The current inflation rate in Nigeria has sprung from 21.80 per cent to 21.91 per cent resulting from the despondent dilemma associated with the current cash crunch crisis. This change strikes Nigerians in unforeseen ways, and most affected are the traders, manufacturers and people in need of cash to manage daily operations. They enunciated that high-value notes were used for illegal activities, including money laundering and financing terrorism. Thus, new notes were produced to replace them. Nonetheless, some analysts have criticised the redesign of the currency and the withdrawal restrictions, saying that these are dubious policies implemented at the wrong moment. These measures are thought to be abysmal to Nigeria’s economy.
Mr Paul Alaji, the senior Economist and Partner SPM professional, stated in an interview that a quantifiable amount of the increase in inflation percentage must be attributed to the crunch crises. “Nigerians are confronted by immense difficulty in getting access to cash; as an implication, there is an evident perplexing obstacle in accessing manufactured goods”, He emphasised. This ostensible money scarcity has piloted problems, such as the assumed incompetency of banks in meeting the demands of the people, capitalist POS vendors hyper-inflating transaction charges, bank network collapse, and a decline in sales and purchasing power of the average Nigerian. However, CBN affirms that redesigning naira notes intends to reduce inflation, address the issue of having too much money in circulation, combat the growing threat of abduction for ransom, and reduce corruption and currency crime.
Director-General Segun Ajayi-Kadir of the Manufacturers Association of Nigeria describes the redesign policy as a commendable monetary policy measure by the central bank of Nigeria but expresses his displeasure with the unresolved lingering difficulties associated with currency transformation, stating that it has resulted in encouraging the decline in sales of manufactured goods.
The manufacturers association of Nigeria (MAN) uncloaked that the scarcity of naira notes has abruptly disrupted economic activities, resulting in a rough estimated 25 per cent decline in sales of manufactured products. This statement is a distress signal expressed by manufacturers who believe the lack of money for people to buy goods has resulted in the Nigerian manufacturing sector suffering from poor sales. Production is only finished once the final consumer receives the manufactured goods.
In response to the current economic cash crunch, Mr Segun Ajayi-Kadri, Director General of MAN, said: “To be clear, and I want to state this first, there is no doubt that the currency redesign is desirable. Both political and economic factors necessitate the reform. It should significantly impact our economy, and part of the CBN should have a workable plan for a cashless society. But it’s troubling that there are so few Naira notes with fresh designs. We cannot allow our GDP to fall while our future growth prospects worsen. Its dire predictions foresee terrible consequences for local farmers, producers, and the distribution sector of our economy. They might worsen the recent damage that internal and foreign shocks have done to our economy.
Mr Paul Alaji addresses the projection of Nigeria experiencing a GDP contraction in their first quarter. Concurring with this projection, he indicates that provided adequate caution fails to be seen as primary, Nigeria should embrace the reality of recession. In an economy where digital platforms are not favourable, the implication is that the velocity of money ought to engender growth has been hampered and abated drastically. Therefore, failure to buy reduces aggregate output, resulting in protracted economic growth.
He also emphasises two situations that Nigeria will face during the cause of the crisis. He describes the first as ceteris paribus. He expresses this as a situation in which when CBN releases money withdrawals to a significant part of the economy, it will spike inflation. Still, the ease of accessing our commodity will reduce. This means that there will be an improved growth rate. However, if this deteriorates, it will spike concerns within the economy, and in the long run, there will be visible growth only in the medium term and not the long time. “The worst-case scenario you will see is in the mutatis mutandis -what needs to be changed must be changed. That is when old notes have been withdrawn, the economy does not come back, or the supply of the new notes is not returned to the economy, then wait for a recession by Q3 or Q4 2023.”
The president of the manufacturer’s association, Otunba Francis Meshioye, being vocal on the issue, has also disclosed that the perplexities being encountered by Nigerians in accessing the new naira notes were gradually impeding the convenient flow of end users’ goods, which has given rise to a ginormous pile of manufactured goods.
The manufacturing sector of the Nigerian economy is included in the cash crunch. Segun Ajayi-Kadir expresses that with the country’s unpredictable growth prospect, the non-stop scarcity of the redesigned naira notes is fast becoming a cause for concern. It poses an undeniable threat to domestic manufacturers and distributive and agricultural sectors of the economy. Considering investors do not joke with their money, this case of scarcity can have an unpleasing consequence on the country’s investments. The current file on manufactured goods can bare grave consciousness for manufacturers, and their investors, as pilling stocks, means trapping cash with no good returns. Investors move towards where returns are visible.
So, it’s a very concerning problem in our economy today. In highlighting the lingering issues, you will want to agree with me that we are undeniably facing a critical time as manufacturers,” he stresses.
These regulations might be advantageous for Nigeria’s manufacturing sector in the long term. The purchasing power of consumers may rise by reducing inflation and excessive liquidity, which would raise consumer spending and the demand for goods made by the industrial sector. Also, developing a cashless economy would increase financial inclusion and make it uncomplicated for people to get credit, making it easier for small and medium-sized manufacturers to get loans and expand their operations. Moving forward to a cashless future, these policies can see the revival of many dormant industries beyond the current 25% drop-in recent times. Nigerians will have to wait and trust already established processes by CBN. As for now, the future of Nigeria’s economy is still open to infinite possibilities. Also, no concrete evidence supports the claim that redesigning the naira notes has significantly impacted manufacturing. Nigeria’s manufacturing sector has had to deal with several issues, such as poor infrastructure, expensive electricity, and limited access to capital. Experts have identified these difficulties as issues impeding the industry’s expansion and development.
Little information is available about the immediate effects of the shift in the Nigerian naira note on the manufacturing sector in Nigeria. However, introducing the new currency notes could have unintended consequences on the industry, such as reducing consumer spending power and causing cash shortages, making it more difficult for companies to conduct their operations. It is still open to having infinitely good feedback on multiple industries; only time will tell.
Sources
- https://www.thisdaylive.com/index.php/2023/02/07/manufacturers-and-unintended-consequences-of-a-laudable-monetary-policy/
- https://www.thetimes.com.ng/2023/03/manufacturers-allege-25-sales-drop-over-cash-crunch/
- https://theeconomyng.com/manufacturers-sales-dip-25-on-cash-crunch/
- https://punchng.com/manufacturers-allege-25-sales-drop-over-cash-crunch/?amp
