Ulubajov also shed light on the expected impact on stocks in the manufacturing sector, anticipating improved earnings and sentiment. Companies in the consumer staples subsector, trading at attractive price-to-earnings ratios, could benefit from the enhanced effects outlook, driving positive sentiment towards the sector. As for the market outlook, the analyst remained positive, citing the favorable effects market conditions and the potential extension of output cuts by OPEC as driving factors. With the economy showing signs of recovery, there is overall optimism that the market sentiment will continue to be upbeat. Looking ahead to the trading day, Ulubajov identified potential stocks to watch. He highlighted Flalenew in the consumer sector, Total in the downstream segment, and Dangote Cement in industrial goods as companies worth monitoring for their performance. Overall, the positive growth in Nigeria's manufacturing GDP signals a promising turnaround for the sector, supported by improved effects supply, potential oil production enhancements, and a positive market sentiment. Investors and industry stakeholders are optimistic about the sector's future prospects as it continues on a path of recovery and growth.