Nigeria lacks financial infrastructure for cashless economy — W’Bank
Sodiq Adelakun
Nigeria’s digital and financial infrastructure is inadequate to support a swift transition to a cashless economy, the World Bank has pointed out.
The bank stated that this was one of the reasons the Central Bank of Nigeria’s naira redesign policy failed. It disclosed this in its ‘Nigeria Development Update (JUNE 2023): Seizing the opportunity’ report. It affirmed that the policy led to a scarcity of cash and negatively impacted economic activity in the early months of 2023.
It said, “The short transition period of the naira redesign was insufficient for the CBN to replace the demonetized old notes with new ones, leading to a cash scarcity.
“The lack of adequate digital and financial infrastructure and processes to support a swift transition to a cashless economy— coupled with the fact that only 40 per cent of adults have a bank account—further exacerbated the situation. The cash shortage resulted in a black market for new notes, inflating overall transaction costs.”
The Washington-based bank noted that the adverse shock to economic activity was further intensified by reversals in policy decisions and conflicting positions between states and the Federal Government, the CBN, and the Supreme Court.
It highlighted that non-oil-non-agriculture GDP declined from an average quarterly growth rate of 6.0 per cent in 2022 to 3.9 per cent y-o-y in Q1 2023.
It said, “Firms reported that the inability to secure regular funding and operating cash for expenditures, combined with rising prices and fuel shortages, led to a decline in demand.”
According to the global bank, the naira redesign policy had no desirable effect. It stated that while the policy failed at easing forex rate pressures and reducing inflation that it was predicated on.
It added, “However, as was predictable given that currency in circulation accounts for only a small part of the money supply (7 per cent as of November 2022), the policy had no discernable positive effects: inflation edged higher from 21.3 per cent in December 2022 to 21.9 per cent in Q1 2023, and the exchange rate premium of 64 per cent in Q1 2023 was above its average value of 53 per cent in 2022.”
During the naira redesign policy, electronic payments grew in the country. With this growth also came a high level of failed transactions.
By ending of 2022, the CBN announced a naira redesign policy, set withdrawal limits, and encouraged Nigerians to adopt electronic forms of transactions.
It said, “Customers should be encouraged to use alternative channels (Internet banking, mobile banking apps, USSD, cards/POS, eNaira, etc.) to conduct their banking transactions.”
By January 2023, according to new data from the Nigeria Inter-Bank Settlement System, total cashless transactions rose by 45.41 per cent y-o-y to N39.58trillion in January 2023. In February it fell to N37.67trillion, despite a 41.29 per cent month-on-month usage increase.
The CBN has a plan to reduce cash payments by 2025 and expects mobile payments to become a more prominent feature.
