Nigeria Cash Crisis Ends 31-Months of Growth in Business Activity

Simbarashe Gumbo
·2 min read

(Bloomberg) -- Nigeria’s private-sector activity contracted for the first time in almost three years as companies reduced output and cut jobs because of cash and fuel shortages, adding to the list of issues President-elect Bola Tinubu will need to address.

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The Purchasing Managers’ Index compiled by S&P Global, which measures the performance of the private-sector economy, fell to 44.7 in February from 53.5 the month before. It’s the worst reading since the height of the coronavirus pandemic in June 2020.

“The most severe impacts of cash shortages were seen with regards to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending,” S&P Global said in a statement Wednesday.

Hans Essaadi, chief executive officer of Nigerian Breweries Plc, a unit of Heineken NV, said last week the scarcity has worsened consumer demand that was already impacted by inflation that’s running at its fastest pace in more than 17-years.

Nigeria’s central bank announced plans in October to replace high-denomination banknotes, including the 1,000-naira bill, worth $2.17, to mop up excess cash liquidity and take control of money supply.

A lack of new notes has led to a shortage of cash in an economy with a vast informal sector where only 60% of households have access to a bank account.

The slump in PMI shows that while the central bank has managed to reduce the amount of cash held outside the banking system to a record low, it has come at a cost to the economy.

Tinubu, 70, will be sworn in on May 29 as the country’s fifth democratically elected president since the end of military rule a quarter century ago. He will need to work fast to regain business confidence if he hopes to create jobs and achieve his goal of getting the economy to grow at double digits in the next couple of years.

“The lingering cash shortages will likely continue to dampen economic activities and could depress economic growth” this quarter, said Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank. The lender sees the Nigerian economy growing at 3% in 2023, he said.

Tinubu will also have to deal with persistent fuel shortages that have plagued Africa’s largest oil producer since the start of the year and contributed to a decline in the gauge.

Read more: A $13 Billion Challenge Awaits Nigeria’s Newly Elected President

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