Naira Scarcity: The Pain, The Gain

    Naira Scarcity: The Pain, The Gain

There is no doubt that the lingering scarcity of the Naira appears to be biting hard on Nigerians, especially the micro, small and medium enterprises (MAMEs), as their inability to access the cash needed to do business is threatening their existence.

They have therefore called on the Federal Government and the Central Bank of Nigeria (CBN) to sanction banks that failed to pay customers on demand despite its warnings and directives.

Godwin Emefiele, the CBN Governor, had in October 2022, outlined moves to redesign the higher denominations of the Naira in N200, N500 and N1,000.

Emefiele, who said the policy was approved by President Muhammadu Buhari, added that the circulation of the new banknotes would commence on December 15, 2022.

According to him, the development was also aimed at checking the increasing risk of currency counterfeiting evidenced by several security reports, and its associated consequences to financial stability and the worsening shortage of clean and fit currency, with the attendant negative perception of the CBN.

The CBN Governor at a forum in January 2023, revealed that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks. 

But, since the naira debacle began, in January, Emefiele had insisted that the banks have been given adequate cash to meet customers’ needs, including accusing them of paying money to their priority customers, leaving them vulnerable to lament.

However, they lamented that despite identifying several banks hoarding cash in several states across the country, the CBN has been unable to sanction any of them to serve as a deterrent to others, thereby empowering more of them to continue denying customers access to their cash.

They further lamented that many small businesses are closing down for lack of patronage.

“The scarcity of the new Naira notes is killing our business and disrupting activities in markets, restaurants, banks, and major sales outlets across Nigeria”.

Meanwhile, the long queues in the banks’ ATMs on resumption of activities have continued as mobile bank apps have consistently faltered amid network glitches due to the surge of users on a daily basis.

Evidently, the MSMEs, informal sector operators, rural areas, and the unbanked communities that have not embraced digital banking appear to be the worst hit.

Segun Tayo Kuti-George ,National Vice President of the Nigerian Association of Small Scale Industrialists (NASSI), who spoke with our correspondent, applauded the policy but, noted that the execution was not strategic enough.

“We can’t continue with a cash economy in this age and time, but we need to move forward with the cashless economy. If the 60 percent of the cash, like we were told, is outside the banking system, it’s not normal. We need to reverse that situation. The cashless economy will reduce corruption.”

He, however, noted that the monetary authorities did not consider the peculiarity of Nigeria in the planning, adding that lack of strategic execution put the country in this mess.”

He said a lot of small businesses have the PoS with which they do their business, but that the problem lies in the area of supply of raw materials, which is mostly done by farmers who are mostly unbanked.

“Those, who are into food processing, have to go to farms to buy raw products. How many farmers have accounts, talkless of bank accounts for transfers.

It is biting hard. Their transactions are cash-based. A lot of Nano and Micro businesses have been badly impacted. The users of their services, those who supply raw materials have not been forthcoming. Those at the lowest part of the ladder, the Nano and the Micro businesses are worse hit because they are cash-based.

He pleaded with the government to supply the new notes as promised and the N200 notes should circulate fast to ease the situation.

Peter Popoola, Vice Chairman of the association, Lagos Chapter, On his part, explained that when consumers cannot buy or don’t have the purchasing power, the retailers can’t sell, and so also the distributors, which will invariably affect the producers. It’s a chain thing with a ripple effect.

“The new notes are not circulating. No more patronage. Sales are very low. Workers are finding it difficult to get to their workplaces. The fuel scarcity has made the situation worse.

Government should release enough money into circulation. The banks should give us the money that we deposited into the accounts.

“Most small business owners are collecting their money in bits, which is a waste of capital. Many shops will close at the end of the day. The little money they are collecting they use it to transport and eat, wasting their capital.

Transaction failures

Significantly, Nigerians are becoming even more frustrated amid the naira scarcity as electronic alternatives to the cashless policy continue to experience glitches.

While the Central Bank of Nigeria (CBN) continues the push for the policy, alternatives like the point of sale (POS), Unstructured Supplementary Service Data (USSD), and bank app platforms are failing, leaving many Nigerians stranded.

Nonye Omomemi, a business strategy consultant, spoke of the situation on Twitter.

“No withdrawals/cash, no transfer, failed POS, failed USSD,” she tweeted.

With people’s inability to carry out these transactions a lot of their daily activities have been disrupted, and their basic needs are unmet.

“I don’t know how many have noticed that Nigerian banking apps are shutting down such that one can’t even transfer the smallest amounts. No cash, no transfers. How will people vote if they can’t access their money in order to attend to their most basic needs? What kind of reality,” Molara Woods, an author said on Twitter.

The failure of these transactions has caused some to lose money.

A lot of people fear that the online payment infrastructure is not equipped to do the volume of transactions it is now experiencing.

“It has been almost impossible to do a bank transfer today and people are lamenting all over. Looks like a near collapse of the online payment infrastructure,” said an anonymous.

The Fintech Association of Nigeria (FintechNGR) said in its latest report, ‘Cashless Economy on Steroids’ “for a cashless policy to be successful, it has to do two things: offer incentives to encourage mainstream adoption and ensure the current IT infrastructure has the capacity to handle the increase in transaction volumes.

Forex market quiet

Investigations revealed that the pressure on the Naira intensified in the parallel market as the price currency (USD) gained 2.1 per cent week-on-week (w/w) to settle at N770.00/$1 but weakened by 0.1 per cent w/w to N461.25/$1. This has made the parallel market – official rate differential widen by 356bps w/w to 66.9 per cent. 

A forex trader said, “I do not think the naira scarcity is affecting forex demand because the dollar price still remains unstable. Even the CBN and the banks try to give small scale businesses form Q on a weekly basis, the CBN sells for $462 or thereabout.

But, at the parallel market as on Friday, the dollar sold at N760/$1, so you can see that the scarcity is in no way affecting the Naira and that is because the dollar rate is not stable. The dollar rate ought to have dropped to at least N600/$1 but that has not been the case.

The policy is a good policy no doubt but the implementation was not well thought out because there are people who still do not have bank accounts and live on cash. So, I think the CBN can look at ways to address this scarcity issue before elections this week because opposition parties might seize on this and unleash mayhem. We might even see looting from thugs on businesses if this scarcity gets out of hand”, he said.

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