Currency in circulation in Nigeria, Africa’s biggest economy, has maintained an upward trend, increasing from N1.68 trillion in March to N2.76 trillion as of September 2023. This has not, however, allayed the fears of Nigerians as naira scarcity continues to bite, reminiscent of the era of the botched naira redesign policy initiated by the Central Bank of Nigeria (CBN) earlier in the year.
From open markets to malls, eateries and motor parks, Nigerians express disappointment over their inability to get cash in banks to meet their daily obligations. With Yuletide holidays just a few days away, deposit money banks in the country have all put restrictions on the amount an average customer can withdraw per day, which ranges from N5,000 to N20,000.
According to the Nigerian Economic Summit Group (NESG), cash transactions account for 90 percent of economic activities in Nigeria, even as awareness of the alternative payment channels has increased in recent times.
“This naira scarcity will influence my decision whether to travel or not during the Christmas holiday. In the rural and remote areas, there are no banks while POS operators are very few. In places where there are POS services, their charges will be exorbitant now that naira is scarce in town,” said James Ochuko, a Benin City resident, adding that most of his friends expressed the same feelings.
The CBN governor, Yemi Cardoso, recently blamed his predecessor’s naira redesign policy, especially the lack of clarity on the programme’s end date, for naira hoarding among Nigerians.
“Nigeria banks are currently restricting withdrawals by account holders, an evidence of cash scarcity,” Fatai Asimi, CEO, PAC Research, said.
“Perhaps for heavy demands, the issue of cash withdrawal limitation is pronounced in cities, including Abuja, Lagos, Ibadan, and Calabar. Reports across the country cite cases of unavailability of cash for bank users and hence, the drag in consumption with associated economic challenges. In most parts of the country, banks pay only N5,000 across the counter to customers and almost all Automated Teller Machines (ATMs) were not dispensing cash,” he said.
The Yuletide season has always been a time of intensified intra- and inter-city travels by Nigerians across the country, as most urban dwellers seize the opportunity to enjoy the company of their family members and attend other important social functions in the rural areas, and most of the travellers will need cash.
But the biting cash scarcity is bound to affect movement this season.
Asimi said while only a few of the bank ATMs dispense N5,000, others allow withdrawal of N10,000 per customer.
“The earlier incidence of February 2023 commenced during the week as most Point of Sale (POS) agents had started charging between N200 and N300 for withdrawals of N5,000, and between N500 and N600 for withdrawals of N10,000. Although the charges were outrageous, POS agents justified their actions by the exorbitant transportation cost (average of N3,000) in search of banks and ATMs that were paying cash,” Asimi added.
The naira scarcity bottleneck in the first quarter of the year caused some subsectors to record negative growth rates at the end of the first quarter of 2023.
According to the National Bureau of Statistics (NBS), the agriculture sector which grew all through the quarters in 2022 recorded negative 0.9 percent growth in the first quarter of 2023. The electrical and electronics subsector that recorded positive growth from the second to fourth quarters of 2022 failed to maintain that momentum in the first quarter of 2023 as it declined by 0.81 percent in Q1 2023.
In addition, the contribution of the agriculture sector to GDP was lower in Q1 2023 when it contributed 21.66 percent as against 22.36 percent in the corresponding quarter of 2022. Industries contribution also fell to 21.05 percent as against 21.47 percent as of the end of the first quarter of 2022.
“Although all facets of the economy will take fair share of the scarcity, the informal sector will be the most hit. Small and Medium Enterprises (SMEs) in most cases rely heavily on cash for their daily business activities. The cash crisis in the short run may lead to reduced sales, stock shortages, disrupted domestic supply chains, inability to pay employees and meet other financial obligations. In the longer term, this crisis may lead to an economic slowdown or recession,” Asimi noted.
Last month, the Supreme Court ruled that both the old and new naira denominations of N200, N500 and N1,000 notes should circulate simultaneously as legal tender in the country. This pronouncement overruled the earlier one given in March at the peak of the botched naira redesign policy.
