Widespread reports by firms indicated that customers were unable to commit to spending in the face of the cash crunch
Nigeria's manufacturing sector shrank for the second month in a row in March as cash scarcity in Africa's biggest economy hampered private sector activity.
The development forced output and new orders to drop at rates steeper than those of the preceding month.
The latest edition of Stanbic IBTC Bank Nigeria PMI, which measures factory activity in the country, puts Nigeria's purchasing manager index for March at 42.3 compared to 44.7 for February.
That signals the second deepest plunge since the survey started more than nine years ago. A reading above 50 indicates growth but the one below that threshold points to contraction.
"The continuous decline relative to February reflects the negative impact of cash shortage across different segments of the economy over the past two months," said Muyiwa Oni, head of Equity Research West Africa at Stanbic IBTC Bank.
"Currency in circulation declined by 58% in January 2023 to N1.39tn from N3.01tn in December 2022, while currency outside the banks declined by 72% in January 2023 to N789bn from N2.57tn in December 2022," Mr Oni added.
The contraction also meant that both staffing levels and purchasing activities fell.
The survey noted that output prices rose "at the softest pace in almost three years," while suppliers' delivery times reduced after having lengthened in the previous month.
It further observed that widespread reports by firms indicated that customers were unable to commit to spending in the face of the cash crunch, echoing a broader deterioration in business conditions within the private sector.
One of the major implications of that was a considerable plunge in new business, the survey said.
Challenges in paying workers wages were cited as a key reason companies chose to cut staff. Another was lower workloads.
"The cash crisis acted to dampen confidence in the private sector in March, with sentiment the second-lowest in the series history," the survey stated.
