Nigeria is in the middle of one of the strangest cash crunches in history. After a currency redesign, naira notes virtually disappeared from banking halls, ATMs and POS stores. As a result, many people experienced a new way of being broke: having money but not being able to spend it.
It’s easy to see the impact these policies have on the average person, from changing their spending habits to embracing new digital payment methods. But the elephant in the room — inflation — spares no level of the chain. The cash crisis in Nigeria is causing several companies to go bankrupt and the profits of others to drop.
At the beginning of this month, Nigeria’s Purchasing Managers’ Index, which measures private sector activity, for the first time in nearly three years. This pattern is evident in the numbers we’ve seen from multinational companies.
The first victim was Bajaj Autos, which said it would cut motorcycle production in Nigeria, its largest market, by up to 25 percent in March. If that happens, this cut in production will cause Bajaj Auto’s two-wheeler export volume to fall to its lowest level since July 2020. Bajaj’s export volume was 100,679 units in January 2023 – the lowest in 30 months.
A few weeks ago, the Nigerian division of Heineken NV, the second largest brewer in the world, declared the worst February in 15 years because of the money crisis. According to Hans Essaadi, the Chief Executive Officer, Heinekein’s local unit relies on cash for 80 percent of its sales.
Recently Unilever announced an ax to his Nigerian production, citing the growing economic slump in the region as the impetus for his decision. In a short time, residents of Nigeria may find themselves saying goodbye to well-appreciated products such as Sunlight, Omo, Close-up, LifeBuoy, Vaseline, Dove or Knorr as Unilever Nigeria has given up its interests in home care and skin cleansing in a desperate bid for profit to make. These goods accounted for more than half of the company’s revenue in 2021 if it grossed rose 84%.
It is up for debate that we have not seen the full push in Nigeria’s private sector. Most companies have not yet announced their first-quarter earnings, but the outlook is bleak. For now, we only have unanswered questions. How will Nigeria weather this storm? Will the private sector adapt or will more be squeezed out? Does the government help or not? And will the impending swearing in of a new president bring about any change in the coming months? Time will tell.
