In 2022, the Central Bank of Nigeria announced its move to redesign the naira and encourage cashless transactions in the country. While this would have seen the country’s payment system become seamless, it was mired in many problems. Temitayo Jaiyeola write
I don’t know what to do. Those who patronise me don’t have cash and I don’t accept bank transfers,” a fruit seller at Mile 12 Market, Isa Yusuf, told The PUNCH in early February 2023.
“My tomatoes almost got spoilt, but a customer took pity on me and bought them off. She paid with a transfer, but it didn’t reflect until about six days,” lamented, Abebi Saka, who sells perishable food items at Ketu market.
“There are no customers because people don’t have money to spend. By now (about 11 am), I would have had four trips, but until now, I haven’t filled one vehicle,” a transborder transporter at Mile 2, Surulogba added.
This was the common tune in late 2022 and early 2023. Nigerians, old and young, had to grapple with a lack of cash following the Central Bank of Nigeria’s move to redesign certain denominations of the naira and limit currency in circulation.
Naira redesign/policy
In October 2022, the then CBN governor, Godwin Emefiele, announced that the bank would release re-designed naira notes by December 15, 2022. He stated that this move was targeted at controlling currency in circulation as well as curbing counterfeit currency and ransom payments to kidnappers and terrorists.
He said, “Indeed, the integrity of a local legal tender, the efficiency of its supply, and its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank. In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.”
He highlighted that as of the end of September 2022, available data at the CBN indicated that N2.73tn out of the N3.23tn currency in circulation was outside the vaults of commercial banks across the country, and supposedly held by members of the public.
He decried that the currency in circulation has more than doubled since 2015, rising from N1.46tn in December 2015 to N3.23tn as of September 2022, which is worrisome. He further noted that the new series of banknotes would be for only N100, N200, N500, and N1,000 notes and old versions of them would seized to be legal tenders by January 31, 2023.
Along with the naira redesign policy, the apex bank would release new revised cash withdrawal limits. In its guidelines, the apex bank would encourage the usage of digital platforms for transactions by saying, “Customers should be encouraged to use alternative channels (Internet banking, mobile banking apps, USSD, cards/PoS, eNaira, etc.) to conduct their banking transactions.”
Before the launch of the naira notes in December 2022, Emefiele, represented by Gombe branch controller, Shehu Goringo, said, “Let me use the opportunity of this final to reiterate our dedication to building a robust payment system in Nigeria, and ensuring greater financial inclusion, particularly at the grassroots.
“It is in this vein that the CBN, in October 2021, deployed the first Central Bank Digital Currency in Africa, the e-Naira which is facilitating our goal of ensuring greater financial inclusion through the adoption of digital channels and providing a reliable channel for remittance inflows into the country. A key focus of the CBN is also supporting the growth of the digital economy.”
The CBN would later state that its policy would help fight raging inflation in the country. The CBN Acting Branch Controller in Ondo State, Mr Giwa Ademola, argued, “The benefits of the currency redesign to the Nigerian economy are enormous given that this policy will help to control inflation, as the exercise will bring the hoarded currency into the banking system, thereby making monetary policy more effective.
“It will also help with better design and implementation of monetary policy as we will have much more accurate data on money supply and monetary aggregates.”
It is not the first time the CBN would attempt to change naira denominations but perhaps it got more than it bargained for this time around. A combination of the redesign and reduction in naira in circulation tanked the economy faster than anyone could have predicted.
Chaos
On February 15, 2023, riots broke out in Oyo, Ondo, Benue, and Kwara states as residents boiled with anger over cash scarcity.
In Benin, Edo State, trouble began when bank customers besieged the state branch of the CBN at 9, Akpapakva Road to lodge their old naira notes. At first, people were calm, until a Hilux van carrying some officials attempted to enter the premises. People stopped the van believing it was conveying new naira notes.
