Again, Cash Crunch Induces Lower Productivity in Private Sector

Dike Onwuamaeze

Productivity in the private sector of the Nigerian economy witnessed an increasing deterioration in March 2023 as cash crisis in Nigeria caused a steep drop in business activities by rendering individuals and households unable to pay for goods and services.

This was revealed in the March edition of the Stanbic-IBTC’s Purchasing Managers’ Index (PMI), which stated that Nigerian companies registered a decline in purchasing activity again in March as business condition deteriorated during the month and caused output to decline to 42.3 points when compared to 44.7 points that was recorded in February 2023.

Moreover, output, according to the PMI report, “was down across each of the four broad sectors covered by the survey.”  

The Stanbic-IBTC said that PMI’s readings above 50.0 signaled an improvement in business conditions on the previous month while readings below 50.0 showed deterioration.

The report stated, “headline PMI posted 42.3 in March from 44.7 in February, moving further below the 50.0 no-change mark and signaling sharper deterioration in business conditions in the Nigerian private sector. The decline was the most pronounced since the survey began in January 2014, apart from at the time of the outbreak of the COVID-19 pandemic in 2020.”

According to the Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, “the headline PMI posted 42.3 in March from 44.7 in February, moving further below the 50.0 no-change mark and signaling sharper deterioration in business conditions in the Nigerian private sector. The decline was the most pronounced since the survey began in January 2014, apart from at the time of the outbreak of the COVID-19 pandemic in 2020.”

Oni added: “The cash crisis in Nigeria continued to have a severe impact on business conditions in the private sector during March. In fact, output and new orders fell more quickly than in February, while staffing levels and purchasing activity were scaled back again.”

He also noted that, “while input costs and output prices continued to rise sharply, rates of inflation softened. Output prices increased at the softest pace in almost three years. Meanwhile, suppliers’ delivery times shortened after having lengthened in February.  

 “Companies reduced staffing levels slightly for the second month running, in part reflecting lower workloads but also due to difficulties paying wages. Lower workforce numbers limited the pace of staff cost inflation, which eased to a marginal rate that was the slowest since January 2021.

“The cash crisis acted to dampen confidence in the private sector in March, with sentiment the second lowest in the series history. Where output was predicted to rise, panelists linked this to investment intentions and business expansion plans.”

The report added, “The case in February, the cash crisis in Nigeria caused a steep drop in business activities during March as customers were unable to pay for goods and services. Furthermore, the rate of contraction accelerated from the previous survey period and was the third-fastest on record, behind only those seen during the opening wave of the COVID-19 pandemic. Output was down across each of the four broad sectors covered by the survey.” 

Similar to the picture for business activity, the report showed that “the rate of contraction in new orders quickened in March amid the cash crisis. New business decreased to the greatest extent since May 2020. More than 34 per cent of respondents signaled a drop in new business over the month, with just 10 per cent posting a rise.”

However, the PMI said that there were some signs of recovery in new export orders at the end of the first quarter as new business from abroad rose slightly following a sharp decline in the previous month. “Companies reported that international demand had improved,” the report said.

But Nigerian companies scaled back employment for the second month in a row during March. The PMI remarked that, “although slight, the fall in employment was sharper than seen in February and most pronounced since January 2021. According to respondents, falling staffing levels reflected a combination of lower workloads and difficulties paying wages.”

The report also showed that period under review was also characterised by, “falling sales and a lack of money to pay for goods,” which meant that Nigerian companies registered a decline in purchasing activity again in March.