NGE - Nigeria Cash Crisis Hits Activity In February
2023-03-08 09:21:00 ET
Summary
- February Stanbic IBTC Bank PMI data, compiled by S&P Global, signalled the sharpest decline in business activity since the Nigeria PMI survey began in 2014, outside of the first wave of the COVID-19 pandemic.
- Fuel shortages exacerbated the cash-related difficulties facing firms.
- Efforts by the authorities in Nigeria to replace old banknotes with new ones have resulted in widespread cash shortages across the economy at the start of 2023.
In the musical Cabaret, Liza Minelli sang that 'Money makes the world go round'. The enduring truth of this lyric is evident in Nigeria at present, where a shortage of cash in circulation has had a severe halting effect on economic activity.
February Stanbic IBTC Bank PMI data, compiled by S&P Global, signalled the sharpest decline in business activity since the Nigeria PMI survey began in 2014, outside of the first wave of the COVID-19 pandemic. Fuel shortages exacerbated the cash-related difficulties facing firms. Coming during an election period, these challenges mean that the incoming government will have a full inbox when taking office.
Stanbic IBTC Bank Nigeria PMI
Rapid decline in output amid cash shortages
Efforts by the authorities in Nigeria to replace old banknotes with new ones have resulted in widespread cash shortages across the economy at the start of 2023. Insufficient amounts of the new notes have been available for people to access after they have handed in their old currency. Data show that the amount of currency in circulation decreased by nearly 60% year-on-year in January, with little sign that the situation has improved significantly since then.
Nigeria currency availability
The difficulties faced by customers in securing cash to pay for goods and services meant that new business - and subsequently output - decreased substantially midway through the first quarter of the year. PMI data pointed to the most severe declines in both new orders and output since the survey began in 2014, except for during the opening wave of the COVID-19 pandemic in the second quarter of 2020. Prior to February, new orders had risen for 31 successive months.
In turn, companies also scaled back their purchasing activity and employment during the month, the former not only reflecting the drop in new orders but also the difficulties of companies themselves in finding the cash needed to pay for inputs.
Fuel shortages impact supply chains
Alongside the lack of cash available in the economy at present, there are also widespread shortages of fuel which has further acted to impact business operations. Suppliers' delivery times lengthened for the first time in close to five-and-a-half years in February, and to the greatest extent since April 2016. Respondents to the survey often linked delivery delays to fuel shortages, with reports of this among the highest seen in the survey's history.
Reports of fuel issues causing supplier delivery delays
It remains to be seen how long it will take for the cash issues in particular to be resolved, but any extended period of disruption clearly will put a dent in the country's economic performance over the first half of the year.
On a more positive note, companies are optimistic that output will increase over the next 12 months, amid hopes that economic conditions will improve. Getting cash into people's pockets will be key in helping demand to recover.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Nigeria Cash Crisis Hits Activity In February