Business
Cash crunch: Manufacturers, businesses may shut down
By AYOOLA OLAOLUWA
A growing number of manufacturers and business owners in the country are now grappling with rising inventories as naira and petrol scarcity bite harder, Business Hallmark can report.
The rising inventory is a direct result of the scarcity of both the old and new naira notes and the debilitating fuel scarcity, which first surfaced in Lagos and Abuja in October 2022.
The Central Bank of Nigeria (CBN), it would be recalled, had on October 26, 2022, announced that it would be phasing out old notes of N200, N500 and N1,000 by January 31, 2023, after it received the approval of the president to print and issue the redesigned N1000, N500 and N200 notes.
However, the policy designed to pull in money into the banking system has gone awry, with unforeseen setbacks that have pushed many Nigerian households and businesses into hardship.
Owing to the non-availability of cash, even before the deadline actually expired, deposit money banks and PoS merchants could no longer make the new naira notes available to Nigerians, forcing the government to extend the deadline to February 10.
The extension of the deadline failed to resolve the scarcity of new notes. Rather, an acute shortage of both new and old naira notes was unleashed on Nigerian businesses, individuals and households, prompting concerned state governors to approach the Supreme Court, which temporarily suspended the policy until February 15.
The severity of the currency scarcity affected the purchasing powers of millions of Nigerians, with many of them unable to find the needed cash to meet their daily needs.
Accordingly, most manufacturers and shop owners are now worried about the resulting pile up of unsold and returned goods in their warehouses and shelves.
BH checks revealed that many businesses have been facing poor sales due to the shortage of cash for individuals and businesses to make purchases and meet their needs.
The development has largely resulted in the rising cases of finished products pilling up in warehouses.
Worst hit are Fast Moving Consumer Goods (FMCG) companies, including breweries, bottling companies, as well as confectioneries companies.
Source in two leading confectionery firms, UAC and Rite Foods, makers of Gala, Rite, Super Bite and Meaty sausages, who spoke with our correspondent, lamented that the companies have incurred huge losses since naira scarcity surfaced some weeks ago.
The sources lamented that producers of confectionaries are mostly affected as the products have very short shelf life.
“As you know, the shelf life of all Gala products is 10 days maximum. If you look well, you will see that the expiry date is printed on the wrappers to tell consumers the last day it is safe to consume them.
“Unfortunately, due to the current cash crunch, our distributors and sellers are refusing to come for more products.
“One of our biggest retail seller lamented that more than 70% of her Gala products have expired on her shelf as people no longer have the money to buy.
“The situation has forced management to cut down on production in an effort to prevent the company from collapsing.
“It will be stupid to keep producing when unsold goods are pilling up in our warehouses. If the situation fails to improve in the next few days, most companies producing packaged foods like cakes and sausages will soon be out of business”, the source explained.
Checks by our correspondent confirmed that sausages produced in the country all have short shelf lives of 10 to 14 days.
Another source in a bottling company, who did not want his identity in print, projected that Purchasing Managers’ Index (PMI) figures will be lower in the months of January and February owing to paucity of funds brought about by rising inventories.
“With invested funds tied up in unsold stocks scattered in warehouses across the country, most of our colleagues are finding it difficult to raise the required capital to defray operating cost.
“Many producers are scaling down production. Profit will decline and many workers would soon be out of jobs. What is the essence of producing when you can’t get buyers for your products”, the source demanded.
Meanwhile, many workers may soon lose their jobs if the problem persists. Already, many companies, including Guinness, NBPlc and NBC have started scaling down production.
“What this means is that several workers, especially unskilled ones might be asked to go until the situation improves.
“Our stores are already filled up with unsold goods. Most road side beer parlours which majority of Nigerians patronise are no longer recording sales due to the non-availability of cash.
“Apart from big hotels, night clubs, eateries and beer parlours that offer cashless payments, most local outlets don’t go near it. Poor network in the last two weeks have also not helped matters.
“So, production is being scaled down until we clear the stores of unsold goods”, said a boiler room technician of a brewery in Sango-Ota, Ogun State.
Meanwhile, BH investigation revealed that prices of many goods, especially perishable goods have stated coming down as a result of the the massive fall in demand.
A visit to popular food markets in Lagos like the Mile 12 and Ile-Epo markets shows that the prices of several farm produce have crashed by about 50% to 70%.
At the popular Ile-Epo Market, a large basket of fresh tomatoes from the northern part of the country, which sold for between N28,000 and N32,000 now sells for about N14,000.
Also, a medium basket, which sold for between N15,000 and N18,000 has crashed to N8,000. While a small basket now goes for N2,000, as against the sum of N6,000 it was sold about three weeks ago.
A tomato seller from Kano State, Kareem Junaid, blamed it on scarcity of funds.
“From the two trailers of tomatoes I brought into Lagos from Kano on Thursday (February 9th), I have not been able to finish selling one.
“As it is, I have recorded a huge loss as more than half of the products have spoilt due to the scorching sun.
“Today is the 3rd day (Saturday), and am still in the market with my goods. Before this crisis, we used to sell the goods in a trailer under one hour.
“The problem is even worse in the North, where farm products rotten away in farms as no buyers are coming from the South to purchase them.
“I am appealing to government to come to our aids by compensating us for the losses”, Junaid demanded.
Prices of other products have also crashed. For instance, a fairly large cow is now around N700,000 from about N1.2million in December. Medium cows go for between N350,000 and N570,000 in markets in Lagos.
“This is now the best time to buy some consumable goods in the country, except that there is no money. But for those with money to spend, this is the period to get good bargains”, a market leader at the popular Agege Market told our correspondent.
Speaking on the development, the Manufacturers Association of Nigeria (MAN) warned that there would be a possible drop of 25 per cent in monthly sales of locally produced goods if the current hardships being experienced in accessing naira notes persisted for the next three weeks.
The Director General of MAN, Mr. Segun Ajayi -Kadir, while calling on the CBN to intensify efforts at ensuring seamless transition from old naira to new naira notes, said that anything to the contrary would be inimical to manufacturing.
According to him, there is need for strategic communication and joint operations to ensure widespread and sustained availability and circulation of the redesigned naira notes.
“It is baffling to approach a bank only to be told that there is neither the old nor the new naira notes.
“We hope that the resumption of payment across the counter in the banks and the intensification of the CBN special cash swap arrangement in remote areas will yield positive results.
“I hope that what the country is experiencing is a temporary pain and that government will do well to bring the hardship to an end immediately.
“We must make haste to ensure that the price to be paid for this otherwise laudable policy does not outpace the gains”.
The MAN boss also said that as purchases from the retail end, mostly transacted in cash dries up; there would be a sharp drop in wholesale purchases leading to a glut of unsold inventories in factories.
He added that the situation, which was not good for manufacturing, for the government and for the ordinary citizen would lead to compounded crippling lack of patronage for the domestic manufacturer.
Ajayi-Kadir warned that the development would also deny government the revenue that would have accrued from consumption taxes and result in the disruption of the daily life and need of the average Nigerian.
“To be clear, there is no doubt that the currency redesign is desirable; there are socioeconomic and political imperatives for the change.
“It is a critical element of the CBN cashless economy policy that should have far reaching positive results for the economy.
“However, the continued scarcity of the new redesigned naira notes is quite worrisome.
“With our growth prospects heading further south, we can ill-afford a downturn in our Gross Domestic Product (GDP).
“The negative impact it portends for local producers, the agricultural and distributive segments of our economy is huge”, he stressed.
