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Economy

Redesign Gone Wrong? – Costly Cashless

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Naira redesigning1

How does the central bank retrieve 84.5% of a country’s currency in circulation in just 90 days? This was one of the many questions seemingly begging for answers when Nigeria’s apex bank announced its plan to redesign the three higher value notes of the naira (N200, N500 and N1,000) on October 26, 2022.

Fast-forward three months and three weeks (a week before the general elections), and a majority of Nigerians are now confronted with a shortage of naira notes that is proving disruptive to lives and livelihoods.

Given the analyst consensus that a 90-day window was simply insufficient to complete the project, it is difficult to conceive a scenario where the Central Bank of Nigeria (CBN) did not anticipate the challenges which have accompanied this transition period.

President Muhammadu Buhari, in his address to Nigerians on February 16, 2023, said… “I am not unaware of the obstacles placed on the path of innocent Nigerians by unscrupulous officials in the banking industry, entrusted with the process of implementation of the new monetary policy. I am deeply pained and sincerely sympathise with you all over these unintended outcomes.”

In what appears to be a clear case of buck-passing by the federal government, the blame is being laid squarely on the banking industry’s purported failings and not any lapses in the policy’s design or hasty execution.

Depending on whom you ask, a performance appraisal of the CBN’s execution of the redesign project would range from grossly unprepared to poorly perceived.

In our opinion, the CBN failed to do enough through the media (television, radio, newspapers, new media) to effectively sensitise the public, particularly the rural dwellers, and manage expectations.

Most Nigerians assumed a simple exchange of old Naira notes for new ones. However, if we are to believe claims by the Kaduna State Governor, Nasir El-Rufai, the CBN printed circa N400 billion in new notes, leaving a shortfall of N2.3 trillion.

So, while the exercise has reportedly reeled in 80% (N2.1 trillion) of the N2.7 trillion held outside the banking system thus far, the average Nigerian is once again confronted with a test of resilience. Cash has become commoditized, hoarded by many, and now commanding outrageous premiums of up to 20-30% at Point-of-Sale (PoS) outlets.

The Road to Perdition is Famously paved with Good

Public outrage has degenerated into violent protests in some cities, with incidents of vandalism and arson at several banks’ facilities – and PoS outlets. The cash crunch and the uncertainty surrounding the policy are fanning a long-simmering fire of public resentment, triggered by deteriorating economic conditions and recently exacerbated by unending petrol shortages.

The result has been a significant loss of manhours, logistics constraints to many businesses and possible threats to the successful execution of the general elections.

The CBN, when launching the redesign project, outlined the objectives clearly. Perhaps its most compelling arguments centred on the need to combat terrorism and reduce counterfeiting.

The others largely revolved around driving the cashless policy through a shift away from cash and toward increased adoption of digital banking channels for transactions. This was underscored by a need to deepen financial inclusion (currently at 64%) and drive an efficient payment system that would improve the efficacy of monetary policy tools in combating inflation.

While the design of the policy gave room for underhand dealings by a privileged few, where the banking industry has really fallen short is in the capacity of the current digital payment infrastructure, which was already plagued by ‘transaction failures’ and an apparent inability to implement instant refunds, to handle the surge in transaction volumes.

For context, in the five years leading up to 2021, electronic payment surged by 386% to N272 trillion, accounting for over 94% of the entire value of transactions in Nigeria’s banking system. Financial institutions also responded accordingly by upscaling digital infrastructure to support the increasing adoption of electronic banking.

Recently, the Nigeria Inter-Bank Settlement System (NIBSS) reported a spike in the value of total cashless transactions in Nigeria to N39.58 trillion in January 2023 – a year-on-year increase of 45.41% – largely on the back of the CBN’s redesign and cash withdrawal policy.

Nevertheless, on evidence, the abrupt shift to electronic payments, which the current cash shortage has necessitated, has overwhelmed the banking industry’s digital payments infrastructure.

Nigerians are currently grappling with an unprecedented rate of electronic transaction failures. To further complicate matters, many transactions have not only failed, but refunds are taking days, even weeks in some instances, leaving many stranded and constraining commercial activity.

Unintended Consequences

The hardest hit by the policy have been the most vulnerable members of the population (the poor, the unbanked and the rural dwellers).

Nigeria is still a largely cash-dependent economy, with informal economic activity accounting for approximately 65% of GDP and being dominated by Micro, Small and Medium Enterprises (MSMEs). These MSMEs account for up to 96% of businesses and 86.3% of the national workforce. These are mostly cash-based businesses – particularly the micro-enterprises, which account for 99.8% of Nigeria’s 37.1 million MSMEs.

