Nigerian Small Businesses Buckle Under The Weight Of Naira Scarcity

The Effect Of Naira Scarcity On Small Businesses In Nigeria.

07:00 PM WAT, Thu March 09, 2023

Since the unveiling of the redesigned N1000, N500 and N200 naira notes in November 2022, the country’s highest currency denominations, both small and large scale businesses have suffered from the apparently erratic naira redesign initiative of the Central Bank of Nigeria (CBN). Visibly, there is now a catastrophic scarcity of the nation's legal tender plaguing the country. However it is suffice to say that the weight of this scarcity has been felt majorly by small businesses.

Originally borne out of noble causes to address the issue of individuals who have made currency fraud their main source of sustenance, to deal an ending blow to the rapidly growing kidnapping and ransom industry, to aid in lowering the rate of inflation, and to equally control the amount of money in circulation, the naira redesign policy has quickly turned sour in the mouths of Nigerians, threatening livelihoods and causing untold pain and hardship.

Recall the World Bank had, in December, warned that the newly redesigned naira notes which went into circulation may have a negative effect on economic activity, especially on small-scale businesses and poor Nigerians due to its timing and short transition period.

According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS), there are over 36 million micro, small and medium enterprises (MSMEs) operating in Nigeria. Lagos has the highest number of small and medium enterprises of 11,663, and micro-businesses of over 3 million.

Small and micro business owners operating in Tedi Town, Ojo local government of Lagos state, are bearing the brunt of the naira scarcity. They lamented the effects the new naira policy has had on them while calling on the federal government to print more new naira notes.

Chisom Favour and his brother have been managing a wine store and beer parlour for over three years. But things have become rather difficult due to the naira scarcity.

"My customers are reducing day by day due to the naira scarcity. Many people used to come to buy things with old notes, but I've had to turn them down. Usually, I make up to N400,000 a week, but now I make less than that, " he lamented.

Chisom called on the Federal Government to make things easier by mandating the CBN to produce more naira notes and make it available to the public soonest.

The story is the same for Uche Joy, who has a small grocery store. She said the naira scarcity has been a thorn in her business's flesh.

"I used to make N70,000 to N80,000 daily, but now I find it hard to make up to N20,000. Even if a customer gives me the new N1000 note, I don't have change to give the customer. So the customer usually ends up not buying anything again. "

Similarly, Dr. Alao Laifis, who runs a hospital, said the currency policy has negatively affected his business because the country is witnessing a paucity of money.

"We have had low patronage. We do not see as many patients as we used to see since many don't have money to pay for services," he said.

Analysts categorically believe that the naira scarcity is deeply eating into the economic stability of Nigeria. They said the number of business transactions in the marketplace has been reduced or impeded, and there is a loss of value and time and reduced earning power.

Entrepreneur and Business Analyst, Seun Olubuyide, said,

"Every action comes with its equal and opposite reactions. In every institution, policies are designed to solve either existing problems or future problems, however, design thinking and change management must be part of the strategies to effect the policy so the policy affects positively.

"Naira redesign policy alone at this time in Nigeria would have had a hassle-free process without other conditions stipulated by the Central Bank of Nigeria. Withdrawal limits and scarcity of the new notes are the cause of the negative impact, " he added.

Potential Loss of Jobs In Informal Sector

According to the International Labour Organisation, in Nigeria, over 80% of working people are employed in the informal sector.  Moreover, the informal economy, according to the National Bureau of Statistics (NBS), employs about 5.5 million people in Lagos, if not more.

Unfortunately, the number of unemployed Nigerians in the informal economy may reduce even further owing to the naira redesign policy of the CBN. If micro-businesses aren't making enough revenue, it might become difficult for them to remain open, let alone pay employees.

Dr. Alao said he was thinking of downgrading his workforce of about 7 to 8 employees as revenue has taken a hit. He said he was afraid of how to pay them, not knowing precisely when the economy would pick up once more money is injected back into it.

