Naira scarcity weakens business across Nigeria as Supreme Court resumes hearing today


As the Supreme Court resumes hearing today on the old naira note deadline suit between some state governments and the Federal Government, Nigerians, especially consumer and business groups as well as professional and trade unions are looking up to the apex court for a favourable judgment that they expect will ameliorate their suffering.

Uba Group

For the first time in many months, the Nigerian business activity index fell into the negative region in February 2023 due to the scarcity of fuel and Naira in the financial system.

The Central Bank of Nigeria redesigned the N200, N500, and N1, 000 banknotes last year and gave Nigerians till January 31, 2023, to swap their old notes for the new ones.

However, after calls from various quarters, the deadline was shifted to February 10, 2023.

Two days before the expiration, three state governments went to the Supreme Court to stop the implementation of the policy designed to reduce the amount of cash in the system.

The apex court asked the parties to maintain the status quo pending the determination of the matter and before the presidential election last Saturday, many Nigerians and businesses found it difficult to get cash to carry out transactions.

In its Purchasing Managers’ Index (PMI) for February 2023, Stanbic IBTC Bank said it had a reading of 44.7 points compared with the 53.5 points achieved in January 2023.

Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show deterioration.

In the report, it was observed that cash shortages across the Nigerian economy had a severe impact on the private sector midway through the first quarter of the year. Substantial declines were seen in both output and new orders, while firms scaled back their purchasing activity and employment.

Companies were also impacted by shortages of fuel, which added to price pressures and led to supplier delivery delays.

The 44.7 points recorded last month ended the 31-month sequence of expansion.

The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.

The most severe impacts of cash shortages were seen with regard to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending.

The decline in new orders was the first since June 2020, while the fall in output ended a seven-month sequence of growth.

In both cases, the reductions were the most pronounced in the survey’s history, apart from during the opening wave of the COVID-19 pandemic.

With new orders and output falling, companies reduced their input buying and staffing levels accordingly.

The declines were the first in 32 and 25 months, respectively. The decrease in purchasing reflected not only a drop in customer demand but also difficulties for companies to find the funds to pay for items.

Alongside cash shortages, the private sector was also impacted by a scarcity of fuel in February. This had a notable impact on suppliers’ delivery times, which lengthened for the first time in close to six-and-a-half years and to the greatest extent since April 2016.


The slump in PMI shows that while the CBN has managed to reduce the amount of cash held outside the banking system to a record low, it has come at a cost to the economy.

“The lingering cash shortages will likely continue to dampen economic activities and could depress economic growth” this quarter, said the Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, adding that the Nigerian economy could grow at 3 per cent in 2023 due to the challenges.

“Furthermore, persistent fuel shortages from the beginning of the year saw petrol pump prices increase, which both increased production costs for firms and led to supplier delivery delays. Sure, the lingering cash shortages will likely continue to dampen economic activities and could depress economic growth in Q1:23,” he stated.

In turn, shortages led to a rise in fuel costs which were widely mentioned as having been behind a further marked increase in purchase prices.

Higher raw material costs and currency weakness were also factors pushing up purchase prices. The rate of inflation was the softest since June 2020 but marked nonetheless and stronger than the series average. Staff costs also rose again in February, but at a modest pace.

The passing on of higher input costs to customers resulted in a further sharp rise in output prices, albeit one that was the weakest in four months.

The hopes that economic conditions will improve, alongside business expansion and investment plans, led to confidence in the year-ahead outlook for business activity. The sentiment was at a five-month high but still relatively muted.

The Supreme Court had on February 8 restrained the Federal Government from implementing the February 10 deadline for swapping the old naira notes with new ones, but the Central Bank of Nigeria refused to shift the deadline.

The injunction was sequel to a suit filed by Zamfara, Kogi and Kaduna state governments against the Attorney-General of the Federation on February 3.

Other states including Lagos, Ondo, Ekiti, Kano, Sokoto, Ogun and Cross River have also joined the suit as co-plaintiffs.

But the crisis between the governors and President Muhammadu Buhari over the naira redesign initiative worsened on February 16 when the President in his nationwide broadcast ignored the apex court order by extending the validity of the old N200 notes while insisting that the old N500 and N1, 000 remained illegal.

Buhari further stated that the old N200 note would be legal tender till April 10, 2023, while urging Nigerians to deposit their old N500 and 1000 notes with the CBN.

Insisting on the order of the apex court, the governments of Kaduna, Ogun and Sokoto states, however, said the people in their states should continue to use the old naira notes as legal tender until the Supreme Court delivered its final pronouncement on the case pending before it.