Given the low levels of education and exposure of a significant number of Nigerians in this category, many of whom live in rural areas with inadequate or non-existent telecommunications infrastructure, a quick and seamless transition to digital payment channels was always unlikely.

In addition, while mobile phone ownership in Nigeria is estimated at 81% by Enhancing Financial Innovation & Access (EFinA), internet penetration is still a mere 44.3%, as 60% of Nigerians live in rural areas where network outages were widespread even before the latest wave of transaction failures, and coverage was often non-existent, limiting access to traditional banking services. The Unstructured Supplementary Service Data (USSD), launched by banks and TelCos to enable deeper mobile banking penetration in communities lacking mobile data, has also been plagued by network-related setbacks.

The disruption to transactions, trade (domestic & foreign), productivity and all-round economic activity is likely to be significant enough to trigger a contraction in GDP in Q1’23 and possibly a loss of livelihoods for many.

Many cash-dependent businesses are being pushed to the brink. For example, cocoa farmers are currently unable to pay their labourers and transporters, jeopardising production and exports. The cash constraint is also likely to compel consumers to prioritise spending on necessities, leaving many businesses, particularly MSMEs, with decreased sales and heightened credit risks.

Worse still, living standards could decline further, particularly for many rural dwellers, as an inability to access cash could limit access to critical services like healthcare, stoking public discontent even further.

On the flip side, some of the biggest beneficiaries of the current lapses in electronic transactions have been Fintechs like Opay, Moniepoint, Paga, and Kuda, amongst others, which are reportedly far less prone to glitches and charge significantly lower transfer fees.

Whether this is down to lower transaction volumes than traditional banks or the capacity of their digital infrastructure, or both, it remains unclear.

However, getting traditional banks to invest in expanding their digital infrastructure in a period of rapid currency depreciation (most of the required infrastructure is imported) and, just as crucially, enhancing their cybersecurity will be crucial in convincing Nigerians to go cashless.

Some of the tier 1 banks spent an average of 5.4% of their operating expenses on ‘IT and related expenses” in 2021. Raising this expense in the face of shrinking margins would become increasingly difficult, as it is likely to further impinge on profitability.

Final Thoughts

Many contend that the solution to the immediate problem is rather straightforward: print more of the redesigned naira notes while gradually phasing out the old ones.

There is, however, a contrarian view suggesting that agreeing to the aforementioned is not to have a full appreciation of the nuances at play.

Perhaps the most significant takeaway from President Buhari’s recent address is clarity over who makes decisions and who must approve any deviation from the current position on which naira banknotes are legal tender.

The President concludes his address by noting that the policy’s success in minimising the influence of money in politics was a “positive departure from the past”. Given the timing of the policy, many argue that curbing vote-buying was the overarching objective.

The question is whether the long-term benefits of redesigning the naira outweigh the short-term costs and inconvenience of Nigerians being practically compelled to do away with cash. The hope is that the average Nigerian, now confronted with even greater hardship amid the current cost of living crises, is not a mere pawn in a political chess game.

Economy

CBN Boosts FX Market Liquidity With Fresh $197.71m

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FX Speculation

By Dipo Olowookere

About $197.71 million has been injected into the foreign exchange (FX) market by the Central Bank of Nigeria (CBN) to boost liquidity.

This intervention by the apex bank is expected to strengthen the Naira in the different segments of the forex market after coming under pressure in the past few days as a result of the new import tariffs imposed on countries, including Nigeria, by the President of the United States, Mr Donald Trump.

Business Post reports that on Friday, the Naira depreciated against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by 1.45 per cent or N22.49 to settle at N1,573.23/$1 versus Thursday’s exchange rate of N1,550.74/$1, and in the parallel market, it lost N10 to sell for N1,570/$1 compared with the N1,560/$1 it was transacted a day earlier.

To ease the pressure on the domestic currency, the central bank sold fresh $197.71 million to authorised FX traders between Thursday and Friday.

“The Central Bank of Nigeria (CBN) has noted recent movements in the foreign exchange market between April 3 and 4, 2025, reflecting broader global macroeconomic shifts currently affecting several emerging markets and developing economies.

“These developments were as a result of the recent announcement of new import tariffs by the United States government on imports from several economies, which has triggered a period of adjustment across global markets.

Crude oil prices have also weakened – declining by over 12% to approximately $65.50 per barrel – presenting new dynamics for oil-exporting countries such as Nigeria.

“In line with its commitment to ensuring adequate liquidity and supporting orderly market functioning, the CBN facilitated market activity on Friday, April 4, 2025, with the provision of $197.71 million through sales to authorised dealers.

“This measured step aligns with the Bank’s broader objective of fostering a stable, transparent, and efficient foreign exchange market.

“The CBN continues to monitor global and domestic market conditions and remains confident in the resilience of Nigeria’s foreign exchange framework, which is designed to adjust appropriately to evolving fundamentals.

