The protracted cash crunch forced by the national currency redesign policy of the Central Bank of Nigeria (CBN) has not only posed an existential threat to most Nigerians; it has also crippled economic activities in the country. The policy under which CBN mopped up over 70 per cent of cash in the economy has left manufacturers agonising over a more than 25 per cent dip in sales of manufactured products. Many operators in the informal sector have also shut down, with corresponding job losses in hundreds of thousands, forcing millions of Nigerians to slip into penury. Assistant Editors CHIKODI OKEREOCHA and OKWY IROEGBU-CHIKEZIE report that the economy has lost an estimated N20 trillion and still counting
Nigerians have never been this traumatised in recent history. The protracted cash crunch foisted on them following the implementation of the Central Bank of Nigeria (CBN) national currency redesign policy has brought economic activities to a halt, with various players in the economy and indeed, Nigerians generally counting their loses.
From manufacturers to small scale businesses in the informal sector, and to buyers and sellers, artisans and company workers, no one is spared of the disruptive and damaging impact of the policy and its attendant cash scarcity. For instance, the crisis has disrupted manufacturing activities and by extension, the economy in a profound manner, with manufacturers contending with more than 25 per cent dips in purchase of manufactured products.
The Director General of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, gave insight into how the cash crunch left manufacturers with about 25 per cent decline in purchases. For a start, he said although manufacturers do most of their transactions such as purchase of raw materials electronically, they also engage in cash transactions. According to Ajayi-Kadir, the purpose of manufacturing is to sell, and selling takes place typically at the retail end where most people use cash. “Even in some cases where we have to gather our raw materials from the local areas where cash is king, you make those purchases particularly from the farmers when you are aggregating the input for your manufacturing with cash,” he said.
The MAN DG further stated that manufacturers are particularly impacted by the currency scarcity in the sense that all that they produce need to be bought for them to have successfully executed business. “For us, what happens at the retail end of the market is of paramount importance. It means that the average citizen will simply not have enough cash to be able to buy,” he told The Nation.
Ajayi-Kadir also pointed out that even though a lot of advances have been made in terms of electronic transfer of funds, “you discover that most of the purchases you have, particularly in the sub-national and in the rural communities, are still transacted in cash and so we are going to have limitations in those areas.”
That is not all. The obviously worried MAN DG also said there is the issue of not being able to move around very easily because one needs to pay cash, and trade requires movement of people. “We have also seen some disturbances that have accompanied the non-availability of cash and most citizens are getting frustrated and they are prioritizing the purchase of food to survive. So, the little naira you have, you tend to use it to buy food and it has had major impact on us. Some of our members are already complaining that what they are able to produce; they are not able to sell. This is swelling the unplanned inventory that they have,” he told The Nation.
However, manufacturers who have been saddled with huge inventory of unsold goods were said to have been left with no choice than to invest heavily in hiring warehouses to keep their goods. This is because most of the products produced by manufacturers could not be sold because of the currency scarcity. But the option of hiring warehouses isn’t without implications. As Ajayi-Kadir put it, “it means that some of the goods that are stored in the warehouses will reach their shelve life and it will become a burden even on manufacturers to dispose of them. So, we are looking at a situation where the naira scarcity doesn’t augur well for the manufacturing sector and we are eagerly looking forward to the issue being addressed.”
The Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, is no less worried by the obvious negative impact of the prevailing cash crunch on the struggling manufacturing sector and by extension, the economy. He said the crisis has disrupted many business activities especially at the distributive trade level. Dr. Yusuf pointed out, for instance, that in many locations, particularly in the informal sector and the rural economy, transactions are basically cash-based. Also, movement logistics to and from work by employees of many organisations, including manufacturers, he said, has been severely affected because intra city commercial transportation is purely a cash business. Many members of staff of organisations have also not been going to work due to lack of cash.
