Naira scarcity heightens fears of recession

BY EMEKA EJERE

Apprehensions over growing possibility of the Nigerian economy slipping into another recession this year is becoming more pronounced with the crippling effects of naira liquidity crisis currently bedeviling the country. The economy has seen two recessions under President Mohammadu Buhari.

In October 2022, the governor of Central Bank of Nigeri (CBN), Mr. Godwin Emefiele, announced the plan to redesign the N200, N500, and N1, 000 naira notes, and directed Nigerians to deposit their old notes before January 31, 2023 when they would cease to be legal tender.

The deadline was extended last week, by 10 days from January 31 to February 10, to allow for the collection of the old naira notes, although the Supreme Court later ruled that the deadline be suspended pending the determination of a case brought before it by the governors of Kaduna, Kogi and Zamfara States.
Emefiele, in a statement, said the sensitisation exercise on the naira redesign by the apex bank has achieved a success rate of over 75 percent of the N2.7 trillion held outside the banking system.

But cash, including old and new naira notes, have largely been unavailable from many banks’ Automatic Teller Machines (ATMs) and over-the-counters. This has left bank customers, who need small cash for transport fares and other urgent needs with difficulties.

More worrisome is the fact that some bank ATMs are dispensing N1,000 per transaction with N35 charges for other bank’s ATM cards. Point of Sales (PoS) operators charge N1,000 – 2,000 to exchange N10,000 old notes for new naira.

It is estimated that the continued scarcity of the naira notes and petrol across the country could cost manufacturers a 25 percent decline in monthly sales of domestic goods, if the situation persists for the next three weeks.
In an interview monitored by our correspondent, the Director General of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said the situation was not good for the industry, the government and the ordinary citizens.

“I would put a rough estimate of a 25 percent drop on monthly sales of domestic goods if the situation should persist for the next three weeks,” he said.

As purchases from the retail end are mostly transacted in cash dry up, you will immediately notice a sharp drop in wholesale purchases and instant build-up of unsold inventory in industries.

“You will have a compounded crippling lack of patronage for the domestic manufacturer; the denial of government revenue that would have accrued from consumption taxes, the disruption of daily life and the needs of the average Nigerian.”

Similarly, Dr Abdulrasheed Yerima, the National President, Nigerian Association of Small and Medium Enterprises (NASME), said that the scarcity of the naira notes has much negative impact on the operations of SMEs in the country.

“We cannot fend for some of our needs and at the same time most of our Micro Small and Medium Enterprises (MSMEs) cannot pay their staff, especially the casual workers.

“More so, there are no banks and poor network coverage where they are operating, therefore, they cannot operate optimally.

“Some of them don’t have accounts, especially those in the rural areas and some of them cannot afford a smart phone to enable an electronic transfer.

“Their businesses depend on daily activities in the rural areas and they are also battling with the issue of power supply, so it is a lot of stress for them and it is affecting their businesses negatively,’’ Yerima said.

Recently, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, raised the alarm on imminent global recession in 2023. According to her, the looming recession is most likely because the world’s three big economies – the United States, Europe and China – are slowing down simultaneously, while the Russian/Ukraine war is elevating the risks of global economy even higher.

The World Bank had earlier on January 10 also warned of imminent global recession. It said that the world had not faced such a period of low growth since the 1990s. In its latest global economic prospects report, the Bretton Woods institution also cut Nigeria’s 2023 growth forecast to 2.9 per cent from a forecast of 3.1 per cent last year.

Although IMF’s economic growth forecast for Nigeria in 2023 is 2.9 per cent, there are concerns that this may be reversed downwards soon because of sluggish growth driven by rising inflation and debts, especially Ways & Means advances from the CBN, among other factors.

Already, Moody’s and Fitch, two renowned rating agencies have recently downgraded Nigeria to ‘B’- outlook, from ‘B’ even though they believe that the economic outlook remains stable. Listed as key triggers for the gloomy economic outlook are Nigeria’s foreign exchange instability, high poverty rate, low oil producing level, expensive petrol subsidy, low domestic non-oil revenue generation and insecurity.

