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By Ikenna Igwe

The modern world we find ourselves in today is one that is fast becoming digitized in every sector, ranging from finance to technology, agriculture, transportation, health and every other industry. Since the appearances of the Automatic Teller Machine (ATM) first in the shores of America finance market in 1969 and subsequently in 1989 in Nigeria, the world and Nigeria have been gunning hard to do away with fiat money and fully digitize its finance. The industrialized world has gone deep in digitizing their money and their transactions. In the US for example, up to 88% of transactions are done without the use of physical dollars contrary to what we see in sub-Sahara Africa where the idea of “Cash is king” still holds strong.

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Remember that on 26th October, 2022, the Central Bank of Nigeria received the approval of the President to redesign the N200, N500 and N1000 notes, a policy geared towards enhancing financial inclusion among the rural populace who are largely unbanked and help decrease the heavy reliance on physical cash for virtually every transaction, among other reasons.

The policy of the Naira redesign and digitization of the economy was a good policy that I guess had the best of intentions, but the poor implementation of the policy has had a huge toll on the economy and the people. With inflation at an all-time high, unstable fuel price, scarcity of the redesigned note and epileptic power supply, the policy almost had a counter effect of what it intended. The knock on effect on critical sectors of the economy will definitely deepen. For instance, the estimated loss in the trading sector which contributes about 14% of the nation’s Gross Domestic Product (GDP) which is valued at N35trillion and the agricultural sector which contributes about 25% to the GDP which is valued at an estimated N62trillion was massive. It is estimated that the crisis could put Nigeria’s N100trillion component of the national GDP at risk. A more clear matrix of economic measurement stated by Yemi Kale, former Director General of the National Bureau of statistics [NBS] has estimated that Nigeria lost between N10 – N15 trillion of national productivity in the first quarter of 2023, as a result of difficulty created by the Naira redesign policy.  

DIGITIZATION OF THE ECONOMY AMIDST HARDSHIP AND UNCERTAINTY

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Amidst the economic gridlock created by both the Naira redesign and presidential election, one thing is evidently true, the fact that the country has improved and scaled up its digital framework, be it in finance, telecom, or banking as the country’s digital economy keeps making waves, contributing 18.44% to the GDP in the second quarter of 2022. Taking advantage of some of gains of the growth in the digital economy, some of the obvious loopholes need to be addressed not just by the government but also all the stakeholders involved.

CURRENT STATE OF DIGITIZATION IN NIGERIA

Heightened Pressure on the Digital Infrastructure: The paucity of the new naira notes mounted unprecedented pressure on digital alternatives for transactions in Nigeria. The digital infrastructure of banks in their present state seemed incapable of handling the sharp increase in transaction volume. The unreliable nature of digital services meant that some digital transactions took up to 48 hours, while customers with failed transactions had to fight through huge crowd, banks taking as much as 10 working days to resolve complaints by customers. The worsening case of brain drain in valuable IT support department also contributed to the digital scalability constraints faced by the commercial banks in Nigeria.

Telecommunication services and security: The telecom industry is an indispensable component of the digital economy. Despite its importance, telecoms still have huge gap to cover in terms of offering adequate and stable network especially in the rural parts of the country.

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According to the “Centre for the Study of the Economics of Africa [CSEA], Nigerian banks are indebted to telecom companies to the tune of N80billion in unstructured supplementary service data [USSD] fees as of November 2022. This poses a significant impact on the execution of financial services and transactions. It is not good because the USSD service is what facilitates the financial services in underserved and financially excluded areas who have unreliable internet connectivity.

Over 50,000 cases of major harm have been recorded on telecom infrastructures and facilities in the span of five years leading up to 2021. The security of telecom infrastructures has an impact on user experience, accessibility and affordability of digital services. 

High Migration of Customers from Traditional Banks to Financial Technology companies [FINTECH]: Due to the CBN’s Naira redesign policy’s influence on digitization, the constraint and failure of commercial banks to technologically scale up their activities left depositors with no choice but to rely on financial technology firms for financial services. Depositors are not burdened by arbitrary and multi-layered protocols that have characterized commercial banks, in contrast to the digital banks who offer unlimited free transfers, instant but expensive uncollateralized loans and providing saving options for depositors with excess funds that can earn close to 20% interest rate.

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Minimal/No digital services in the informal sector of the Nigerian Economy: Data from the Centre for the study Economics of Africa [CSEA] shows that financial inclusion rate in Nigeria 64% as of April 2022, implying that over 30% of the population did not have access to financial services such as payments, saving, credit and insurance. Given the labor intensity features characterized of the informal sector, the policy curtailed real demand and plunged producers’ sales because of no existing financial payment solutions.

According to the World Bank in 2021, more than 50% of Nigerians lack basic digital skills. This makes the cashless policy way harder and the fact that up to 44.6% of Nigerians lack access to electricity, adds another layer of problem to the already existing one.

BREAKTHROUGH AND LEADWAYS IN THE DIGITIAL ECOSYSTEM 

The Naira redesign and the subsequent cash shortage that followed made digital banking more challenging for Nigerians. The increasing reliance on banking apps and USSD platforms have negatively impacted bank performance, putting strain on the already unsteady infrastructure of digital banking. Sources from one of the big banks attributed these failures to a combination of network failures, higher traffic and understaffed IT department, in contrast to these new banks [Fintech] who do not have so many users and so find it easier to manage transactions efficiently.

As the traditional banks are drowning in negative PR, it has allowed non-traditional banks [Fintech] to display their competence and breakthrough into the market with full speed, building what seems to be a resilient cashless infrastructure in Nigeria.

OPAY, one of Nigeria’s biggest Fintech Company, reported on Techcabal that they currently have over 26million active users and have reported that significant number of them are first time users.

In the continuous quest to deepen internet penetration in rural and underserved parts of Nigeria, the Nigerian government has attracted big tech companies such as STARLINK, owned by SPACEX and TELSA CEO, Elon Musk. This aim is to deliver a global broadband network, using satellite connectivity to provide a high speed internet coverage with capacity to penetrate into the rural and geographically isolated areas where internet connectivity is hardly accessible. In a bid to achieve a stable and effective digital economy, having a strong internet connectivity devoid of glitches and malfunctions is very essential to growth. There is no doubt that the launch of STARLINK in Nigeria will bring about job creation, increased investment and access to internet in places where the likes of MTN and other telecom don’t have a good presence.

But the major issue that might stall the company from reaching its aim is the fact that both the cost of installation and subscription are well above the income bracket of the average Nigerian and the fact that most Nigerians can’t pay for the hardware and subscription in dollars because most Nigerian banks have suspended dollar transactions on their Naira cards. With the aftermath of the 2023 presidential election, