Sunday, May 28, 2023

Nigeria launches new monetary initiative

Despite some intractable challenges, government and the Central Bank are relying on the introduction of the eNaira to ginger economic growth by making cash payments seamless.

By Pita Ochai

On October 25, Nigeria made history as the first African country to launch a digital currency, the eNaira. It is a Central Bank of Nigeria-issued digital currency that provides a unique form of money denominated in Naira. The eNaira serves as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments. According to the Central Bank of Nigeria, CBN, the eNaira was minted to meet the pressing needs of organizations and individuals seeking fast, safe, easy, and cheap means of payment. As at the day it was launched, Godwin Emefiele, the CBN governor, said 500 million eNaira ($1.21 million) has already been minted.

Charles Umeh, an importer, welcomes the new initiatives as he had longed for a replacement for cryptocurrency which he used for both his local and international transactions. To him, the use of cryptocurrency for international transfer wreaked havoc on business because of the volatile price fluctuations and the risky unknown transaction mediators who have often disappeared with payment. He believes that the eNaira coming from the apex bank of the country stands to be more dependable for business transactions for Nigerians.

“I do global transactions with many risks and delay in the past, but with eNaira, I could buy any amount of goods I wish to buy from partners without worrying about the International Money Transfer Operation, IMTO. Before now, my worries over international transactions are whether the IMTO I used, is the same as my other partners,’ or is linked to his bank, or if his IMTO is linked to my bank. All that has changed. Now, I simply enter the amount, and send it straight to the partner’s wallet, and he receives it in his home currency equivalent instantly. The processes between my sending and his receiving are no longer my worry and would happen nearly instantaneously,” says Umeh.

Nigerians are hopeful that the new digital currency will contribute to the growth of the economy after the devastating impact of Covid-19 since December 2019. The pandemic slowed down global productivity and caused economic depression in many countries. Nigeria had its share of the global impact of Covid-19 as its economy went into a depression after months of lockdown to curtail the spread of the pandemic.

However, there was a ray of hope in the second quarter of 2021 as the GDP increased by 5.01 per cent — the strongest growth since the fourth quarter of 2014. This also marked three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020. The World Bank’s forecasts Nigeria’s economy to grow by 2.4 per cent in 2021, due to accelerated growth in country’s service sectors.

With the launch of the eNaira, President Muhammadu Buhari assures Nigerians that the pace of economic growth will accelerate and forecast’s a GDP growth of $29 billion in the next 10 years.

 Nigerians welcomed the new economic initiative eagerness. In the first 24 hours of its unveiling, the eNaira attracted tremendous interest of Nigerians with about 200,000 wallets downloaded in less than a day. A breakdown of the figures showed that within 24 hours, 156,700 consumer wallets were set up, while 23,650 merchant wallets were opened, a reflection of the strong interest the innovation has continued to attract.

Although there were glitches 48 hours after the launch, – the eNaira speed wallet disappeared from the Google Play Store, with just the eNaira merchant wallet designed for businesses running – the situation was rectified with dispatch and it is expected that in the coming days and months, the number of wallets opened would rise dramatically, as the Central Bank of Nigeria, CBN, intensifies awareness drive.

Jadel Chidi, a blockchain technology expert, said the country has taken the right step towards improving business activities. To him, the eNaira will improve the volume of money within the economy, which will grow the volume of transactions and improve the economy. “Digital currency helps to foster faster payments. Also, it is less expensive than the regular payment systems you have already. You make your transactions person to person; you don’t need an intermediary,” Chidi said.

As Nigerians look forward to what the eNaira will contribute to the economy, the organised private sector is demanding reforms in other sectors too to support inclusive growth. To them, the eNaira is a welcome development but the quality of the business environment remains a source of concern to investors, especially in the real sector.

Chinyere Almona, director-general of Lagos Chamber of Commerce and Industry, believes a weak infrastructure, policy environment, and institutions continue to have adverse effects on the efficiency, productivity, and competitiveness of many enterprises in the economy. “Unless there is effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook for the sector will remain gloomy, particularly for the small-scale industries. Most SMEs are yet to recover from the impact of the COVID-19 pandemic. The way forward is to address the fundamental constraints to manufacturing competitiveness in the Nigerian economy. Perpetual protectionism without supported mass local production cannot fix this problem,” she said.

Muda Yusuf, an economist and chief executive officer of the Centre for the Promotion of Private Enterprises, CPPE, acknowledged that some sectors of the Nigerian economy, have been significantly transformed over the past 61 years, but identified the need for urgent steps to be taken to ensure a better macroeconomic management framework to stabilize the exchange rate, eradicate the challenge of illiquidity in the foreign exchange market and to stem the current depreciation of the Naira.