“All authorised dealers are reminded to adhere strictly to the principles outlined in the Nigeria FX Market Code and to uphold the highest standards in their dealings with clients and market counterparties,” a notice from the Director of Financial Markets Department at the CBN, Ms Omolara Omotunde Duke, said.

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Economy

Nigeria’s Domestic, Foreign Debts Now N‎144.67trn

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managing Nigeria's debt portfolio

By Dipo Olowookere

The Debt Management Office (DMO) has revealed that the total public debt stock of Nigeria increased by 48.58 per cent or N47.32 trillion to N144.67 trillion ($94.23 billion) as of December 31, 2024, from N97.34 trillion ($108.23 billion) in the preceding year.

In a report released on Friday, the agency disclosed that the rise in the domestic and foreign debts was due to the borrowing of funds by the government in the period under review.

Business Post reports that external debt of the total debt accounted for 48.59 per cent at N70.29 trillion ($45.78 billion), while the domestic component was 51.41 per cent at N74.38 trillion ($48.45 billion).

A breakdown showed that for the total foreign borrowings, the federal government accounted for 43.49 per cent at N62.92 trillion ($40.98 billion), while the 36 states of the federation and the Federal Capital Territory (FCT) accounted for 5.10 per cent at N7.37 trillion ($4.80 billion).

As for the domestic debt, the federal government contributed 48.67 per cent at (N70.41 trillion ($45.86 billion) and the states and the FCT contributed 2.74 per cent at N3.97 trillion ($2.59 billion).

Analysis showed that in 2023, the external debt was N38.22 trillion ($42.50 billion) before rising in one year by 83.89 per cent to N70.29 trillion ($45.78 billion) in December 2024, while the local debt stood at N59.12 trillion ($65.73 billion) as of December 2023 before jumping by 25.77 per cent in 12 months to N74.38 trillion ($48.44 billion).

Since the current administration of Mr Bola Tinubu assumed office on May 29, 2023, it has sourced funds from local and external sources through treasury bills, Naira-denominated and Dollar-denominated bonds to finance its budget deficits.

However, much has been done to cut down Nigeria’s revenue-to-debt service ratio to 65 per cent from 97 per cent, according to Mr Tinubu in November 2024.

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Economy

Market Volatility Further Suppresses Customs Street by 0.01%

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Customs Street

By Dipo Olowookere

The Nigerian Exchange (NGX) Limited ended Friday’s trading session lower with a marginal decline of 0.01 per cent as a result of continued market volatility.

Customs Street was down during the last trading session of the week despite bargain-hunting activities in the banking and industrial goods sectors, which closed higher by 0.51 per cent and 0.01 per cent, respectively.

Business Post reports that profit-taking in the other sectors contributed to the downfall of the local bourse yesterday, with the insurance index weakening by 3.21 per cent.

Further, the energy counter went down by 0.50 per cent, and the consumer goods space depreciated by 0.24 per cent, while the commodity industry closed flat.

At the close of business, the All-Share Index (ASI) shrank by 13.37 points to 105,511.89 points from 105,525.26 points and the market capitalisation declined by N8 billion to settle at N66.147 trillion versus Thursday’s closing value of N66.155 trillion.

A total of 348.3 million shares worth N8.1 billion exchanged hands in 11,444 deals on Friday compared with the 397.1 million shares valued at N8.7 billion traded in 13,667 deals a day earlier, implying a drop in the trading volume, value, and number of deals by 12.29 per cent, 6.90 per cent, and 16.27 per cent, respectively.

The activity log was led by UBA with the sale of 26.3 million stocks for N972.3 million, United Capital traded 25.6 million shares valued at N391.5 million, FCMB exchanged 24.2 million equities worth N211.2 million, Zenith Bank transacted 22.9 million shares valued at N1.1 billion, and Fidelity Bank traded 22.6 million stocks worth N441.7 million.

Investor sentiment remained bearish yesterday after the NGX finished with 19 price gainers and 29 price losers, showing a negative market breadth index.

Lasaco Assurance and AXA Mansard were the worst-performing equities with a decline of 10.00 per cent each to sell for N2.34, and N8.64 apiece, May and Baker decreased by 8.72 per cent to N7.85, Guinea Insurance crashed by 8.70 per cent to 63 Kobo, and FTN Cocoa lost 6.43 per cent to end at N1.60.

However, Learn Africa and Livestock Feeds closed as the best-performing stocks after they gained 10.00 per cent each to quote at N3.30, and N7.92, respectively, VFD Group soared by 9.83 per cent to N57.00, Union Dicon expanded by 9.43 per cent to N5.80, and NGX Group rose by 8.17 per cent to N32.45.

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