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By Omoniyi Salaudeen
The first quarter economy is a mixed bag of the good, the bad, and the ugly. The good side of it is that the people are gradually embracing the cashless policy introduced by the Central Bank of Nigeria (CBN) to make the country effectively competitive in the global financial market.
But on the flip side, the sudden implementation of the naira redesign policy, substantial withdrawal of cash from circulation, epileptic nature of online platforms as an alternative payment option, and the untold hardship experienced by the people present an ugly scenario that has put a big question mark on the sincerity of the apex bank.
When the CBN governor, Godwin Emefiele, seized the nation by the scruff of the neck and launched the naira redesign policy on December 31 last year, no one had an inkling of the hardship that was in the offing.
But as events turned out, the sudden confiscation of people’s money in the guise of the naira swap adversely affected the economy, especially the rural agric sector, as well as small-scale business enterprises.
Although there are no official statistics yet as to the extent of the losses recorded within this first quarter, some economists have listed job losses, contraction of the economy due to sharp reduction in demand, as well as decline in transportation sector, among others, as some of the downside of the policy.
A former Managing Director of the Lagos Chamber of Commerce and Industry (LCC1), Dr Muda Yusuf, giving the rundown of the economy occasioned by the cashless policy of the CBN in a telephone interview with Sunday Sun, put the estimated total loss within the first quarter around N20 trillion.
He said: “The cashless policy has led to a slow down of economic activities in the first quarter. It led to the contraction of the economy. In some cases, it led to loss of jobs as well as sharp reduction in demand because people didn’t have cash to do business. It affected the transportation sector as well. It affected the agricultural sector because many of those in the rural areas did not have cash and most of them do business with cash, especially those who are dealing in food items and livestock and they are quite in number, playing important role in the economy. Their businesses were badly affected.
“So, when you look at the impact on the economy and rural agriculture, impact on the informal sector, impact on the retail sector, the damage to the economy was enormous. The damage could have been around N20 trillion arising from naira redesign and its impact on the economy generally.
“The crisis it created also spilled over to the digital platform. Because there was a scarcity of cash, all manners of transactions went online. That also created congestion on the online platforms which led to a lot of failure of online transactions. What can you do in an economy when your payment system has collapsed? When your payment system is not working, the economic system cannot function because activities are largely a question of exchange. And the main medium of exchange is money. Those things really had a very serious effect on the economy in the first quarter.”
He also faulted the policy’s objectives, noting that it was not properly conceptualized. “The policy was not properly conceptualized. First, there was an issue with the timeline. There is no way we can achieve the objective of the naira swap within three months in a country with such a huge population. Secondly, CBN had other objectives other than economic objectives. It became clear that what they wanted to do was just to mop up cash. They used naira redesign to confiscate cash from the economy. That is why the CBN is celebrating the fact that they have been able to mop up about N2trillion worth of cash. The argument is that it will make monetary policy more effective, it will help to fight inflation, help the exchange rate, curb kidnapping, and vote-buying. Those were the objectives they listed. So, how much of that has been achieved now? A lot more damage has been done to the system. From the very beginning, the whole idea of the policy was not well thought out. It was ill-advised. And now, all of us can see the impact it has had on the economy. This naira redesign policy has done more damage to the economy. It is the worst policy this administration has ever imposed on us,” Yusuf declared.
He, however, expressed optimism that the second quarter would be better with an injection of more cash into the economy.
“If the cash situation normalizes, the second quarter is likely to be a lot much better than the first quarter. With more cash in circulation, the business transaction will improve at the informal sector level, the retail level, the distributive trade level, the rural economy, and agric sector.
“If the cash situation normalizes, we are likely to see some recovery in the second quarter. Also, if all the issues around the election are settled, that again will help to change the trajectory of the economy because the new administration will come up with new ideas which may likely improve on what we have currently. So, the second quarter is likely to be much better than what we had in the first quarter,” he added.
The Managing Director of Cowries Assets Management, Mr Johnson Chukwu, shared the same view about the negative impact of the cashless policy on the economy.
He argued: “Given the fact that the cashless policy of the Central Bank of Nigeria was the major economic activity in the first quarter of this year, the economy must have been badly impacted by the policy. A lot of small-scale enterprises found it difficult to transact business.
