The Manufacturers Association of Nigeria (MAN) conveyed that the recent redesign of the Naira and the implementation of new cash withdrawal limits by the Central Bank of Nigeria (CBN) have led to a dearth of both old and new currency notes across banking establishments and digital payment platforms. This scarcity has inflicted considerable hardships on manufacturers.
These revelations were disclosed in the second quarter report of the Manufacturers CEOs Confidence Index (MCCI). According to the report, the crisis has not only directly curtailed manufacturers’ working capital but has also brought their day-to-day operations to a standstill. Additionally, the shortage of Naira notes has dampened consumer patronage for manufacturing companies, consequently inflating their inventory volumes, particularly for retail products.
As a consequence of exposing the cash-intensive distribution sector to significant risks, the economic turmoil has unleashed severe repercussions across the manufacturing value chain and logistical costs. The considerable reduction in the velocity of money has given rise to speculative activities, fostering the emergence of a black market for the Naira. This, in turn, has exacerbated the predicament of manufacturers who are already grappling with inadequate access to foreign exchange.
The scarcity of Naira has dealt a devastating blow to numerous small and medium manufacturing enterprises that primarily rely on cash transactions. This is particularly true for those operating within agro-allied industries, which frequently engage with local farmers in remote areas devoid of formal banking facilities. Furthermore, the exorbitant charges associated with point-of-sale (POS) transactions have further constrained the operations of resilient manufacturing SMEs, exacerbating their cost challenges.
The report emphasizes that Nigeria’s shift toward a cashless economy need not be pursued with undue haste or policy aggressiveness. Comparatively, the cash-to-GDP ratios for Europe, the United States, and South Africa are approximately 10%, 6%, and 3.5%, respectively, whereas Nigeria’s ratio is impressively below 1.5%.
In light of these circumstances, the report suggests that achieving a fully cashless economy should not be the paramount concern, given the weightier challenges of insecurity, volatile exchange rates, soaring inflation, energy disruptions, excessive fiscal debt, dwindling foreign reserves, business closures, and daily divestments.
Moreover, the report delves into the influence of macroeconomic indicators such as forex trends, lending rates, commercial bank loans, and federal government capital expenditure on the perceptions of manufacturing company CEOs during the second quarter of 2023. These findings underscore that persistent forex scarcity and Naira depreciation continue to take a toll on manufacturing activities.
The report underscores a 17.3% escalation in production and distribution costs during the reviewed quarter, although this represents a slowdown from the 24% increase recorded in the previous quarter. Capacity utilization has plummeted by an additional 5.6% during this period, while the volume of production has contracted by 6.1%. Furthermore, manufacturing investment has dwindled by 5.6% in Q2 2023.
MAN’s recommendations advocate for a measured approach, cautioning against hastily introducing policies such as subsidy removal and a free-floating exchange rate within a short timeframe. The organization highlights the potential for such actions to lead to economic setbacks without prospects for recovery, potentially eroding confidence in the administration’s promises. In the medium term, addressing issues related to low productivity, limited export diversification, an import-dependent production structure, and an aging capital goods industry is crucial.
