A lot of Nigerians, especially business owners and entrepreneurs have been thrown into a state of confusion and complete pandemonium following the new CBN policy to limit cash withdrawals to #20,000 daily for individuals and #100,000 daily for businesses.
The CBN had in a letter dated Tuesday 6th December directed all deposit money banks, payment service banks, primary mortgage institutions, and micro finance banks to effect an over-the-counter cash withdrawal limit by individuals and corporate entities to not more than #100,000 and #500,000 weekly, respectively, effective January 9th, 2023.
“The maximum cash withdrawal over the counter by individuals and corporate organisations per week shall henceforth be N100,000 and N500,000 respectively. Withdrawals above these limits shall attract processing fees of 5 percent and 10 percent, respectively,” CBN said.
When one considers the cashless policy trend being practised in Western countries, you'd be tempted to agree, that this is a positive and welcome development, as it has the potential to reduce money laundering, cash hoarding and corruption generally. But we've got to look beyond face value.
The Nigerian financial terrain is peculiar and quite different from that of the Western countries. While the Western countries operate a credit driven economy, Nigeria operates a cash driven economy. This is why policies and laws must be considered properly and in tandem with our peculiarities before being put forward to the public domain.
Without proper consideration, we could experience a deadly recoil of a probably good gesture, leading to even deeper economic crisis than we're in already.
Inflation in the country has been on a steady rise despite several monetary tightening policies as this latest policy can be described to be. The CBN's ill thought monetary policies along with some other factors have proved to have a direct impact on inflation. This last cash withdrawal policy will rather worsen things instead of making them better. Our elders say, "it is only a mad man that repeats the same thing over and over and expects a different result. This saying directly relates to the CBN's continued efforts at tightening our monetary policies, while it doesn't seem to achieve its goal of ameliorating the effects of the fiscal mess that we're in.
While the CBN governor, Godwin Emefiele has been experimenting with different ideas that seem to pop into his head on a whim, the Nigerian economy has been crumbling like a pack of cards. A major effect of the soaring inflation is the erosion of the purchasing power of the naira, as incomes collapse and add to the mounting poverty of a nation which is already titled the "Poverty capital of the world".
According to the National Bureau of Statistics [NBS], headline inflation accelerated to 21.47 percent in November as against 21.09 percent in October.
On a month-on-month basis, it increased to 1.39 percent in November as against 1.24 percent in October 2022.
Also, food inflation rose to 24.13 percent from 23.72 percent in October. On a month-on-month basis, food inflation grew by 1.4 percent compared to 1.23 percent in October. Core inflation similarly spiraled to 18.24 percent from 17.76 percent in October.
Over the last one year, the Nigeria inflation story has been a depressing one as reflected in the dynamics of all key price metrics. The key inflation drivers which includes; depreciating exchange rate, rising transportation costs, logistics challenges, forex market illiquidity, hike in the cost of refined petroleum products, climate change, insecurity ravaging farming communities and structural constraints to economic activities have not changed over the last few years.
The brutish inflation asides, what about the impact of the policy on MSMEs?
In a country where scam is rife, fake alerts are rampant, and with a dysfunctional police and justice sysyem, transacting in cash acts as a surety against anything untoward and gives the business owner a high level of confidence and control.
Let's take a look at PoS businesses which can be considered a subsector taking into cognisance the number of jobs it has created. How many of them will be affected considering the fact that PoS business is commission based and limiting daily withdrawal to #20,000 will definitely affect them and threaten their sources of livelihood.
How about market women and the petty trader? How many have PoS machines? How many will be willing to engage in bank transfers. Even for many who are conversant with smartphones, one can transfer money to someone and they don't receive the alert immediately. Sometimes it takes hours. How often does this happen? What will be the effect on businesses?
The new policy will most likely be inimical to their growth, as infrastructural bottlenecks prevent total reliance on alternative channels of payment being favoured by the CBN.
Recently, the Small and Medium Enterprises Development Agency of Nigeria, alongside the National Bureau of Statistics, put the number of micro, small and medium enterprises (MSMEs) in the country at 39.65 million, which employ about 87.9 percent of the nation’s labour force. The body added that MSMEs contribute 43.3 percent to the nation’s GDP.
Truth is Nigeria, doesn't have the capacity nor infrastructure to keep the economy functioning properly as it experiments with policies that are sure to rebound and hit us right in the face. Also, with the contribution of MSMEs to nation building and job creation, it is a very important sector that should be accounted for in every fiscal and monetary decision that is bound to affect them.
Sustained tightened policy penalizes entrepreneurs especially, as it increases cost of credit with heightened prospects of a backlash on growth.
The deployment of monetary tightening tools should be put on hold and the CBN should resist the urge to dish out further policies of this nature as mounting inflationary pressures are yet to subside.
Elections are fast approaching and all indications show that this policy is politically motivated, probably in a bid to try reduce and control vote buying. The CBN should realise it has power over the finances of over 200m people and should rather proffer solutions to our existing financial woes. It shouldn't make decisions with such hefty consequences based on political sentiments. Economic advancement of the people and country should be of utmost priority.