Key highlights
- The cash crunch could cost Nigeria’s economy to the tune of $20 million.
- The CBN policy has had mixed effects on Nigerians in the past three months.
- Supermarkets, malls, and FinTechs top the list of gainers of the CBN naira policy.
- Every day individuals, religious houses, and petty traders have been heavily impacted by the policy.
It’s been almost five months since the CBN announced the redesign of N200, N500, and N1000 notes, as well as the phasing out of the old notes, which has had a devastating effect on the livelihood of Nigerians in recent times, characterized by huge cash crunch across the country.
The CBN in a bid to reduce the amount of cash outside the banking system, combat vote buying, as well as promote a cashless policy in the country, insisted on phasing out the old naira notes from the system while reducing cash withdrawal limits.
As a result of this policy, currency in circulation dropped from over N3 trillion to N1.39 trillion in just one month, while cash outside the banking system was reduced to N788.9 billion from N2.57 trillion in the same period. This however came at a huge expense, as Nigerians were faced with the dilemma of sourcing for naira notes to meet their daily needs.
Why the naira policy?
In the defense of the central bank, it believes that if the currency in circulation is reduced substantially, monetary policy tools will be more effective in fighting the stubbornly rising inflationary pressure currently ravaging the African giant.
- Recall that the monetary policy committee (MPC) of the Central bank had adopted a hawkish monetary stance all through the second half of 2022, raising the interest rate from 11.5% to 16.5%, which had no positive effect on the inflation numbers, instead, it raged higher.
- The CBN has now raised the interest rate by a cumulative 650 basis points between May 2022 and March 2023, yet the inflation rate has risen to its highest level in over 17 years, currently at 21.91% in February 2023.
- Additionally, the volatility in the exchange rate market influenced the decision to tighten cash liquidity in the economy, which saw the naira depreciate against the US dollar by over 20% in 2022, trading at a high of N900/$1 in September 2022.
- On the flip side, Nigeria a large informal sector has suffered immense cash scarcity leading to the destruction of bank properties, a hike in POS rates, and the persistent downturn of bank mobile apps, all of which are believed to have wiped about $20 million from the aggregate GDP. This is further exacerbated by the scarcity of petrol across the country.
Despite the hardship the naira crunch has caused, some individuals and businesses have recorded impressive gains during this period, while others have been at the losing end. Here is an analysis of some of the gainers and losers of cash scarcity across the country. Let’s start with the gainers…
Superstores and Malls
Since the start of the frustrating naira cash scarcity, supermarkets and malls have recorded impressive sales growth, as individuals now prefer to buy from malls where they can easily pay with their ATMs rather than go through the hassle of looking for cash.
- According to findings by Nairametrics, various malls such as Shoprite, Jendol, and Justrite, just to mention a few have been overwhelmed with long queues in recent weeks.
- Consumers even buy as little as a pack of noodles from supermarkets just to avoid paying in cash, according to observations by Nairametrics.
- This is expected to positively impact the revenue of major supermarkets and malls across the country.
Transporters (bikes and buses)
Transportation in Nigeria is an essential service, more importantly in the Lagos metropolis. Most transporters in the country require cash payments for their services, hence, it is the responsibility of the commuters to get cash to pay for their fares.
- Findings by Nairametrics also reveal that bus drivers and motorcyclists sell cash to POS agents at a premium, which has served as a source of extra income.
- Nigerians pay a premium of N300 per N1000 withdrawn to fund their transporting expenses. Bus drivers who have to pay hoodlums and union fees at their garages typically referred to as agbero in Yoruba parlance also insist on cash payments.
- Hence, transporters are never in shortage of cash. It is worth noting that some of the transporters have started accepting transfers as a means of payment.
FinTechs/Digital banks
The recurring downturn in commercial banking apps and increased disruptions in their electronic services have presented digital banks and FinTechs an opportunity to increase their customer base as Nigerians are now forced to adopt e-banking.
- More and more Nigerians have switched to digital banks like Opay, Palmpay, Kuda, and VFD amongst others in recent times, following downtime from conventional banking applications.
- While most banking apps have been overloaded with high traffic, digital banks have been able to onboard many users, herby increasing their customers, which would translate to increase revenue.
Banks’ e-business
Although banks have suffered huge losses from the destruction of their properties to the risk to their staff, their e-business has recorded a significant boost in the last two months and would have performed even better if not for the impact of application downtime and inadequate infrastructure.
- According to data from the Nigerian Interbank Settlement Systems, NIP transactions in the country surged by 45% year-on-year to N38.7 trillion in January 2023, it however fell marginally to N36.8 trillion in February 2023.
- The increase in e-business transactions will translate to improved e-business revenue for the banks.
Now, it’s time to talk about the losers…
Everyday Nigerians
The impact of the naira crunch on average Nigerians cannot be overemphasized, leading to tension and panic across the country.
- Nigerians have had to spend productive hours in long queues in banks and ATMs to withdraw cash in the past two months. Most of the time spent on queues could have been converted to productive use, which would have returned some income to them.
- Many had to pay as much as N300 to withdraw N1,000 cash, while others found themselves stranded as a result of a lack of cash. Frustrating and destructive actions soon followed the policies, which were worsened by the scarcity of petrol.
Petty traders
Nigeria’s economy, valued at over $440 billion and the largest on the African continent, is predominantly informal. According to the International Monetary Fund (IMF), about 80% of the Nigerian population is employed in the informal sector.
- Most of the players in the informal sector, trade in petty items, which rely primarily on cash transactions. However, in recent times, majority of the people have been moving their transactions to bigger stores that accept POS and mobile transfers as a means of payment.
- This has significantly impacted the informal sector of the economy, as many traders have lamented a drop in sales in the last two months, according to findings by Nairametrics.
Different organizations
Private businesses have also been impacted by the naira crunch, considering the wasted hours their employees have had to endure in banking queues in recent times.
- Employees who resume office late as a result of their search for cash would record a downturn in their performance, which will have an overall impact on the organizational performance.
- Organizations that require instant access to banking services have also been impacted by the incessant disruptions in mobile and online banking services in the past two months.
Others who have also been negatively impacted by the cash crunch in the country either partially or in full include; houses of worship, banks (via deposits), Nigerians in rural areas, and POS agents (some have closed down due to lack of cash).
Bottom line: It is important to note that the CBN policy in theory appears to be a perfect recipe for driving financial inclusivity, curbing election malpractice, combating rising inflation, and discouraging the counterfeiting of our currency.
- However, its implementation and resulting impact have caused a significant downside to economic growth and spurred a further rise in inflation.
- The lack of an adequate banking infrastructure to onboard the potential influx of new users, and the abrupt removal of over N1.9 trillion from circulation, coupled with other underlying economic issues, worsened the situation, further weakening the trust of Nigerians in the banking sector.
- Meanwhile, the hardship faced by Nigerians in the last two weeks seems futile considering the court ruling by the Supreme Court to extend the deadline of old naira notes till 31st December 2023.
- It is also worth noting that the extension of the old naira notes does not automatically translate to an increase in money in circulation, at least, we are likely to return to a circulation of N3.2 trillion.