“My take is that we are going to see a negative impact of the cashless policy. Whatever purpose the cashless policy of the CBN was designed to achieve, we are all living witnesses of the negative impact of the policy. I doubt if there is any economist who will say that it has impacted positively on the economy.
“Some of us had actually recommended that CBN should allow withdrawal of up to about N100,000 per named bank account holder and that such withdrawal should take place once to avoid the traffic we saw at the payment point and the wastage of man-hour spent on queue. But that was not adhered to. Now, we can all see the negative impact of the policy.”
According to him, projection into the second quarter economy will depend on a number of factors.
These, he said, would depend largely on the policy of the incoming government.
He said: “Indication as to whether the economy will improve will depend on the pronouncement by the new incoming government. The economy is driven by policies, appropriate incentives, inflation, investor confidence, local and foreign. These are factors that will come from the incoming government. At this point, it will be purely speculative to predict which direction the economy will go until we hear from the incoming government on its policy orientation. We have to look forward to the policies of the new government at all levels.
“The issue about the election is at the court. We hope the court will dispense justice. There will still be some level of suspense that is done. For me, any talk about how the economy will fare is still premature. It all depends on who is sworn in, the policy of that person, the trust citizens have in that person and several other factors.
“The performance of the economy depends on the policy environment, policy pronouncement of the government, policy implementation, and the strategy for driving economic activities. As things stand today, the outgoing government is no longer in a position to talk about policies. Whether the economy will fare better in the months ahead will now depend on the pronouncement of who is forming the next government. My take is that the economy must have been negatively impacted this first quarter by the cashless policy.”
Former President of the Nigerian Institute of Bankers and Professor of Economy at Babcock University, Ilisan, Ogun State, Segun Ajibola, in a slightly different position to the earlier arguments, attributed the observable shortcomings of the cashless policy to some unintended consequences of the implementation, insisting that Nigeria must embrace the policy for global competitiveness.
He was, however, quick to list certain conditions that would facilitate the successful implementation.
His words: “It is not all that easy to dimension the outlook of the economy in this first quarter. On the one hand, there are complaints by the key players in the informal sector that the cashless policy affected them because they couldn’t carry out business as and when due. Traders who are into buying and selling also complained. If we put all these together, the fear may be there that economy might have experienced a reduction in growth in the first quarter.
“But now, we are beginning to see improvement in the velocity of money in circulation. I think the initial fear has disappeared, but the immediate impact and the unintended consequences of the policy have been much felt in this first quarter. Until we see the figures, nobody will be able to say exactly the extent to which that has impacted the rate of growth of the economy.
“We are also aware that due to the effect of the policy, prices of some commodities also fell. But for now, we may not be able to talk about the sustainability of the price reduction. We see what subsequently happens now that the cash is available. The best one can do is to subject it to some educated guesses. When the facts are out and we see the statistics released by the Nigeria Bureau of Statistics within the next couple of days, then we may be able to dimension what actually happened in the first quarter so that we can project more accurately into the subsequent quarters of the year.
“We all know that carrying cash has its own benefits and limitations. So, any policy that will strengthen alternative channels of payment as opposed to the use of cash to settle commercial transactions is in the face of it a good policy. But sometimes certain policies come with some unintended consequences. Maybe the challenges faced by the various economic agents are some of them. There is no way such a policy will come that it will not come with some challenges because it is a major paradigm shift. It is a major challenge to the status quo as far as financial management is concerned. I am not sure that such a policy would have been designed at the national level with some global implications to deliberately punish people. What we have witnessed is what lawyers call unintended consequences.
“Nigerians should shift away from a cash-based economy as it happens in advanced jurisdictions where cash is minimally required. But for that to happen and have the desired effect, a lot still needs to be done. One, there is still a need for financial literacy to be improved. And that will require financial education because, in a country where about 50 per cent of the population is still unbanked, a lot needs to be done to draw people to the banking net. We also need to work on alternative channels, as well as human resources. In this regard, organisations like Fintech need to be up and doing. These are conditions precedent that must be satisfied before we can move into a full-blown cashless economy. I think it is a gradual process. That is the direction the world economy is going and Nigeria cannot be an exception. It may take some time because of the situation we are in where there is a 50 per cent unbanked populace.”
