Last updated Jun 30, 2023
Nigeria needs adequate digital and financial infrastructure to support a swift transition to a cashless economy, the World Bank has said.
The World Bank stated that this was one of the reasons the Central Bank of Nigeria’s Naira redesign policy faced numerous challenges in its implementation.
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.
The report stated: “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 percent 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 percent in 2022 to 3.9 percent y-o-y in Q1 2023.
“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.”
However, during the naira redesign policy, electronic payments grew in the country, the World Bank said, despite numerous 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 percent y-o-y to N39.58tn in January 2023. In February it fell to N37.67tn, despite a 41.29 percent 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.
World Bank/Punch/Hauwa Abu
