With the recent Supreme Court judgement on the naira redesign policy still in the front burner, CHIMA NWOKOJI writes on the implications to Nigeria’s journey to cash-less economy.
Nigeria in recent times is characterised by suffering consumers who are feeling the pinch of currency redesign policy that is going awry, confused retailers, bewildered investors and unsurprisingly, policymakers that are evidently stuck between a rock and a hard place as a finance expert Bismarck Rewane puts it.
Private consumption, which contributes 70per cent to Gross Domestic Product (GDP), is squeezed, investment inflows that are already downhill, could fall further as the crisis of confidence persists.
The macroeconomic impact of the downtime due to Automated Teller Machine (ATM) queues, petrol queues and the cash crunch could result in a contraction of three to five percent of GDP in the first quarter (Q1) 2023 when the numbers are out.
Although no institution seems to own up to these ugly developments, the bulk of the blame falls on the doorsteps of the trio of politicians, the Judiciary and the Central Bank of Nigeria (CBN).
Among others, the Supreme Court of Nigeria held that unlawful use of executive powers by the President inflicted unprecedented economic hardship on the citizens.
The court also ruled CBN out of order for placing withdrawal limits on money deposit bank customers. By ruling on withdrawal limit, the court has invariably said that the 100 percent cashless policy of the CBN should be on hold as the banking public are now empowered to withdraw as much cash as they wished to.
Most bankers received the ruling with surprise. They were surprised because not only the independence of the CBN has been trampled, but also because it sends a negative signal to the early success of the cashless where huge sums of money have been invested.
According to Chris Enyinnaya, a fellow of the Chartered Institute of Bankers (CIBN), the Supreme Court (SC) judgment of March 3, 2023 ordering the validity of N500 and N1000 notes as legal tender currency up till December 31, 2023 “came to us, professional bankers, as a surprise.
“It is a surprise because the Supreme Courtfailed to take a holistic look at the law relating to banking, of which their judgment has become a part in taking such a far-reaching decision that is capable of truncating the CBN monetary policy which is already being implemented in the current year.”
The banker further stated,”Let it be said that the Naira is in danger if the International Monetary Fund, the World Bank, and other Multilateral Organizations have the slightest reason to believe that the issuing, management, and circulation of the Naira are driven by political considerations.
“Such a situation will invariably increase Nigeria’s sovereign risk which will negatively affect the exchange rate of the Naira vis a vis other international currencies.”
In the views of Nigerian political economist and former Deputy Governor of the Central Bank of Nigeria, Dr Kingsley Moghalu, Nigeria has become a failed state by what is happening with the apex bank, and the judiciary which are key institutions through which foreign countries and investors abroad and at home assess the functioning or otherwise of the Nigerian economy.
According to Moghalu, there is the fundamental lesson of whether “our institutions in Nigeria have been hijacked and subverted from serving the Nigerian people and our economy to serving personal and political agendas, including a dishonest use of a “war against corruption” as an attractive shiny object.
“One day, we will count the losses, to the Nigerian economy, the legitimacy and effectiveness of a once-prestigious institution, and to the legitimacy of the Nigerian state itself, of the partisan politicisation and de-professionalization of the leadership of the CBN.
“Our apex bank, along with the judiciary, is one of the key institutional prisms through which foreign countries and investors abroad and at home assess the functioning or otherwise of the Nigerian state.
“Turning it into a political football was and is a big mistake, and a strong indicator of state failure.”
The breakdown of the citizens’ trust in our critical institutions is tragic,Moghalu lamented, saying that Nigerians now collate their own votes. They -and many banks – refuse to accept the old Naira that the central bank itself has asked them to accept as legal tender until December. “Huge repair work needed,” he said.
Indeed, market uncertainties arising from possible policy and regulatory changes impact investor confidence. Hence, investors are likely to act in a cautious manner in order to shield their investments and minimise risks.
Already, the monthly economic report from the CBN has shown that in the first 11 months of 2022 (11m’22), the flow of foreign exchange into Nigeria’s economy dropped by 40 percent from $44.01 billion in 2021 to $26.32 billion in 2022 and the situation may be worse when current figures are out.
Enyinnaya in a position paper made avalable to Nigerian Tribune said that there is a gap between banking law and banking practice.
For example, under S.9(2) Bills of Exchange Act 1990 as amended, ‘when the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the amount payable’. But in banking practice, such cheques are dishonored by nonpayment with the reason “Amount In Words And Figures Differs.”
To him, the business of CBN in currency management cannot be treated as if it were a matter of pure law.
Another point to be added is that banking practice in Nigeria regarding currency management has international dimensions.
“There is no country in the world where the Supreme Court orders what is legal tender currency no matter how the matter is packaged and brought to it for adjudication. This is more so as the Nigerian Constitution makes currency-related matters an executive function with the CBN as an agent of the Federal Government with constitutional powers to issue and manage legal tender currency exclusively.
“In all good conscience, is it proper to overrule the CBN on a matter that the Act or law establishing it mandates it to do? What is the motivation for such a far-reaching order? Will the Supreme Court stop legislators from legislative duties simply because it is the highest court of the land whose order is final when such an order is not sustainable?
