Small businesses struggling and dying under cash crunch – Independent Newspaper Nigeria

Small businesses struggling and dying under cash crunch – Independent Newspaper Nigeria

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The blockage created by the directive of the Federal Government through the Central Bank of Nigeria (CBN) and the Supreme Court ruling on the country’s cash/cashless exchange policy is negatively affecting small businesses. Many have since closed shop due to the cash crunch, writes ISAAC ASABOR

Although many businesses have been pushed to the brink by the prevailing liquidity crunch in Nigeria, occasioned by the naira currency overhaul and the Central Bank of Nigeria (CBN) cash swap policy, others took advantage of the disruption to carve out a new niche. The reason for the retrograde situation cannot be far-fetched when analyzed from the perspective that the CBN management embarked on the mission to phase out the old naira notes on January 9, 2023, thus leaving many small businesses out of breath. breath while many of them have ceased their activities.

In the above context, it is worth recalling that the CBN embarked on the mission in a circular titled “Naira Overhaul Policy: CBN Launches Cash Swap Program in Rural/Underserved Areas “Issued to all depository banks, mobile money operators, super agents, and proxies”.

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Ms Chinyere Iwuchukwu, a restaurateur who went out on Wednesday March 8, 2023 to ply her trade as usual, said: ‘It’s better than nothing’, when asked why she opened a shop despite her incapacity to make sizable sales because customers weren’t more condescending. Clearly justifying why she opened her shop despite the unfavorable market situation, she said, “We survive on very small orders, sometimes even from those who eat on a ‘book-me-down’ basis.

“Book-me-down”, according to her, is a sales concept where customers are served the ordered food, only to write their names and the price of the food purchased from her, promising to pay later as long as they will remain his client.

According to Ken Ihiria, “The cash crunch that started hitting businesses on January 9, 2023 when the naira swap policy was implemented has significantly affected businesses. Restaurant owners and those who sell food products are harmed”.

For Joseph Okonta, “actors in the informal sector have been affected because they live from day to day”, and added that they are the most affected as the crisis persists, especially since it makes them more difficult to access basic necessities such as food and to rent or even leave their accommodation.

Speaking on the economic implications, the Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane, projected that Nigeria would suffer a total loss of GDP of $18 million and a total loss of working hours of 120 hours. (five days) per month due to the disruption of economic activities triggered by the implementation of the Central Bank of Nigeria’s currency exchange of old banknotes of N1,000, N500 and N200 for banknotes of Newly Printed Naira.

Rewane, who made the February 9 projection at the Lagos Business School, attributed the decline in GDP growth to a reduction in the velocity of money circulation and the total loss of working hours in the economy. He said: “Trade is settled primarily in cash and at points of sale (although) 70% of trade transactions are settled in cash. Thus, the speed of circulation in the commercial sector (16 times) is approximately four times higher than that of the formal sector. A drop in traffic speed could reduce production in the commercial sector. Consequently, its contribution to GDP will decrease”.

According to him, commerce contributed 16% to formal GDP and employed 17% of the total labor force in Nigeria. His projection was distilled from the following facts: the total money supply in the economy is 52 trillion naira while the total cash in circulation is 3.01 trillion naira. Additionally, three of the eight denominations totaled N2.71 trillion.

However, he estimated that “the total of new naira notes printed is 400 billion naira, which left a naira cash shortfall of 2.31 trillion naira, or about 77% of the total cash in circulation. , which led “to a virtual paralysis of commercial activities”.

Still on how small businesses are groaning under the naira-swap initiative, an outlet operator at the Sunday market in Ogba, Lagos said, “I haven’t been able to open my shop since the start cash crisis in January because I could not get money from the bank to pay my clients. On the other hand, the customers who came for a deposit, could not deposit new tickets, rather, they brought old tickets to my shop, and it is very difficult to get old tickets in exchange for new ones banknotes in all banks. These challenges are the reasons that made me close my shop until normality ensues.

Along the same lines, Mama Chika, as she is affectionately known, said in pidgin, “Since this problem started, I also don’t get money to buy things put on the market, and my clients do not refuse it”.

Commenting on the issue from a similar perspective, the Nigeria Employers Consultative Association (NECA) called on the apex bank to quickly release more new naira notes into the economy or allow the use of old ones. .

NECA said that could be an immediate solution until the CBN “demonstrates its competence in not always putting the cart before the horse in the implementation of monetary policies.”

As captured in one of his statements, NECA Managing Director Adewale-Smatt Oyerinde highlighted the adverse effects of the cash crisis on businesses and the economy in general.

He said: “Over the past few weeks, with the shortage of cash and the ability of Nigerians to buy severely impaired by the poor implementation of the policy, the economy has seen a major rundown.”

He cited a report indicating that the real sector had seen a decline of around 40% in productive activities.

“As the money, the hubbub continues, thousands of productive hours are lost daily in employee queues and many can’t even get to work,” he said.

The CEO of NECA said that the value chain in the formal and informal sectors with more than 10 billion cash transactions per day was almost destroyed, with consequences for employment, business sustainability and national development.

He called for critical and immediate efforts to improve or upgrade alternative routes to cash, thereby ensuring transparent transactions before going digital.

He said the series of actions taken by the CBN now in the form of the exchange of the Naira agent, among others, was an afterthought following the reality of resistance by Nigerians.

“It is ruthless to deprive citizens of new naira notes after coaxing them to deposit old ones in banks,” Oyerinde said, urging the CBN to sanction commercial banks deemed complicit “in the whole spectacle of the shame, even though the CBN cannot extricate itself from being complicit”.

“As an immediate action, we align ourselves with the position of the Council of State that the CBN should release more new naira notes into the economy or allow the use of old ones, pending a time when it will do so. skill in not always putting the cart before the horse in the implementation of monetary policies,” Oyerinde said.

The NECA boss said the CBN’s naira overhaul policy was laudable given its stated goals; it was marred by poor implementation and short-sightedness, as were many of the bank’s policy initiatives.

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