Yemi, a PoS operator in the Egbeda axis of Lagos, who had been working for her uncle’s friend for four months, tells NATIONAL ECONOMY that she borrowed N30,000 to start her own PoS business at the end of January. She said she is expected to pay her debt with interest in three months. She has not fully started her business yet due to scarcity of cash, although other operators are making a kill off the situation. “They know how to get cash,” she said.
Shop owners interviewed by this medium unanimously said sales have plunged since the implementation of the naira redesign exercise that comes pari passu with Nigeria’s monetary authority’s cashless policy.
Yes, Nigerians are literally facing the reality of a dearth of cash for daily transactions. Over the past few weeks, banks had been inundated by angry customers demanding money; the ATMs are flooded with furious Nigerians struggling to withdraw cash, and some spend the whole day hoping to get a few naira notes to pay bills. PoS operators complain of a lack of money; some have been charging between 25 percent and 40 per cent on customers to get some cash.
As if to exacerbate the situation, most Nigerians are stranded because the bank apps for transfers need to be fixed, and most cannot make or receive transferred money. Naira notes are in high demand, and the newly-redesigned notes are rare to get unless by a privileged few.
The perceived poor implementation of the Central Bank of Nigeria’s (CBN) cashless policy is affecting virtually the entire economy as transactions and domestic trade have ebbed for the better part of the month of February, but most especially, small and medium-scale enterprises (SMEs), which constitutes more than 70 per cent of Nigeria’s economic activities.
The World Bank had warned that the redesigned naira may have a negative effect on economic activities, especially for poor Nigerians due to its timing and short transition period.
The World Bank, in its report, “Nigeria Development Update,” said the new policy would negatively affect small businesses, especially those who do day-to-day cash transactions.
The report read in part, “While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.
“International experience suggests that rapid demonetisations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions.
“At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges,” the bank had said.
The president of the Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogunbunka, had also said the objectives of the cashless policy was understandable but noted that the execution and timing were not right.
He said, “From the cashless policy point of view, we should appreciate that as much as possible, the government is trying to limit the use of cash for transactions, more so, now that they are redesigning the currency. “The second thing is that the government wants to drive the use of online banking, which is good for our economy. Unfortunately, there have been so many complaints about failed transactions.”
Also, the Lagos State chairman of the Nigerian Association of Small and Medium Enterprises, Dr. Adebayo Adams, warned that the policy would hit businesses and the MSMEs.
Apart from the above laudable reasons for the cashless policy, the governor of the CBN, Godwin Emefiele, had stated that the policy would curb counterfeiting of the local currency, as well as curb criminal activities that have pervaded the country; and President Muhammadu Buhari had also accentuated that the policy was intended to reduce vote-buying to the barest minimum.
It is interesting that all these are happening at a time of heightened political activities near the 2023 general elections, with various permutations, intrigues and strategies of political parties and their candidates to win the voters. The political ramifications of the naira redesign are evident, but the implications, intended and unintended consequences, are unfolding.
There can be no gainsaying the fact that money and politics are intertwined. Money enables politics, and politics determine how money is allocated. Money in politics is both a force for good and, at the same time, can be an opposing force. That is especially true in Nigeria where the masses have been so impoverished that they have become an easy target for politicians. That is why whenever cash is under any form of threat, politics react. Politics is reacting vehemently, and claims and counterclaims have been made about the naira redesign’s impact on society, the economy, and politics.
Many are left in wonderment as to whether the exercise is merely a currency redesign, a cash swap exercise, or a policy for proper currency management, addressing inflation, taming counterfeit notes, and cash stockpiled for illegal political activities. Or is it all of these things put together?
As the 2023 general elections are ongoing, is this new policy of the CBN politically motivated? These questions merit consideration if we are to understand what is going on and how to tackle the many negative implications before much damage is done. Why is the federal government so intent on the currency swap in such a limited timeframe?
An economist who lectures at the Auchi Polytechnic in Edo State, Zakari Mohammed, said the policy will reasonably eliminate vote buying and other forms of financial inducement to the voters, INEC workers or election entrepreneurs bent on rigging the election. He said the policy is a masterstroke by the government against vote-buying and a blow to the corruption of the electoral process. He stressed that with the introduction of BVAS and INEC’s resolve to conduct a free and fair election, the window for rigging has become very narrow.
