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Here’s how manufacturing SMEs are adapting, one month after ‘naira scarcity’

Key highlights

  • Food processing SMEs saw over 50% production drop due to cash scarcity. 
  • Issues they faced included paying nearly 40% charges to access cash for payments to workers and farmers. 
  • To prevent production lapses, they have sorted bank accounts for farmers they work with, and reached deeper partnerships with farming cooperatives to ensure supply. 

It has been over a month since Nigeria’s Supreme Court ordered that old N200, N500, and N1,000 notes should remain in circulation till December 31, 2023. 

The apex court also nullified the naira redesign policy introduced by the Federal Government, declaring it as an affront to the 1999 Constitution.

Recall that the naira scarcity challenge had caused multi problems for many sectors of the Nigerian economy. One of the sectors that were specifically affected is the manufacturing sector.

How manufacturing SMEs are coping one month after

Recently, Nairametrics spoke to two founders who are into food processing. The founders are Ngozi Rowland of Sem Food and Spices Ltd and Ene Adah, founder of Just Nature’s Limited.

They shared their first-hand ‘horror’ experiences with the cash scarcity challenge. 

According to the food processing entrepreneurs, the cash scarcity affected the availability of raw materials due to difficulties sourcing supplies and also made it impossible to pay workers on time. They also revealed plans on how to mitigate for the future. 

More on the challenges faced by food entrepreneurs

Ngozi of Sem Food and Spices said the lack of bank accounts among the majority of our bulk suppliers, who are farmers, had an impact on the availability of raw materials. He said:

  • “It affected the availability of raw materials, as most of the farmers that give us our bulk supply do not operate bank accounts. For us to buy with cash, we had to buy our money with money. At some point, we were paying charges of N4000 for every N10,000. 
  • “This reduced the number of raw materials we could purchase and made us increase our product prices.” 

Ene Adah, whose company processes coconut oil for multiple uses, said the Naira scarcity reduced her company’s production capacity by 60%. She added: 

  • “Though we did not have many problems with our suppliers, due to the fact that most of our transactions have always been through internet banking. 
  • “Our major problems were with our workers, workers could not access cash for transportation, so they couldn’t come to work and this affected our production drastically.
  • “Also, some of our staff who do not have bank accounts before this time found it difficult to collect their take-home pay, and some of our raw materials that were locally accessed from the market were also affected as there was no cash at hand.”

Plans to avoid cash issues in the future 

Ngozi stated that she plans to deal with future occurrences through deeper partnerships with farming suppliers and cooperatives, she said: 

  • “This includes more collaboration through partnerships and grants, partnerships with farmers, cooperatives, we can transact with, holding more cash which we don’t do, but we have to adapt, giving a discount for cash purchases.” 

Ene Adah noted that her company now makes sure all workers have access to bank accounts, she said: 

  • “To avoid another cash crisis in the future we made sure every worker has an account where can send all salaries, of course, we can do more than our capacity, as the majority lies in the government to enact the naira redesign policy. 
  • “All we can do is to do our best and hope for a better Nigeria” she added. 

How the incoming administration can help SMEs 

Ngozi said SMEs are the backbone of Nigeria’s business climate, and urged that FG should implement policies that will provide funding opportunities, grants, loans with minimum or zero interest, and also Policies that will open up access to the market both locally and internationally. 

Ene added that the next administration should work on power, as power has remained one of the biggest challenges in running a business in Nigeria, she added: 

  • “We end up spending money running petrol leading to a high increase in cost. Getting our raw materials has drastically increased too due to scarcity of petrol.”

In case you missed it

In February, Black market FX traders expressed their frustration over the naira scarcity which forced many traders to shut down their trading activities.  

The FX market traders, who spoke to Nairametrics, said they have ceased trading FX due to the lack of cash and the efficiencies in other forms of transactions, adding that it crippled liquidity and significantly impacted businesses. 

Economic deceleration 

The Chief executive of Economic Associates, Dr Ayo Teriba, told Nairametrics that the naira crisis will certainly affect Nigeria’s GDP growth in the first quarter, but if normalcy returns, then the situation will just be a problem for the first quarter. 

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