(Bloomberg) -- Nigerian companies have an inventory of unsold goods approaching Covid-19 pandemic levels, as rising inflation makes them unaffordable in a country where more than half the 200 million population struggles to make ends meet. 

The value of unwanted products held by Nigerian producers jumped 22% to 470 billion naira ($1 billion) by the end of 2022, according to the Manufacturers Association of Nigeria. That’s the highest in the last five years except for 2020, when coronavirus lockdowns were in force. 

“The high inventory is attributed to low purchasing power in the economy, following the continuous increase in inflationary pressures,” Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria, said by phone. “Prices of fuel, particularly diesel, rose by over 50%, while the cost of transportation logistics including shipping escalated.”

Nigeria’s inflation has risen persistently over the last nine months to 22.2% in April, despite a more than 700 basis-point hike in interest rates. Food inflation is even higher at 24.6%, with both measures of cost of living at the highest level since September 2005. 

The price index is also under pressure as producers raise prices above the reach of most consumers to cover the rising cost of inputs caused by the Russia’s invasion of Ukraine, a weakening currency and higher cost of finance. 

Nigerian producers, of which more than 3,000 are registered with the manufacturers union, have struggled to survive over the past three years. The sector’s growth slowed for the third consecutive period to 1.6% in the first quarter of 2023.          

Read: Cash Chaos Makes February Worst in 15 Years for Heineken Nigeria

The Central Bank of Nigeria’s plan to replace high-denomination banknotes to promote electronic-based payments, mop up excess cash liquidity and take control of money supply led to acute cash shortages in the last quarter of 2022 and first three months of this year, because of a scarcity of new bills. That weighed on consumer demand before an extension of the deadline to year-end led the central bank to increase supply.  

“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.

©2023 Bloomberg L.P.