“The truth of the matter is that the Supreme Court of Nigeria has been politicised. And the political class has been using it as a convenient platform to commit unlawful acts. The Supreme Court judgment making a candidate that came fourth in a governorship election the winner is a case in point.
“In the matter under discussion, the Supreme Court listened to the plea of politicians that are not knowledgeable in matters of currency management to make a political order. The complainants claim that the CBN deceived President Muhammadu Buhari into approving the Naira redesignation policy, which dates back to 2012 as part of the cashless policy.
“Because banking practice overrides banking law, the Supreme Court order on the N500 and N1000 is a mere academic exercise,” Enyinnaya argued.
At the end of the day, the policy, which targets moderation of inflation and encourages business transactions to be routed through the banking system, has been turned into a legal case study. The political class and some corrupt bankers constituted great obstacles.
At first, the politicians accused the CBN governor Mr Godwin Emefiele of terrorism financing. They called for his arrest. They said he ran away and so many other political colourations that they turned it while the presidency played safe.
According to Bismarck Rewane, in a perverse twist of fate; the cash crunch occasioned by the naira redesign has made PVC/vote purchasing cheaper, with the asking price of a PVC or ballot paper steeply discounted from N15,000 to N2,000.
“Unfortunately, a policy intended to be a punitive measure against vote purchasing has now become a ‘Dream Come True’ for the moneybags. How quickly things can change! As Harold Wilson once said, ‘seven days is a long time in politics’.
“With hindsight, it is clear that some of these problems were self-inflicted and could have been easily avoided. But as Donald Trump said, “it is what it is.” Therefore, it is time for “Damage Control,” he stated in FDC’s bulletin.
Nigeria’s cashless Journey
Abbot Bernard said, “The road to hell is paved with good intentions.” In the final analysis, the truth remains that the Federal Government of Nigeria (FGN), with the best intentions, decided to redesign the naira at the time when most analysts described it as inauspicious.
Incidentally, its bank, the Central Bank of Nigeria (CBN) decided to use the opportunity to bring to climax the cashless economic policy started over 11 years ago.
On this cash-lite policy as some may choose to call it, billions of naira has been committed. The banks alone said they have collectively invested over N100 billion on digital infrastructure, yet Nigeria lags far behind Kenya, the golden boy of cash-less economy in Africa.
Wikipedia, the globally recognised online dictionary recorded Nigeria’s Cash-less policy as “a policy established in the year 2012 by the Central Bank of Nigeria to curb excesses in the handling of cash in the Nigerian federation.”
Recall that a pilot run of the policy started on 1 January 2012 in Lagos State. The service charges were withheld until 30 March of the same year to allow for seamless migration from manual to electronic devices. The second stage of the pilot run started in Rivers, Anambra, Abia, Kano State, Ogun and the Federal Capital Territory on July 1, 2013, while the program nationwide started a year later on July31, 2014.
But it was BayoOnanuga, the Director of Media and Publicity for the All Progressives Congress presidential campaign council while reacting through his official Twitter handle said that the Governor of Central Bank CBN, Godwin Emefiele “ends as the fall guy of the ill-conceived, illegal currency swap in our nation’s history.”
According to him, the CBN governor will be remembered as a sadistic, wicked boss of the bank who inflicted unprecedented hardship on “our people, causing anger, pain, and deaths,” he posted.
Others said the APC government loves cash and will reverse the cashless policy so that economic activities in Nigeria can return to its usual cash-based in Nigeria.
Incidentally, the policy did not start with Emefiele. The policy was introduced via a CBN circular Ref. No. COD/DIR/GEN/CIT/05/031 dated April 20, 2011; to achieve a cashless economy took off in Lagos State with the aim of achieving an environment where a higher and increasing proportion of transactions are carried out through cheques and electronic payments in line with the global trend
The January 2012 digital payments directive was a significant milestone in this journey. The directive required financial institutions to increase their investment in digital payment infrastructure, promote digital payments among their customers, which they have been doing, and work with the CBN to develop a strong regulatory framework.
This initiative aimed to modernise the financial sector, increase transparency, and enhance efficiency in the economy.
As a result, the country witnessed a range of achievements, which included the expansion of financial access points such as automated teller machines (ATMs), point of sale (PoS) terminals, mobile cash (mCash) facilities, as well as the proliferation of e-payment platforms, and a significant increase in the adoption of electronic channels. Nigeria’s payment system thus became one of the best in the world.
The CBN cashless policy has led to the expansion of various payment channels across the country. For example, the number of ATMs rose from 10,865 in 2011 to 19,355 in 2021. The number of PoS terminals rose from around 155,000 to 1.1 million as of April 2022. And the number of active banking agents is over 1.9 million according to data from Shared Agent Network Expansion Facilities (SANEF).
The eNaira application has so far recorded a total of 905,588 downloads. All, these involved huge sums of money coupled with over N100billion invested so far in digital infrastructure by Nigerian banks.