“The implication of all of these is that manufacturers’ products that are traded largely in the informal sector and in the rural areas across the country suffer serious setbacks in terms of sales and turnover. This naturally had a knock-on effect on capacity utilisation and manufacturers’ inventory levels,” Dr. Yusuf told The Nation.
He said beyond the cash crisis, there is also a lot of pressure on digital payment platforms, many of which have either collapsed or functioned sub-optimally. As a result, those seeking to make payments on digital platforms have been having serious problems of transaction failures, with many business transactions getting stalled.
Bad as it is, Dr. Yusuf, however, said there is very little manufacturers can do to fix this problem since it is purely an exogenous factor. Besides, manufacturers, he said, do not have direct interface with consumers or retailers. “The best they (manufacturers) could do is to strengthen their advocacy towards a much better management of the economy,” he suggested.
As far as Dr. Yusuf, who is a renowned economist and former DG of Lagos Chamber of Commerce and Industry (LCCI) is concerned, “The whole cash crisis is a consequence of huge capacity gaps in monetary policy formulation and management.” He, however, said in terms of options open to manufacturers, there are very limited options other than to get the CBN and the Federal Government to obey and fully comply with the Supreme Court judgment by improving the supply of cash to the economy and give more time for the transition from the old to the new currency note regime.
Dr. Yusuf also said it is important for the CBN to retrace its steps on the arbitrary mop up of 70 per cent of cash in the economy. “This is the big issue because the shock created serious problems for small businesses in the economy. The cost of cash rose to an unprecedented level of between 20-30 per cent for conversion from digital money to cash. This is obviously very punitive,” he kicked.
The expert, however, said with the Supreme Court ruling, he expects to see a gradual normalisation of economic activities and better circulation of cash in the economy. Dr. Yusuf was referring to the Supreme Court ruling on Friday, March 3rd, 2023, that the Federal Government’s naira redesign policy was an affront to the 1999 Constitution; that the policy breached the fundamental rights of Nigerian citizens, and therefore, ordered that the old N200, N500 and N1, 000 notes remain in circulation as legal tender till 31st December this year.
The ruling itself followed a lawsuit filed in February by 16 state governors after President Muhammadu Buhari refused to heed their pleas to show more sensitivity to the plight of millions of ordinary Nigerians and allow the old notes to circulate for a more extended period. The Court held that the unlawful use of executive powers by the President inflicted unprecedented economic hardship on the citizens by denying them ownership of and access to their money, noting that some cash-strapped citizens had to engage in barter to survive.
However, it took the CBN days to confirm its compliance with the ruling by the Supreme Court. Before then, the CBN kept sealed lips over the judicial verdict overruling its earlier 10th February deadline for expiration of old N200, N500 and N1, 000 notes amidst scarcity of new notes that has inflict incalculable injuries to the economy and Nigerians.
On February 16th, President Buhari also made a broadcast granting isolated extension of N200 notes validity to 30th April. But the broadcast did not go down well with Nigerians, with many of them accusing the President of being insensitive to their plight and not appreciating the gravity and enormity of their suffering and pain.
Recall that the Godwin Emefiele-led CBN inadvertently threw Nigerians and the economy into confusion. That was in October last year when it introduced the naira redesign policy, unveiled the specimen new notes in November and fixed January 31 for the phasing out of the old notes.
The CBN fixed a 90-day timeline for the currency transition, claiming among other things that the currency redesign will help mop up excess cash in the system, drive a cashless economy, fight crime and kidnapping, prevent vote-buying, and rein in inflation and counterfeiting.
Sadly however, the unintended consequences of the policy appear to have over-shadowed its envisaged deliverables. Since that January 31 when the CBN asked Nigerians to deposit their old N200, N500 and N1000 notes in exchange for the newly-redesigned naira notes, it’s been a tale of woes by not a few Nigerians and business owners, both big and small.
