Cash Crunch Pushes Private Sector Productivity To 7-Yr Low
Nigeria’s private sector productivity crashed in March largely due to the country’s recent cash crunch, the Stanbic IBTC Bank Purchasing Managers’ Index (PMI), has shown.
The report revealed that the country’s PMI which measures productivity in the economy recorded a sharp drop to 42.3 points in March 2023, the worst decline only comparable to that of COVID-19 in 2020 and the most significant since the survey’s inception in January 2014.
According to the report, the scarcity of Naira in March severely affected output and new orders compared to February, although staffing levels and purchasing activity slightly recovered.
Coming on the heels of similar decline to 44.7 points in February 2023, the index reflected a severe reduction in business activities, some analysts noted and attributed the sharp decline in both months to the Central Bank of Nigeria’s poorly executed Naira redesign policy.
The Naira redesign policy through which the apex bank intended to address inflation, kidnapping, counterfeiting, and vote-buying, was marred by poor execution and planning resulting to severe cash crunch that negatively impacted many businesses.
With two contractions in the first three months (first quarter or Q1), analysts believe that the real gross domestic product (GDP) growth for Q1 as well as Q2 2023 would likely be severely constrained, noting the impact of the cash crunch may linger as several small businesses have capitulated under the pressure despite CBN’s belated efforts to increase the volume of currency in circulation.
“We saw some decelerations in economic activities which should reflect in the result for Q1. The cash crisis was a major distortion to the economy and all the critical segments of the economy were badly affected.
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“Our informal economy, our retail sector, our agricultural sector, the transportation sector, a whole lot of sectors were badly affected by the cash crisis because we saw almost a complete collapse of our payment system. Cash were not available and the data platforms also could not withstand the pressure and all of that,” Muda Yusuf told InsideBusinessNG.
The immediate past Director General of Lagos Chamber of Commerce and Industries (LCCI) and promoter of the Council for Promotion of Private Enterprise (CPPE) said he expected a not too good performance from Q1, adding that Q2 may likely be not much better.
Also expressing low expectations on the performance of the economy in the first three months period of the year, Teslim Shitta-Bey, a financial analyst with Proshare Nigeria said “With the cash scarcity that attended CBN’s Naira redesign and its grave impact on the informal economy, obviously we should expect a tightened growth report in Q1.”
Reviewing the Naira redesign fallouts, Shitta-Bey told InsideBusinessNG over the telephone that the SME (small and medium enterprise) sector saw a sudden constrain in productivity, Point of Sale (POS) operators stopped their businesses, and most traders, particularly street traders couldn’t sell their products due to the cash crunch.
“All these factors created serious challenges in Q1. When the GDP numbers come out, we expect to a severely constrained Q1 report. Q1 is usually moderated but this particular year will be very much constrained by the fact that there was cash crunch, low demand for goods and services as a result of the currency redesign challenges.
So Q1 will not be as good as we would have wanted it to be,” Shitta-Bey concluded.
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