This question is necessary because Nigerians are wondering why a government that came with a can-do posture is acting clueless the same way the government of former President Goodluck Jonathan acted.
With the current shortage of cash in circulation within the Nigerian economy, one must ask if Godwin Emefiele, who couldn’t think through his naira redesign initiative, is back in office as Governor of the Central Bank of Nigeria.
President Bola Tinubu, his coordinating Minister of the Economy, Wale Edun, and Governor Olayemi Cardoso of the CBN need to urgently pay attention to a matter that affects Nigerians every day so that the anguish will not be too prolonged.
Just before 2023 Christmas, Nigerians started to observe that banks and ATMs weren’t able to pay them as much cash as they would have wanted. The situation is looking exactly like late 2022 and early 2023 when Nigerians experienced cash shortage.
The paucity of funds provided POS operators with a second opportunity to ‘trade’ the naira to hapless Nigerians who had no choice but to ‘buy’ the naira with an exorbitant, even extortionate commission.
Sometimes, the POS operators too are unable to muster the amount of cash required by their customers. However, the ability of POS operators to always have cash to pay their patrons suggests that there is a racket going on.
Many Nigerians are wondering why they have to endure this condition, even after the Supreme Court of Nigeria allowed the simultaneous use of the old currency alongside the newly redesigned (or recoloured) currency.
Unfortunately, the CBN, under the much admired Cardoso, from whom innovative central banking was expected, dodged taking responsibility for the paucity of cash, parried it and pushed the blame to a conspiracy between banks and POS operators.
The impression created by the CBN is that it neither knows what exactly went wrong nor how to arrest the situation. Because Cardoso and his CBN haven’t provided cogent explanations for the paucity of cash, some public intellectuals have offered two explanations that come as a composite.
The first explanation is that there has been no replacement for the old N200, N500 and N1,000 notes that were withdrawn from circulation and burnt off. The result is that there is a lower volume of physical cash, or what economists describe as M1.
The second reason is that the inflation caused by the removal of fuel subsidy and the collapse of the foreign exchange regime into one, compelled Nigerians, who operate a cash-based economy, to require more cash to purchase the same volume of items they used to buy.
That is why the Nigeria Labour Congress flew the kite of the N200,000 minimum wage sometime in mid-2023. The new reality is that more money will have to be chasing after the same volume of goods.
So, if you bought 30 eggs with physical cash of N1,000 before the naira redesign, you now need N3,000 physical cash to buy the same number of eggs. This reality is more pronounced because the Nigerian economy is still a cash-based economy, regardless of the pretence of the government, the CBN and the banking industry.
And it will get worse as long as the CBN (or the Federal Government) does not have the funds to print more physical notes, and as long as the exchange rate of the naira continues to fall. Every depreciation of the naira will cause Nigerians to require more cash, that is experiencing an inelasticity of supply in the short run.
It will get even worse because the cash-based Nigerian economy is also import-dependent. And even if there are plans to reverse the trend, it is going to take a while to realise. An import-oriented economy that is also cash-based is an abyss!
Because one-third of the 2024 Budget will go to servicing debts that former President Muhammadu Buhari acquired for Nigeria, and also because another one-third of the budget that is dedicated to capital or infrastructure expenditure is inadequate, there isn’t going to be enough money to turn the economy around very soon.
In addition to these realities, the policies that will reverse the trend of importing strategic consumer goods, like petroleum products, food items and industrial raw materials, have not yet been put in place. At least one can’t see much of that in the 2024 Budget, despite rhetoric to the contrary.
The government, that promised that the Port Harcourt Refinery would be operational by the end of December 2023, started ‘homming’ and ‘hemming,’ talking about some fictitious 84 per cent completion of something and 75 per cent completion of another, just to find a clever way to explain its inability to redeem its promise.
Lokpobiri, the Minister of State for Petroleum Resources, whose given name, Heineken, is the same as that of a beverage that can get you inebriated, should please pay more attention to the promises that he is making on behalf of the Tinubu government. Nigerians are not going to be too excited to listen to excuses.
If it is true that more than 40 per cent of Nigeria’s foreign exchange goes to fund the importation of petroleum products, the failure of the government to fix the refineries will further entrench the Nigerian economy in the abyss of cash shortage.
Nigerians will continue to need more naira in order to ‘buy’ the hard currency that they will need to pay the foreign producers of every strategic consumer good that they have to import. Imagine this as the unending loop of the dog chasing its own tail.
The way out is not in the CBN trading blames but in well-thought-out plans. The first low-hanging fruit is to repeat whatever it was that brought the respite soon after Tinubu was sworn in on May 29, 2023. The next step is to look for money (willy-nilly) to pay the printers to print more currency, in order to raise the level of M1, or physical money in circulation.
Yes, there is a rumour that Buhari and Emefiele caused Nigeria to owe the printers who printed the last redesigned notes. But you’ve got to do what you’ve got to do, as the Americans would say. The discomfort is just too much.
If the electricity supply was sufficient and stable, one would have suggested that the government should encourage the banks to speed up the protocols for the cashless economy, or electronic banking, to reduce physical cash transactions. But alas!
Getting the electricity sector working optimally is the first step to reversing Nigeria’s misfortune as an import-oriented economy. It is also the ultimate panacea to running the productive economy that the presidential candidate of the Labour Party in the 2023 general elections, Peter Obi, keeps talking about.
Now, those pseudo-economists who suggest that maybe if banks loan out the excess money in their reserves there will be an expansion in physical money supply, quite misunderstand the ability of banks to ‘create’ money as the same as printing physical money. They are worlds apart.
If this is a little bit too esoteric, as it will take you to the realm of M1, M2 and so on, you may not worry too much about it. Economists, whose job it is to understand and work with it, certainly understand it.
But anyway, the government should quickly find a way to get harassed Nigerians out of this cash-strafing fix. That is the minimum.
- X(formerly Twitter): @lekansote1