It is generally believed that some candidates and political parties have stockpiled cash for this purpose. The sudden naira redesign and swap may have dislodged the use of this stockpiled money to buy votes and bribe INEC officials.
Standing on the CBN’s estimation that over 80 per cent of Nigeria’s currency is outside the bank vaults and possibly stored in private vaults by corrupt members of the elite class who are involved in one crime or the other and who wouldn’t be able to defend the source of such huge funds if brought to the bank, the policy would have a long-term positive impact on Nigeria’s democracy. This policy will likely guarantee a bribery-free election.
A social affairs analyst and economist, Paul Ezeibe, applauds the exercise. He said the naira redesign may effectively halt the inflow of illicit money used for political purposes, especially proceeds of money laundering and financial crime. Often, cash facilitates illegal and criminal transactions because they are not easy to trace. “There are instances of corrupt government officials stashing cash at home to the tune of billions of naira because they cannot put it in the bank for fear of being detected. These illicit monies always find their way in the system during elections for different unlawful purposes. Drug dealers and kidnappers struggle to operate within a cashless society,” he said.
Moreover, the naira redesign has strangulated economic activities and added to citizens’ financial pressure. This may cause anger against the government and the ruling party, and at this crucial time of the general election, it may be costly. Economic hardship often leads voters to punish the ruling party and is prone to favouring the opposition. This policy has doubtless split APC in the middle.
The crisis that the naira redesign has created is reeling excruciating inflationary trends. This may seem paradoxical given that scarcity of cash should have a deflationary tendency instead of an inflationary one. However, this case is different because of the combination of other inflationary elements within the context of the Nigerian economy. These inflationary tendencies are seen in the high cost of fuel, food, and other necessities, and these forces are so strong that the naira redesign crises have not dented the inflationary trend. Besides, the cash cost is high, which is transferred to the price of goods and services, keeping the inflation on. Inflation at the peak of campaign and elections is definitely not a good mix.
Many Nigerians detest the hardship the new naira design is causing in the country, and they feel that the timing of the implementation is wrong even if the intention is genuine. The real threat is that elections are a major logistics venture that is capital-intensive. Buhari remains intent on his decision to redesign the naira, as has been demonstrated even with the perceived pressure on the Supreme Court to intervene.
However the saga pans out, President Buhari is leaving a legacy.
As Nigerians choose who will hold the reins of the country for the next four years, the redesigning of the nation’s currency had increased the apprehension that comes with general elections in the country. The effect of the policy which had significantly reduced the cash in circulation and led to a massive cash crunch has had both upsides and downsides on the nation’s economy.
The CBN had in October last year announced plans to redesign the Nigerian legal tender as one of several means to curb the rate of naira counterfeiting, vote-buying, and fight terrorism. It had introduced new versions of the N200, N500 and N1,000 notes which was commenced circulation in mid-December last year.
While the policy has been controversial due to the hardship that it had brough upon many Nigerians as well as the allegations brough against the Central Bank of Nigeira (CBN) and the federal government by politicians, there are arguments that it is one step towards achieving a cashless economy whilst curbing corruption in the country.
With an initial deadline of January 31 for the old N200, N500 and N1,000 notes, an extension as announced by the governor of the Central Bank of Nigeria, Godwin Emefiele for another 10 days had led to a scramble for the new notes.
As businesses refused to accept the old notes and banks not dispensing the new notes, a fresh wave of anger has fueled violence in some parts of the country with banks and private businesses losing properties in the fiasco. Not less than seven banks had been burnt by angry Nigerians seeking cash across the country.
According to the Chief Executive of Centre for the Promotion of Private Enterprise (CPPE) Dr Muda Yusuf, over 30 million unbanked Nigerians are impacted by the currency redesign policy, noting that trade and commerce as well as agriculture have been greatly impacted by the policy.
