Naira scarcity affected operations of 76% of business owners — SBM

The scarcity of naira notes in Africa’s biggest economy affected more than three quarter of businesses, a new report shows.

The report titled ‘Strapped: Impact of the Cash Scarcity on Individuals and Businesses by SBM Intelligence,’ an Africa focused geopolitical research and strategic communications consulting firm, engaged 46 businesses across the five geopolitical zones to gauge the impact of the cash shortage on them.

“From egg producers stuck with their produce to rice traders who had to bring down their prices to make sales, most of the business owners interviewed said they were negatively affected by the cash shortage,” the report published on Tuesday said.

It said the percentage of those who said their enterprise was significantly impacted totalled 76.1 per cent and a further 17.4 per cent said their businesses were somewhat affected.

“Just about 6.52 per cent said their ventures were not affected at all,” SBM’s report pointed out.

Analysts at SBM revealed that, 37 per cent from the 46 businesses interviewed, had to lay off staff or reduce working hours to weather the cash shortage.

“About 41.3 per cent did not have to make such adjustments. However, when you remove those who said those issues did not apply to them, nearly half had to make staff cuts or reduce work hours,” it said.

In the first quarter of 2023, Nigerians struggled to get cash due to the naira redesign policy of the Central Bank of Nigeria (CBN). The scarcity of the naira notes disrupted economic activities and the livelihoods of many people.

Data from the CBN revealed that the currency in circulation dropped to the lowest level in 14 years and five months to N982.1 billion in February from N1.39 trillion in the previous month.

But it picked up by 71.4 per cent to N1.68 trillion in March after the CBN moved naira notes from its vault to deposit money banks in response to the Supreme Court order to extend the legal tender status of the old N200, N500, and N1,000 notes to December 31, 2023.

A forced outcome of the cash shortage was an increased interest in accepting digital forms of payment, according to the SBM report.

“Approximated 87 per cent of businesses had to accept digital payments or other forms of payment due to the naira scarcity,” the report said.

The Centre for the Promotion of Private Enterprise recently estimated that the economy had lost N20 trillion as a result 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.

The cash crisis also impacted the headline Purchasing Managers’ Index (PMI) for February (44.7) as it contracted for the first time since June 2020. The PMI also contracted to 42.3 in March but expanded to 53.8 last month.

There were signs of recovery in the Nigerian private sector as the cash crisis eased, analysts at Stanbic IBTC Bank said.

“Firms reported renewed expansions in new business and output amid improved access to funds. Companies remained cautious with regards to hiring, however, and employment fell slightly,” they said.

The SBM report added that April’s PMI indicates a return to normalcy for Nigerian businesses.

“The losses incurred during the cash shortage might never be recovered for small businesses. At least 60 per cent of the businesses said they lost or had to delay making capital investments for their enterprise and only 11.1 per cent said they had no problem securing non-operational funds for their ventures.”

KPMG Nigeria had projected the country’s Gross Domestic Product (GDP) would lose about N10 trillion to N15 trillion due to challenges sourcing cash in Q1 2023.

“This is because about 40 per cent of Nigeria’s N198 trillion GDP in 2022 is informal of which about 90 per cent is cash-based. Further 30 per cent of formal sector GDP is cash-based. This means N106.9 trillion of the total too is cash-based,” Oyeyemi Kale, Chief Economist at KPMG said.

SBM recommends the CBN to rethink its policy and set the goals of its cashless initiative in line with internet penetration

“It has become clear to many Nigerians that the CBN perhaps has capacity challenges,” it said.

It added that if internet connections were more dependable, more people would have utilised them frequently, and the policy would not have been detrimental to individuals in the formal sector.