According to Yusuf, the country’s macroeconomic management framework has continued to pose serious challenges to investors, and he recommends that “the international trade process needs to be reformed to prioritise trade facilitation. Therefore, the orientation of the Nigeria Customs Service, NCS, Nigerian Ports Authority, NPA, the shipping companies and the terminal operators and the security agencies at the ports need to change in favour of investment-friendly international trade processes.

John Udeagbala, the National President of Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), said that the Nigerian economy today is faced with a high inflation rate, high unemployment rate, low growth rates, mounting local and foreign debt, and a depreciating currency while still largely being import-dependent. He attributed the current state of the economy to government’s habit of initiating and implementing reform policies too late and counteracting their positive effects with different policies. Udeagbala said that an example of belated policy intervention was the long time it took the government to package and commence the implementation of its Economic Sustainability Plan to counter the effects of the COVID-19 lockdown on the Nigerian private sector.

Akinwunmi Adesina, the president of the African Development Bank (AfDB), has also criticised the country on its inability to position itself for economic growth and achievements as done by developing countries like Vietnam and Malaysia. He lampooned Nigeria’s failure to diversify its export base to high-value market products, saying the country has focused more on replacing imports and saving the naira rather than deliberately pursuing wealth creation and value-added manufacturing.

“While for decades the share of manufacturing in Nigeria’s GDP, has hovered around 7 per cent, the nation has not been able to extricate itself from the comatose of its industrial manufacturing sector to unleash the fulness of its potential,” Adesina said.

According to Adesina, the performance of the manufacturing sector in the past five years have been poor. Between 2015-2017, the sector declined by -1.5, -4.3 per cent and -0.2 per cent. This is in sharp contrast to the dynamic and rapid performance of manufacturing in Asian countries, such as Singapore, Malaysia, and China.

Nigeria’s manufacturing sector represents only 3 per cent of total revenues from exports but accounts for 50 per cent of imports in the country. Nigeria has been more focused on the model of import substitution than expanding the share of the manufactured goods in its total export revenue.

“Import substitution, while important, is a very restrictive vision. It looks towards survival, instead of looking to create wealth through the greater export market and value diversification. The result is a manufacturing sector that cannot develop nor compete globally, but limits itself to “survival mode, not a “global manufacturing growth mode,” Adesina said.

Another critical area that may hamper meaningful growth of the nation’s economy is the agricultural sector. Conflicts among groups across Nigeria has been on the rise as about 77, 000 people have been killed and 2.6 million displaced in the past five years. The activities of herders, kidnappers, bandits, and Boko Haram have displaced farming communities, disrupted markets, and limited agricultural production as most farmers desert their farmlands and abscond to other regions for safety. Farmers now have reduced access to regional markets and find it difficult to go to their farms due to fear of being kidnapped or even killed.

Between 2011 and 2021, Boko Haram was responsible for 32.8 thousand deaths in Borno state alone, the country’s largest wheat producing state. While Borno’s production used to account for 30 per cent of the national wheat production, it now contributes almost nothing to the total of about 420,000 tonnes, which is 4.5 million tonnes short of national consumption. Consequently, N258.3 billion was spent on wheat importation in the first quarter of the year, up from N98.03 billion in the corresponding quarter in 2020.

The Fulani herders have also posed a major threat to food production in Nigeria through their violent harassment of farmers, especially in states like Benue, Gombe and Taraba. For four days in June 2017, herdsmen attacked farming communities in Taraba state and killed 732 people. Not only do these herders invade and destroy farms and farm produce, they also intentionally allow their cows to graze on crops that farmers have worked hard to cultivate. This resource-driven conflict between farmers and herders has also resulted in decreased access to land for food production.

Garba Abdullahi, a lecturer in the Department of Economics, Taraba State University, said that Nigeria’s current food crisis is due to government’s lukewarm attitude towards insurgent groups and banditry. “This devastation cannot be pinned on COVID-19. If these security issues are not resolved, it may elongate a vicious cycle of insecurity, leading to more complex issues in the nation,” he said.

But the government continues to assure Nigerians that the insecurity in the country will end soon. President Muhammadu Buhari also said his government has initiated policies that are attracting investors and boosting their confidence in the Nigerian economy. Among the initiatives, according to Mr President, are the Treasury Single Account, TSA, Bank Verification Number, BVN, National Identification Number, NIN, and the newly launched eNaira.

To the President, a “humane approach” to investment was the best way to address the global challenges currently facing the world, especially the effects of the COVID-19 pandemic.



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