According to him, the redesigning of the naira is actually a good policy, but it was ill-timed. He added that people weren't adequately sensitized and the economy Nigeria operates is mostly cash and carry.

Entrepreneur and Business Analyst, Seun Olubuyide, said with the cash scarcity, small businesses could go bankrupt and layoffs happen.

"Layoffs are inevitable in this situation. The number of transactions has reduced, and it takes a longer time to earn money at the moment because of cash scarcity and withdrawal limits. Remember, we are also faced with fuel scarcity and these are enough factors to bankrupt individuals and shut down businesses," he concluded.

Towing the same path as Chisom, Dr. Alao said the way out is for the CBN to print more money so it can circulate throughout the entire economy.

Lagos based Political Analyst and Journalist, Gabriel Specter, said if the situation isn’t attended to and continues to linger on, it could lead to more economic meltdown.

Compounding the fears already being faced by SMEs, he noted that, "the unemployment rate will consequently increase, many businesses that run on loan will get neck-deep into debts and the poverty rate in the country will get worse. "

Banks' Terrible Network Adds More To The Problem

There are long queues in the banks’ ATMs daily nationwide, with both the young and old finding it hard to get money to meet their daily needs. News of protests in certain parts of the country leading to banks being burnt have taken form due to the naira scarcity.

E-payment, touted as the rescue, in place of less cash in the economy, are failing SMEs. Mobile bank apps have consistently faltered amid network glitches due to the increase in users on a daily basis.

Chibuzor said customers find it difficult to transfer money to his account as the transactions do not go through or there is no network. He said many resort to wanting to pay him with old naira notes.

Joy, on the other hand, explained that transfers are only allowed only from customers she trusts or knows as there are many fraudulent transactions being done by customers.

"Sometimes, the money bounces back and I don't receive it. If I tell a customer I trust that the money bounced back, the customer would easily verify it as I know him or her. But, if I don't know the customer, he or she could run away, " she said.

However, Olubuyide said that commercial banks are grappling with loss of tech workers and the increase in daily transactions outweigh the hands on ground.

"Before now, commercial banks in Nigeria were still managing the exodus of tech workers to foreign countries and local financial technology firms which had already started impacting their mobile applications services.

"I believe what’s causing the failure of electronic transactions is the pressure caused by the increase in payment mobile app usage because of the scarcity of cash. People are now paying for goods worth as low as N100 through electronic transfers, " he said.

Light At The End Of The Tunnel Despite Hardship, Say Analysts

Lagos based Political Analyst and Journalist, Specter, said the naira redesign in and of itself, has no economical impact on SMEs. He added that the naira redesign being carried out asides from its political reasons is merely a facelift of the notes from the previous designs.

However, he noted that the scarcity of the new naira notes has led to unprecedented hardship on Nigerians over the past few weeks.

"Because of the unavailability of naira notes, many small businesses that do not necessarily have employees and are being run by one-man, have become poorer, because buyers do not have money to make patronage.

"Some other small businesses have lost items, resources and raw materials because their sales are being affected which in turn affects subsequent outputs, " he said.

According to analysts, there is light at the end of the tunnel for small and micro businesses soon. Olubuyide said, "I believe the situation will end immediately after the elections, especially the presidential election because the major reason why the currency is redesigned is to frustrate vote buying during elections."

He noted that it may take businesses about three months before they will start recovering from this crisis.

It will be recalled that President Muhammadu Buhari gave approval to the central bank to extend the deadline to turn in old banknotes by another 60 days after the cash scarcity fueled anger in the country.

Buhari said in a television broadcast that old 200 notes would continue to circulate in the economy alongside new 1,000, 500 and 200 notes until April 10. His announcement stands despite the Supreme Court saying the old notes remain valid.

While uncertainty and hardship continue to result from the shortage of naira notes in circulation, residents and business owners however continue to hope that it will abate after the elections.