At first, the police officers guarding the premises attempted to stop them, but this soon escalated after the police mistakenly shot a male customer dead, further inflaming the protesters.
According to The PUNCH report, hell broke loose at around 11.45 am, and rioters began to attack all the banks along the Akpkakpkava Road. In Warri, Delta State, youths protested the rejection of the old naira notes by razing down several vehicles parked in front of First Bank Plc, Access Bank and Union Bank branches located in the Orovwohworun area of the Udu.
In Ibadan, Oyo, protesters barricaded major roads to protest. A protester said, “I have never experienced this kind of frustration in my life, and I want to believe that the people in government are doing this intentionally. They have their target. They wanted to add to our suffering so that we would not come out during the election, but they have failed.”
In Akure, Ondo State, scores of commercial motorcyclists invaded the streets to protest the scarcity of the new naira notes and the rejection of the old currencies by commercial banks. Kwara and Uyo were not left out either.
In Uyo, the police would fire several tear gas canisters to disperse hundreds of depositors who thronged the CBN branch located along Udo Udoma Avenue, to lodge their old naira notes.
Commenting on the police action, the state Police Public Relations Officer, Odiko Macedon, said, “Today (Wednesday), there was a large crowd in the CBN vicinity and the crowd was becoming rowdy and it was almost becoming riotous.
“So, the police as an agency saddled with the responsibility of maintaining law and order cannot fold their arms and allow a breakdown of law and order. So, the Commissioner of Police, Olatoye Durusinmi, in his wisdom, deployed officers and men to restore law and order, and that is exactly what happened. Nobody was harassed or molested; nothing untoward happened.”
In February 2023, a 32-year-old woman, Shema’u Labaran, died during her nine-month pregnancy at the Abdullahi Wase Specialist Hospital, Kano, allegedly due to the inability of her husband to pay medical bills in the new naira notes in time.
That same February, a member of staff of the Lagos State University, Ademola Adesola, allegedly died while waiting in a queue at a Wema Bank branch in Ojo, Lagos.
In March 2023, a 71-year-old broadcast journalist in Oyo State, known as Baba Binti, was alleged to have lost his life due to the scarcity of cash.
According to media reports, the journalist was said to have slumped and died while trekking to work because of the lack of new naira notes to board a vehicle.
Cash is king
Nigeria is a cash-based economy and only about 38 per cent of adults have bank accounts. As the National President of the Association of Mobile Money and Bank Agents of Nigeria, Victor Olojo puts it, “Transactions are done with cash, especially those that are below the pyramid such as the market women and men who are petty traders.”
In an interview with The PUNCH, Olojo said, “Nigerians should brace up, as this is a challenge that CBN is putting out to Nigerians to embrace technology.
“However, the difficulty would be felt as we still have a lot of transactions done with cash, especially those that are below the pyramid such as the market women and men who are petty traders, because this in essence means that once a bag of rice or flour is to be bought, which is above N20,000, it has to be via e-banking. Looking at it, how many of these people are technology-savvy?”
The Lagos State Chairman of the Nigerian Association of Small and Medium Enterprise, Dr Adebayo Adams, while hinting that the policy would affect small businesses, noted that if other channels were well organised, the policy would have worked out.
He said, “If other channels are well-organised, then it is good. However, every other thing is going to affect us because, as of December 15, 2022, most people will be sceptical about accepting old notes.
“Most people will not like to discard old naira notes with them because there is no point in taking away the one I have to the bank and finding out the new naira notes are not yet available.
“How can you say I can’t access more than N100,000 in a week? What do I do with N100,000? So, it is going to have a serious effect on the local market. These people are selling daily at Ketu, Igboyi, and Oyingbo markets, most of them do not have PoS or ATMs. So, it will affect the speed of transactions and movement of goods.”
Online payments underperform
Nigeria’s digital infrastructure has been touted as being one of the best in the world with the instant nature of transactions. According to the Association of Corporate Affairs Managers of Banks, banks have invested over N100bn in technology to ensure customers enjoy seamless electronic transactions. All these fell like a pack of cards when the banking system faced one of its major stress tests.
