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The World Bank has emphasized that Nigeria’s digital and financial infrastructure is insufficient to support a smooth transition to a cashless economy. This observation was highlighted as one of the reasons behind the failure of the Central Bank of Nigeria’s naira redesign policy. The World Bank shared these insights in its “Nigeria Development Update (JUNE 2023): Seizing the opportunity” report, stating that the policy resulted in a cash shortage and negatively impacted economic activity during the early months of 2023.
According to the report, the limited time allocated for the transition to the new currency notes was inadequate for the Central Bank to replace the demonetized old notes, leading to the scarcity of cash. The situation was further aggravated by the lack of robust digital and financial infrastructure, along with the fact that only 40% of adults in Nigeria have a bank account. This cash shortage led to a black market for new notes, increasing transaction costs overall.
The World Bank also highlighted that economic activity faced additional challenges due to policy reversals, conflicting positions between states and the Federal Government, the Central Bank, and the Supreme Court. Non-oil, non-agricultural GDP experienced a decline, with an average quarterly growth rate of 6.0% in 2022 dropping to 3.9% year-on-year in Q1 2023.
The report stated that the naira redesign policy did not achieve its desired effects. Despite its aim to ease forex rate pressures and reduce inflation, the policy failed to produce the intended outcomes. Inflation actually increased from 21.3% in December 2022 to 21.9% in Q1 2023, and the exchange rate premium in Q1 2023 was higher than the average value in 2022.
During the implementation of the naira redesign policy, electronic payments experienced growth in Nigeria. However, this growth was accompanied by a high rate of failed transactions. The Central Bank announced withdrawal limits and encouraged Nigerians to adopt electronic forms of transactions, aiming to reduce cash payments by 2025 and promote mobile payments.
While the World Bank acknowledges the potential of a cashless economy, it raises concerns about the current state of Nigeria’s digital infrastructure. The bank suggests that further investment and improvements in infrastructure are necessary to support the envisioned volume of transactions and facilitate a successful transition to a cashless economy.
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