This is because the CBN did not release enough new notes to guarantee a seamless currency swap. And the acute naira scarcity that followed led to widespread anger and frustration, as most Nigerians could not get cash to pay for food and other basic necessities. To make matters worse, payment systems across all platforms that should have provided alternative to distressed Nigerians and business owners collapsed. The CBN was said to have mopped up as much as 70 per cent of the cash in the economy, forcing many Nigerians to turn to digital or electronic platforms. Yet, many of them could not get relief as most electronic payment platforms have been performing sub-optimally because of congestion.
Many Nigerians who could not bear the unprecedented economic and financial hardship inflicted on them by banks that denied them ownership of and access to their money, practically relocated to the banks where they kept vigil. Some women who were unable to feed their children and send them to school have protested by going naked in banking halls. Several bank branches have been attacked by men who could not bear the hardship, forcing many banks to close their banking halls to prevent their workers from being attacked and killed.
However, it took the Supreme Court order of March 3rd that all old notes remain legal tender until the end of the year and should circulate alongside new notes for distressed Nigerians and business owners from across all sectors to begin to see what appears to be a gradual return to normalcy, even though the crisis has continued to impact businesses and social livelihood beyond intentions.
“Retail transactions across sectors have become nerve-racking and distressing as payment system challenges persist,” Dr. Yusuf lamented, noting that since the onset of the cash crisis, “the Nigerian economy has lost an estimated N20 trillion.”
According to him, these losses arose from the deceleration of economic activities, the crippling of trading activities, the stifling of the informal economy, contraction in the agricultural sector and the paralysis of the rural economy. He also said there are corresponding job losses in hundreds of thousands. It is easy to see how the huge job losses came about. For instance, several operators in the informal sector, particularly Point of Sale (PoS) across the country, have been forced to shut down, complaining of lack of cash to dispense to their numerous customers. Many PoS operators are known to employ several workers, and closing shop meant throwing those workers back into the saturated labour market. Some of the PoS operators, who spoke with The Nation, said they could not stand the exorbitant cost of dispensing N10, 000, for instance, to their customers for as much as between N3, 000 and N4, 000, in most cases.
Although the expected relief from the Supreme Court judgment has not fully materialised, signs of improvement are gradually appearing on the horizon particularly after the elections. Dr. Yusuf, however, cautioned that the CBN should remove all impediments to the flow of cash in the economy, and that all administrative and regulatory barriers should be removed in line with the Supreme Court ruling. “The condition that deposit of cash will require the generation of code from the CBN portal is completely unnecessary and should be eradicated,” he added.
On his part, Ajayi-Kadir said there are still some conversations that need to happen between the CBN and probably the judiciary so that they can find an amicable way to allow the suffering to abate. “There has to be a way of implementing the Supreme Court judgment in such a way that it does not also take away the prerogative of the CBN to manage our monetary policy and how we spend money,” he said.
The MAN DG, while reiterating the need for a high-level conversation between the CBN and the judiciary so that the suffering of the people is reduced and businesses can function effectively, noted that the currency redesign policy was “an excellent monetary control measure by the CBN.” He, however, expressed regrets over what he described as “the inexplicable poor management of the transition process.” He said if the problem lingers, “the in-coming administration should swiftly address it without throwing away the baby with the bath water.”
The DG, LCCI, Dr. Chinyere Almona, also said the Chamber supports the drive towards a cashless economy, but insisted that redesigning the naira and phasing out old currency notes could have been better planned and implemented with no hardship for businesses and individuals.
According to her, the cash crunch is impacting businesses and social livelihoods beyond intentions. She said while banks have endeavoured to meet the currency demands of their customers through Automatic Teller Machines (ATMs) and electronic transfers, the scarcity of the naira has rendered their efforts ineffective. “Businesses are suffering the consequences of the CBN currency management policy lapses. Regarding the deadline extension for phasing out old notes, the Chamber does not see any value in this if the scarcity of the new naira notes persists,” Dr. Almona said.