Cashless transactions grew by 44.84 per cent to N126.73tn in the first quarter of 2023 from N87.49tn in the corresponding period of 2022, indicating increased usage. But it also exposed the inadequacy of the country’s digital infrastructure.
As the World Bank pointed out, the country’s digital and financial infrastructure is inadequate to support a transition to a cashless economy.
“I was not able to go to the market during that period. You would make transfers and people won’t see it. One day, I tried transferring to someone through the PoS in the market one time, but she didn’t see it until after I had gone. I could not buy fabrics, I was stranded that period and it is an experience I do not want to ever re-live,” the Chief Executive Officer, Petroyal Appreal, Peter Adebiyi, said.
A car dealer, Segun Alabi, lamented to The PUNCH at the time, “I wanted to make a withdrawal at the PoS but the transaction failed, and I was debited. It doesn’t make sense to debit somebody for a transaction that is said to have failed. Now I have to start going to the bank to complain.
“When you do that, they will tell you to wait for seven days before they reverse the money. This is pure wickedness. It is a system that serves only the interest of the bank. The bank exists to serve its customers. To put its interest ahead of that of the customer is pure wickedness.”
The Washington-based bank would say, “The short transition period of the naira redesign was insufficient for the CBN to replace the demonetised old notes with new ones, leading to a cash scarcity.
“The lack of adequate digital and financial infrastructure and processes to support a swift transition to a cashless economy— coupled with the fact that only 40 per cent of adults have a bank account—further exacerbated the situation. The cash shortage resulted in a black market for new notes, inflating overall transaction costs.”
The Group Managing Director of RoutePay, Femi Adeoti, in an interview with The PUNCH, highlighted how even though the country was ripe for cashless transactions, its banking sector isn’t.
He said, “However, while the populace is ready to adopt these solutions, we realised that Nigeria’s current banking and digital payment infrastructure is inadequate to cater to the expected growth in the volume of digital/electronic-based transactions. While we are right to celebrate an increase as significant as 125 per cent, the failures recorded show that we could have achieved more.
“So, the major implications are that we are ready to adopt cashless initiatives, but all the needed infrastructure must be in place. It is also important that all the necessary stakeholders are well-represented, informed, and involved in all the processes leading to any new policy on the cashless drive.”
System downtime and failure became the order of the day, the CEO added. During this period, bank apps crashed, and in one particular instance, a major bank’s app was down for hours, throwing customers into misery.
In February 2023, the Fintech Association of Nigeria lamented that the challenges with the execution of the country’s cashless policy may erode customers’ trust in the banking system.
The failure of the transfers at the time, the bank feared, would affect customers’ confidence. It said, “Challenges with execution may be leading to the erosion of trust in the banking system, with merchants asking for cash payments despite empty ATMs, digital channels increasingly overwhelmed, and POS charges inching towards 50 per cent.”
Economy shrank
In the first quarter of 2023, Nigeria’s GDP growth fell to 2.31 per cent from 3.52 per cent in the fourth quarter of 2022, according to the National Bureau of Statistics due to cash scarcity.
The NBS said, “Gross Domestic Product grew by 2.31 per cent (year-on-year) in real terms in the first quarter of 2023. This growth rate declined from 3.11 per cent recorded in the first quarter of 2022, and 3.52 per cent in the fourth quarter of 2022. The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter.”
The United Nations Conference on Trade and Development would say in its ‘Trade and Development Report Update; Global Trends and Prospects (April 2023),’ report that the shortage of the naira crippled the Nigerian economy.
It said, “In Nigeria, a shortage of cash, triggered by the replacement of the highest denominations of the country’s currency, hobbled the economy, especially the informal sector.”
