The naira notes scarcity in Nigeria continued to have a severe impact on business conditions as it contracted for the second consecutive time in March 2023, according to the latest Purchasing Managers’ Index (PMI).
The monthly PMI by Stanbic IBTC Bank shows that the headline PMI declined to 42.3 in March from 44.7 in the previous month. Readings above 50.0 signal an improvement in business conditions, while readings below 50.0 show deterioration.
“The decline was the most pronounced since the survey began in January 2014, apart from the time of the outbreak of the COVID-19 pandemic in 2020,” it said.
It said as the case in February, there were widespread reports from companies that customers were unable to commit to spending given cash shortages. “This led to a substantial decline in new business, with the pace of contraction more pronounced than in the previous survey period.”
Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank added that the PMI index is the second consecutive contraction in private sector business conditions in over two years.
“The continuous decline relative to February reflects the negative impact of cash shortage across different segments of the economy over the past two months,” he said.
The Index which measures the performance of the private sector is derived from a survey of 400 companies from agriculture, manufacturing, services, construction and retail.
It is a composite index based on five individual indexes with the following weights: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers’ Delivery Times (15 percent) and Stock of Items Purchased (10 percent), with the Delivery Times index inverted so that it moves in a comparable direction.
The PMI index revealed that companies reduced staffing levels slightly for the second month running, in part reflecting lower workloads but also due to difficulties paying wages.
“Lower workforce numbers limited the pace of staff cost inflation, which eased to a marginal rate that was the slowest since January 2021.”
Since the beginning of the year, Nigerians have been buffeted by a chronic shortage of cash caused by the naira redesign policy of the Central Bank of Nigeria (CBN). This has disrupted economic activities and the livelihoods of many people.
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Data from the CBN show that the currency in circulation dropped to the lowest level in 14 years and five months to N982.1 billion in February 2023 from N1.39 trillion in the previous month.
The unavailability of the new notes created untold hardship for Nigerians, with citizens unable to get cash which hindered their day-to-day activities, analysts at CSL Stockbrokers Limited said in a recent report.
“Also, the inability of banks’ e-payment infrastructure to cater to the increase in electronic payment usage resulted in an increase in failed online transactions,” they said.
The cash shortages have also slowed down economic activities in the country. Manufacturers Association of Nigeria (MAN) told BusinessDay that they are already seeing a drastic reduction of more than 25 percent in sales of locally manufactured products.
“What should ordinarily be a welcome monetary policy to improve the CBN management of naira currency has become enmeshed in tardy implementation and needless disruption of businesses and everyday life of the people,” Segun Ajayi-Kadir, director-general of MAN said.
The Centre for the Promotion of Private Enterprise said recently that the economy had lost an estimated N20 trillion since the onset of the cash crisis
“These losses arose from the deceleration of economic activities, the crippling of trading activities, the stifling of the informal economy, contraction in the agricultural sector and the paralysis of the rural economy,” it said.
In February, President Muhammadu Buhari approved the continued use of the old N200 note as legal tender till April 10 in a bid to reduce the hardships of the people.
However, some state governments sued the Federal Government over the naira redesign policy, and the Supreme Court, in its ruling on March 3, extended the legal tender status of the old N200, N500, and N1,000 notes to December 31, 2023.
Ten days later, the CBN ordered commercial banks to comply with the court verdict by dispensing the old notes to their customers.
“Nevertheless we expect an improvement in economic conditions given that the CBN has stepped back on the cashless policy and is steadily increasing the volume of cash in the economy following the directives from the courts,” Oni of Stanbic said.
He noted that However, the PMI readings indicate that reported Gross Domestic Product figures for the first quarter will be weak and broadly behind our expectations of 2.4 percent. “We project the Nigerian economy growing at three percent in 2023.”
