At a time when Nigeria is grappling with huge fiscal deficits, the free fall of the naira, soaring inflation rates, multiple forex rates, rising borrowing costs, grave uncertainty, a fragile economy and on the eve of the 2023 general election, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at a press briefing held on October 26, 2022, announced the decision of the apex bank to redesign the naira with new notes scheduled for circulation on December 15, 2022.
Emefiele’s bold move is jarring, with the naira taking a severe battering against other currencies in the Black Market, with unemployment at record levels and the tumultuous money market witnessing lending rates squeezing out the productive sectors and the small and medium scale enterprises (SMEs). Yet, Emefiele knows these firsthand from his position as CBN governor and asserts that they are some of the problems he intends to solve with this move.
In the announcement of the decision to redesign the N200, N500 and N1,000 denominations, the regulator intends to primarily tackle what is perceived as the hoarding of naira outside the formal financial system, the scarcity of clean naira notes, the increased risk to counterfeiting of the naira, as well as security considerations bordering on the exchange of ransom monies.
To present the stark situation of the problems the CBN is attempting to handle with the move, Emefiele remarked that an average of 83.8 per cent of currency notes in circulation was alarmingly outside the banking system, such that by the end of September 2022, the currency in circulation stood at N3.23 trillion, compared to N1.46 trillion in December 2015. The implication is that a staggering N2.73 trillion was outside the formal banking system. This is a very alarming, disturbing and uncomfortable development.
The currency redesign move is an attempt by the CBN to address a myriad of problems, using a single intervention. In line with the bank’s statutory responsibility to manage the national currency, ensure its integrity, its efficient circulation and its efficacy in overall monetary policy, as enshrined in Section 2 (b) of the CBN Act 2007, the regulator reached a decision to reverse the anomaly of having so much money outside the system with the attendant inflationary impact and the hassle it makes for managing inflation.
There was also CBN’s need to check the increasing ease and risk of currency counterfeiting evidenced by several security reports that point to recent development in photographic technology and advancements in printing devices, which all made counterfeiting relatively easier.
The redesign is also aimed at forcing politicians, who have hoarded large sums of money for the intention of buying votes at the 2023 general election, to bring their stashed monies into the banking system and the timing points to this. It is typical of the economy to often witness an inflationary spike during election campaigns and polls giving monetary authorities a major headache.
Another issue the redesign was aimed at tackling is terrorism financing, a growing security and financial concern that requires financial regulatory intervention to make it difficult for kidnappers to seek ransom from victims, monies which ultimately create challenges for monetary authorities.
Although the global best practice is for the CBN to redesign, produce and circulate new local legal tender every five to eight 8 years, the naira has not been redesigned in the last 20 years. Since 1973, when the Federal Government changed from the British Pounds to naira and kobo, there have been currency introductions and changes in 1977, 1979, 1984, 1999, 2000, 2001, 2005, 2007, 2009, 2010 and the centenary N100 note in 2014. Therefore, it was more than overdue for a change.
With the goal of the regular to monitor the return of monies into the banks in part a ploy to apprehend questionable funds, it was obvious that those who could not account for large sums of money in their possession would seek alternatives to going into banking halls to change their hoarded monies.
Banks had been requested to put structures in place that would notice these large sums of questionable monies and inform the Nigerian Financial Intelligence Unit (NFIU) or the Economic and Financial Crimes Commission (EFCC). As predicted by analysts, who criticised the CBN for the move, most of those with illicitly acquired funds immediately panicked and went to the parallel forex market to exchange the naira for the dollar, which put further downward pressure on the value of the naira.
The effect was predictable. On Tuesday, November 1, at the official market, the exchange rate closed at N446/$1, but at the black market, the exchange rate was averaging N810/$1. By the afternoon of Friday, November 4, the naira had dropped to about N900/$1 and there were no indicators as to how badly the value will go.
I however predict that the naira’s drastic free-fall in the black market will be short- lived because in the coming days those with these illicit naira will find it difficult to find those who would trade them for foreign currencies because of the risks involved in holding notes that would expire on January 31, 2023.
To arrest the swift business of dubious currency exchange, some operatives of the EFCC raided the offices of some Bureaux de change operators in Abuja, arresting a number of those doing business with these hoarders wishing to cash out before the monies in their possession cease to be legal tender.
Apart from questionable individuals with huge funds in their possession, politicians and government appointees have been known to hoard monies meant for public goods for their selfish ends.
Early in 2017, the EFCC discovered that a former Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Andrew Yakubu, had hidden the sum of $9,772,800 in a soakaway pit and four months ago, operatives of the Independent Corrupt and Other Related Offences Commission (ICPC) raided a property in Wuse 2, Abuja, where N175 million and $220,965 were stashed.