Lessons from the Golden boy of cashless economy
One would have thought that with the huge resources already sunk into cash-lite economy, Nigeria would by now be ranked top in Africa in terms of less use of cash in transactions. But the acronym “Golden Boy of cash-less economy,” goes to Kenya.
Kenya is referred to as the golden boy of cashless economy because of its efficient financial system, linked to the country’s economic growth.
Financial inclusion in Kenya rose to 83 percent in 2019 from 27per cent in 2006.
The Enhancing Financial Innovation & Access (EFInA) in Nigeria 2020 Survey showed that 51 per cent of Nigerian adults are using formal financial services, such as bank, microfinance bank, mobile money, insurance, or pension accounts, up from 49 per cent in 2018.Nigeria fell short of the National Financial Inclusion Strategy targets for 2020. The country had aimed to reach 70 per cent of Nigerians with formal financial services by 2020
Kenya leads the way in Africa with at least one individual in 96 percent of Kenyan households using MPesa for payments. M-Pesa is a Swahili word that means Mobile Money. In 1997 when M-Pesa started its operations through Safaricom and Vodaphone in Kenya, many people did not understand what it meant to life, business, and social interactions.
With full-scale introduction of M-Pesa in 2007, Kenya became a global pioneer in mobile payments.
A phone number, sim card, and any kind of phone are all that is neede and one can receive money and pay for anything.
A 2022 published survey by global digital payments solution provider Visa revealed that Kenyans prefer to use cashless payments to conduct business more than South Africans and Nigerians.
It showed an estimated (71per cent) of businesses in Kenya use cash as a means of payment, compared to higher use of cash by businesses in South Africa (91 per cent) and Nigeria (94per cent).
According to the study, the less use of cash among Kenyan businesses is reflected in the high preference for mobile wallets (56 per cent) compared to Nigeria (14 per cent) and South Africa (7 per cent).
Analysts agree that with mobile money in the Democratic Republic of Congo (DRC), Egypt, Ghana, Kenya, Lesotho, Mozambique, and Tanzania, there is sufficient experience even in Africa for any country including Nigeria to copy or learn from and create a cashless economy. It can be done without having a crisis. Without cash, Nigerians will live and even live better.
Similarly, Sweden is a prime example of a country that has gone cashless, with over 85percent of all transactions now made electronically. This has resulted in the creation of innovative financial solutions such as instantaneous mobile payment systems and even a national digital currency.
Naira redesign and Supreme Court ruling
The Financial Derivatives Company Limited (FDC) said in its economic bulletin that total money supply was N52trillion, total cash in circulation N3.20trillion.
Three of the eight denominations was N2.88trillion; total new naira notes printed (estimate) approximately N400billion leaving Nigerians with a naira cash shortfall of N2.48trillion (90per cent of total cash in circulation) which caused the near paralysis of commercial activities.
According to Kingsley Moghalu, the terrible suffering & economic loss Nigerians have experienced as a result of the faulty implementation of the Central Bank of Nigeria’s Naira redesign policy, the entry of the judiciary into central banking functions all show clearly how institutions— and Nigeria — fail when institutions that are meant to be operationally independent become politicized.
Currency functions, he said, are a core part of any central bank’s mandate. To that extent, he had no problem with the policy. Except for two vital issues.
His words: “First, the 90 days-deadline, which I warned was too short to be effectively executed. Second, the timing, so close to the elections. But, as later became clear, there was a haphazard and incoherent communication of the purposes of the policy.
“In one breath it was said to be to reduce the money supply and help tame inflation(after the Bank had created and lent N23 trillion to the Federal Government, illegally because that was way beyond approved limits under the CBN Act of 2007).
“Next, it was promoted as a national security measure to halt kidnapping, Naira hoarding and sundry crimes.
Then, next, it became about “free and fair elections “to stop vote-buying. This last reason became the most important — and controversial — reason as the tempo of the 2023 presidential contest rose to boiling point.
“Expectedly, politicians who felt the policy targeted them complained loudly and wanted the deadline extended, while those who believed it helped their own political agendas hailed the tight and impractical deadline and did not want it moved. Nigerians were trapped between the devil and the deep blue sea of a desire to curb the menace of vote-buying and the effective confiscation of their own money by the implementation failure of the policy.
“While increasing digital payments, another purported goal of the policy was a good one, that thinking failed to consider the reality that the payment infrastructure was still not robust in many rural areas of our country, that cash remains king, and we were carrying on as if it has now become a crime to use cash in Nigeria.
Most importantly, as I raised the question what exactly is the mandate of the CBN? “Had it now become to end vote buying in elections? Surely, we have anti-corruption institutions vested with such mandates, and to use the CBN for that primary purpose was to politicise the institution.
“But many Nigerians, as usual, did not think deeply about the implications of this line of thinking and action because of their political passions against presumably corrupt politicians.
Today, whatever may have been the benefits of the naira redesign policy have been cancelled out by the economic and social gridlock it has created. We are still suffering from it, after the “almighty” presidential election has come and gone.
“There are several lessons here. One such lesson is the importance of effective risk management that was evidently absent in the conception and execution of the policy.”
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