As growing inflation renders them costly in a nation where more than half of the 200 million people struggle to make ends meet, Nigerian businesses have an inventory of unsold goods that is approaching Covid-19 epidemic proportions.
Bloomberg, which quoted the Manufacturers Association of Nigeria, said the value of unsold goods held by Nigerian producers increased by 22% to N470 billion ($1 billion) at the end of 2022. With the exception of 2020, when coronavirus lockdowns were in place, that is the highest number in the previous five years.
“The high inventory is attributed to low purchasing power in the economy, following the continuous increase in inflationary pressures,” the business online paper quoted Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria, as saying.
Ajayi-Kadir stated that while the cost of shipping and logistics for transportation increased, the price of fuel, particularly diesel, increased by over 50%.
Despite an increase in interest rates of more than 700 basis points, Nigeria’s inflation rate has grown steadily over the past nine months, reaching 22.2% in April. With both indicators of cost of living at their highest levels since September 2005, food inflation is significantly higher at 24.6%.
In order to offset the growing cost of inputs brought on by Russia’s invasion of Ukraine, a weaker currency, and greater financing costs, businesses are raising prices exceeding the means of the majority of consumers, placing pressure on the price index.
During the past three years, Nigerian producers—of which more than 3,000 are registered with the manufacturers union—have fought to survive. In the first quarter of 2023, the sector’s growth slowed to 1.6% for the third time in a row.
Due to a lack of new bills, the Central Bank of Nigeria’s plan to replace high-denomination banknotes in order to encourage electronic-based payments, remove excess cash liquidity, and control the money supply resulted in severe cash shortages in the final quarter of 2022 and the first three months of this year. This reduced consumer demand before the central bank increased supply as a result of extending the deadline to the end of the year.
“The withdrawal of large amounts of the old naira without commensurate replacement with the new notes resulted in a cash crunch in the economy, with very limited means of purchasing items by households,” the DG said. “This particularly affected the manufacturing sector, as it was extremely difficult to sell most fast-moving consumer goods and other commodities,” he said.