“The crippling of business transactions at the distributive trade end amid the currency swap crisis would not only undermine the trade and agricultural sectors but would have a knock-on effect on manufacturing value chain and the services sectors. This is because whatever is produced have to sold. The trading end of the chain has been greatly disrupted by this currency swap crisis,”he said.
A poultry farmer, Sanusi Dantata, lamenting on social media noted that his farm had been incurring losses as the cash crunch had reduced the purchasing power of many Nigerians. “Thanks to the naira redesign policy, and subsequent downturn in the economic activities, our eggs have piled up. We must continue to feed our birds meanwhile people are not buying despite the fact that we accept transfers,” he lamented.
Although some state governors had taken legal steps to stop the policy by instituting a case against the federal government, the apex bank had gone ahead with the deadline after President Muhammadu Buhari announced an extension of the deadline for the N200 note. The deadline for the old N200 he noted, had been extended till April 10, 2023 , while the president announced that the old N500 and N1,000 notes are no longer legal tender and would only be acceptable by the CBN.
Consequently the apex bank had opened up a portal for Nigerians who still had the old N500 and N1,000 notes with them to fill forms for depositing the old notes in their respective banks. On the other hand, the policy has increased adoption of the cashless policy as most transactions are consummated electronically.
This was evident in the electronic payment data as released by the Nigeria Inter Bank Settlement System (NIBSS) for the month of January. While the cash crunch in January was note as severe as was seen in February, volume and value of electronic transactions in the country had jumped by 55 and 45 per cents respectively year on year.
According to the data, value of transactions on the NIBSS Instant Payment platform rose to over N38 trillion in January alone. The gradual transition to a cashless economy was also reflected in the rising usage of point-of-sale transactions with data showing that it had risen almost 41 per cent year on year to N807.2 billion at the close of January 2023 after hitting N573.72 billion in the same period last year. Also, the mobile scheme under the instant payment platform rose fast to N2.7 trillion, indicating an increase of more than 110 per cent year on year.
Analysts at Cowry Assets Management noted that the steady growth may have “been bolstered by the current naira scarcity, limited cash withdrawal policy, rising tele-density rate, and increasing number of internet subscribers across the country.”
Cowry Assets analysts opined that the transition to a cashless economy will be majorly driven by the naira redesign and cash swap initiatives of the central bank, as most Nigerians will adopt the use of electronic payment channels for business and personal transactions, which may further lead to a decline in presence in the banking halls.
Asides this, the currency in circulation had declined significantly. One of the arguments for the redesign of the higher denominations of the currency was the fact that the cash outside the banking hall had grown significantly, thus making it hard for monetary policies aimed at tackiling inflation not to be as effective as they should be.
According to the CBN, of the over N3.2 trillion in circulation within the economy as of October 2022, N500 billion was within the banking sector, while N2.7 trillion was stashed in homes. With the redesign of the naira, latest data had shown that currency-in-circulation fell by 53.33 per cent within three months. Specifically, the currency-in-circulation fell from N3.3trillion recorded on October 31, 2022 to N1.54trillion on January 31, 2023.
Asides this, the naira redesign policy is also expected to increase revenue generation through tax administration. According the head, Global Markets at Parthian partners, Ronke Akinyemi, the cashless drive of the policy will be a way to boost the government revenue.
Speaking on revenue generation by the government, she noted that “we expect that there will be increased remittances from government owned enterprises, we expect to see improved tax administration.” According to her, the naira redesign coupled with the cashless policy of the Central Bank of Nigea is expected to see more naira move prom private hands into the banking vaults.
“We expect that if we eventually transition to a cashless economy, more money is in the bank, the banks would have an idea of who owns what and it will be easier for the tax guys to go after who has not been paying tax on who has been evading tax because you cannot collect tax from the person that is putting money under his bed. So once all the money is in one place, it creates a clearer view for them. So, in that respect we expect that there will be improved tax administration and increased oil outputs, hopefully.”
Analysts said trading would be cautious and that investors would continue to remain uncertain due to the political jitters, as such downside risk in buying of stocks is expected to happen.
According to them, unrestrained utterances by politicians are already heating up the polity with very strong consequences for the capital market.