Declining growth concerns

On Friday, an economic expert, Bismarck Rewane, projected a three-to-five-per cent drop in the gross domestic product (GDP) of Q1 2023 as a direct result of the naira redesign policy of the CBN.

Sharing some insights into the CBN policy’s effects on Nigerians and the economy in an interview on Channels Television, Rewane, who is the CEO of Financial Derivatives Company Limited, stated that the situation Nigerians face owing to the government’s policy showed the future is bleak.

“The impact at the end of the day is that it will affect GDP this quarter, conservatively, by three per cent, and aggressively it could reduce GDP in this quarter by five per cent if nothing is done in a hurry,” he stated

“Indigestion has come out and the country is now constipated. So, we should be looking for a laxative to take care of this problem.”
Rewane’s submissions lend credence to concerns earlier expressed by critical stakeholders. The Lagos Chamber of Commerce and Industry (LCCI) had in December expressed fear that the slow growth of the country’s GDP and the nation’s challenging business environments might lead to recession in 2023, if the right fiscal and economic policies are not in place.

The President of the Chamber, Asiwaju Michael Olawale-Cole, raised the alarm while presenting his report at the 134th edition of the Chamber’s Annual General Meeting (AGM) held in Lagos.
Reviewing the nation’s economic and business environment in the outgoing year 2022, Cole argued that the third quarter GDP figure, indicating a 2.25 percent growth, in the year under review, was a slowdown in growth, compared with 4.03 percent growth recorded in Q3 of 2021.

He noted that that the worsening security challenges in some parts of the country, forex scarcity, and high energy costs, might result in growth shrink; since production bases had continued to come under siege, and supply chains disrupted, thereby leading to scarcity of goods in the markets.

He added that the worsening security perception about the country, and the coming of a new government, might also discourage investors from bringing in the much-needed foreign direct investments (FDI) into the country, at this time.

The LCCI boss, therefore, harped on the need to ensure that fiscal and monetary sides of the economy promote growth-enhancing and confidence-building policies that would encourage private capital flows into the economy.

“Fiscal and monetary authorities must develop a medium-term growth plan anchored on boosting local production, supporting ease of doing business, attracting private investment, developing physical and soft infrastructure, business-friendly regulatory policies, economic diversification, and employment generation among others,” Cole stated.

Unlocking growth

Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE), has urged the Federal Government to facilitate reforms in the oil and gas sector, fix power and prioritise infrastructure financing to unlock growth and investment in 2023.

In its economic and business environment review for 2022 and agenda for policymakers for 2023, the CPPE Director, Dr. Muda Yusuf, noted, ‘’The country desires job creation, economic inclusion, investment growth, poverty reduction, and an accommodating tax regime for investors.

“The deregulation of the petroleum downstream sector is a major economic reform imperative. This is inevitable if we must unlock investment in the sector to put an end to the perennial fuel scarcity and the monopolistic structure of the sector,” he stated.

Yusuf also stressed the need to consolidate the power sector reforms, as an enabling environment must be created to sustain current private sector investment in the sector as well as attract new private capital to the electricity sector.

“Urgent reforms are vital with respect to electricity tariff, metering, and deepening of the energy mix. We need robust incentives, fiscal and monetary, to boost private investment in renewable energy.

“We should reform the budget and appropriation processes to prioritise infrastructure financing and human capital development. This would boost the productivity and competitiveness of the economy…”

“Adoption of these reform initiatives would guarantee progression towards fiscal consolidation, reduction in fiscal deficit, diminishing need for borrowing and abating debt service burden,” he stated.

CPPE welcomed the restraining order of the Supreme Court on the timeline for the currency swap, saying this would restore normalcy to economic activities, especially in the distributive trade sector, the informal sector and rural economy. It would also douse current social tension and the risk of social unrest in the country, it noted.