After the CBN redesign announcement, EFCC said it was monitoring at least three serving state governors who hoarded billions of naira in various houses and were planning to launder the money through a cash payment of salaries, which was a contravention of Section 2 of the Money Laundering Prohibition Act.
According to reports, the Governors are Nyesom Wike of Rivers State, Abdullahi Ganduje of Kano State and Bello Matawale of Zamfara State.
The impact that the activities of those acting to avoid falling into the traps that the apex bank has machined into the redesign move have had on the value of the currency and necessitated quick action by the regulatory bodies and financial watchdogs points to the power of Nigeria’s Black Economy, that segment of a country’s economic activity that is derived from sources that fall outside of the country’s rules and regulations regarding commerce, fuelled by activities that can be either legal or illegal depending on what goods and/or services are involved. Although every country has its active Black Economy, operating alongside the taxable and legal economic processes, there are several countries where the balance tilts on the side of the untaxed and unregulated, like Nigeria.
When, in Nigeria, for instance, this informal economy is associated with illegality and illicit activities, such as Internet scams, black markets, crime, the production and smuggling of illegal drugs and money laundering that is pushed into real estate powered by selfishly acquired public funds, it presents a major source of worry for the financial authorities and money regulators.
It is this impact that is throttling the depreciation of the value of the naira. The power of the Black Economy is so strong that the action of those who thrive in the ambiance of the “dark” operating environment, where there is an ever decreasing level of market regulation, weak policy frameworks and socio-demographic drivers, such as population growth, urbanisation, rise in unemployment, widening inequality between the rich and poor, low-level education, including the harrowing effects of poverty, can have such on the country as a whole.
These individuals operating in the Black Economy do so with confidence and gusto because they are certain that they can buy their way out of any legal problems that may arise, with some of them ready to even go to jail because before long, they will have paid their way out.
They have been rattled by the CBN’s move and have reacted swiftly to shore up their illicitly acquired wealth by exchanging it for the dollar/pound/Euro to the point of severely damaging the value of the naira. I am strongly of the view that this must not be allowed to persist.
The Black Economy is not peculiar to Nigeria. Europe, Asia, Middle-East and even the United States of America, with its first world status and resurgent economy, is, like all other economies, afflicted with its own manner of dark business operated by individuals who operate outside the tax and regulatory systems to ensure that their questionable sources of wealth are neither taxed nor put under the radar of legal processes.
What is different is that whilst these pockets of counterfeiters, casino players, forgers and trunk-of-the-car salespersons do not have the economic wherewithal to make a detrimental impact on the American economy, the Nigerian Black Economy actually fuels the country’s economy with illicit funds whose presence or absence in the economy makes a telling difference. No sane country with aspirations for greatness can allow this to continue to be the case.
As a remedy, I believe there is a two-pronged path to follow: strong leadership and even stronger laws and institutions. The chance is before us as Nigerians go to the polls next year to pick a President that is forthright and has the vision of the type of country that the largest black nation in the world intends to be within the continent and globally.
This manner of leader is one who can create an environment where the economy can thrive, where businesses can blossom, where free enterprise can grow with the enabling infrastructure that will bring all of these to reality and the power generation and distribution to sustain them.
This will naturally engender the rise of creativity and industry of Nigerians who will evolve businesses that will grow the economy and be rewarded for their creativity, industry and hard work, which will in turn grow the country’s GDP. This will be inimical to the Black Economy and it will considerably shrink enough to be rendered insignificant as a thriving economy is the antidote to the large footprint of the Black Economy.
The CBN is doing its part now and it is an incentive for others to be as formidable in making things right. Yet, the regulator needs to do a lot to regain the confidence of the public by addressing its inability to fully ensure the blockage of illicit financial flows while checkmating the use of financial systems to fund terrorism and the commercialisation of ransom by strengthening oversight of commercial banks used as conduits for corruption.
It also needs to intensify collaborations with relevant anti-corruption agencies to check dubious charges by some commercial banks, who keep shortchanging poor Nigerians whose reducing disposable income is further worsened by growing inflation costs and unemployment, all of which play into the hands of the Black Economy as is presently the case.
The fact is that the CBN cannot fix the country’s financial crisis by itself alone. The fiscal, which has been largely irresponsible and docile to its responsibilities must urgently plug the leakages in the system and revamp the country’s crude oil production to, at least, 2mbpd so that the badly needed petrodollars can shore up the value of the naira. The country is estimated to lose around 800, 000bpd to organised theft and production shut-ins.
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