Strapped: Impact of the cash scarcity on individuals and businesses

In the last quarter of 2022, Nigeria was rocked by a cash change policy announced by the Central Bank of Nigeria Governor, Godwin Emefiele. The CBN planned to replace the country’s high-denomination banknotes within six weeks, a move that faced challenges given a multitude of factors including upcoming elections, and the country’s own derelict infrastructure.

As was expected, the move had a severe impact on the country, especially in rural areas, where poor road networks and limited internet access hindered banking services. The use of USSD and 2G networks was hampered by their poor delivery. PoS operators in IDP camps and agrarian communities faced cash shortages, limiting their ability to serve customers.

The agriculture sector, which contributes significantly to the economy, suffered from depressed spending, affecting farmers’ ability to pay for labour and resulting in reduced production. The cash shortage also affected trade volumes, as many transactions in rural areas, and in the country’s informal sector are cash-based. Traders resorted to various coping mechanisms, such as reducing product values, offering discounts for cash payments, and bartering goods.

The lasting damage from the cash shortage was assessed in a study carried out by SBM Intelligence across the country. Our findings show that transportation and feeding became more difficult due to the cash squeeze, as transportation workers had to use PoS machines to ease payment for their passengers. Food sellers reduced prices and battered their goods to obtain other essentials. Across the board, all households were affected by the naira phase-out. Although it was difficult to find cash during the crunch, a combination of bank queues and PoS operators usually yielded just enough to last a few days with reduced expenditures.

Nevertheless, many interviewees said they would continue to trust the banks with their funds. The businesses we interviewed were significantly impacted by the cash crunch, as some had to lay off staff or reduce working hours.

Sadly, the policy failed to achieve its intended outcome. The new printed notes were not enough to cover for the old notes. Instead, the price of the naira at PoS points has increased as Nigerians often paid up to a 30% premium to access cash. It has become clear to many Nigerians that the CBN perhaps has capacity challenges. However, if internet connections were more dependable, more people would have utilised them frequently, and the policy would not have been detrimental to individuals in the formal sector. Therefore, we suggest the CBN should rethink its policy and set the goals of its cashless initiative in line with internet penetration.

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