Private sector productivity in Nigeria has taken a knock due to the country’s recent cash crunch as indicated by the Stanbic IBTC Bank Purchasing Managers’ Index (PMI).
The index dropped to 42.3 points in March 2023, the most significant decline since the survey’s inception in January 2014, except during the outbreak of the COVID-19 pandemic in 2020.
This comes after a decline to 44.7 points in February 2023, which also reflected a severe reduction in business activity. Analysts attribute the sharp decline in both months to the Central Bank of Nigeria’s (CBN’s) naira redesign policy, which, although intended to address inflation, kidnapping, counterfeiting and vote-buying, has led to a cash crunch that has negatively impacted many businesses.
According to the latest Stanbic IBTC Bank report, the scarcity of naira in March severely affected output and new orders compared to February, although staffing levels and purchasing activity slightly recovered. With two contractions in the first three months, analysts believe that the real GDP growth for Q1 2023 would likely be around two percent.
While the CBN appears to be making efforts to increase the volume of currency in circulation, the impact of the cash crunch may linger as several small businesses have capitulated under the pressure in the period.
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