According to the Centre for the Promotion of Private Enterprise, the Nigerian economy lost about N20tn in the first quarter of 2023. The Director, CPPE, Dr Muda Yusuf, said, “Millions of citizens have slipped into penury and destitution as a result of the disruptions and tribulations perpetrated by the currency redesign policy, especially the mopping up of over 70 per cent of cash in the economy.”
The World Bank would opine that the cashless policy did not have any impact. It said, “However, as was predictable given that currency in circulation accounts for only a small part of the money supply (7 per cent as of November 2022), the policy had no discernable positive effects: inflation edged higher from 21.3 per cent in December 2022 to 21.9 per cent in Q1 2023, and the exchange rate premium of 64 per cent in Q1 2023 was above its average value of 53 per cent in 2022.”
The February Purchasing Managers’ Index data released by Stanbic IBTC Bank revealed that the shortage of cash across the country in February might have a negative influence on the private sector.
It said, “The most severe impacts of cash shortages were seen with regards to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending.”
“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.”
India did it too
In 2016, India announced a demonetisation policy. The Narendra Modi government moved to render two high-value currency notes (Rs500 and Rs1,000 notes) illegal to reduce India’s dependence on cash.
Modi said in his Mann Ki Baat radio programme on Nov. 27, 2016, “We dream that there should be (a) cashless society. This is correct that a 100% cashless society is never possible. But we can make a start with a less-cash society—then cashless society will not be a far-off destination.”
It failed. According to reports, the demonetisation policy wiped off at least one per cent of the country’s GDP and cost at least 1.5 million jobs.
In a The Guardian report, a finance minister under the previous Congress-led government, Palaniappan Chidambaram, said, “Indian economy lost 1.5 per cent of GDP in terms of growth. That alone was a loss of Rs 2.25 lakh crore [2.25tn] a year. Over 100 lives were lost. 15 crore [150m] daily wage earners lost their livelihood for several weeks. Thousands of SME units were shut down. Lakhs [hundreds of thousands] of jobs were destroyed.”
The report noted that while digital transactions have grown, the Reserve Bank of India discovered that the value of banknotes in circulation had also increased in the past year by 37.7 per cent and counterfeiters have also shifted to recreating smaller notes and were now able to replicate the new 500 and 2,000-rupee notes.
Farmers lament
Recently, the Federal Government declared that the naira redesign policy of the previous administration ran farmers bankrupt.
The Minister of Agriculture and Food Security, Senator Abubakar Kyari, said, “The cash crunch caused by the naira redesign made most of the farmers sell their farm produce at giveaway prices for survival since buyers couldn’t access cash to buy the produce from them.
“The policy, which coincided with the harvest season, ended up rendering the farmers empty financially.”
According to the Chairman, Voriancorelli and Cofounder Cellulant, Bolaji Akinboro, the country’s technology and payment system is very vibrant, but its mobile network backbone is still struggling.
He recently told The PUNCH, “The way I will look at it is this. What are the failure points? Because there are the payment apps and the digital payment services; the ones we all use to access all this stuff. I think these can carry the pressure.
“The question is the route. If you want to use your app, you need to ride on the mobile backbone. The real issue to me is not even the banking layer, it is the communications backbone. Regarding the communications backbone, Nigeria is not investing right in terms of infrastructure.”
Akinboro further highlighted that banking apps can withstand the pressure, but communication networks need to do better.
The immediate past executive Vice Chairman and Chief Executive Officer of the NCC, Prof. Umar Danbatta, noted that one of the benefits of financial service riding on telecom infrastructure was the provision of Unstructured Supplementary Service Data.
While its most recent attempt at shifting the country to cashless might have fallen flat on its face, the CBN is not relenting. In a document titled, ‘Payments Vision 2025,’ the CBN said, “The use of cash will naturally slow with the ‘mobile first generation’, which will be economically active by 2025, hence one of the focuses of the PSV 2025 is enhancing the cashless policy of the CBN.”
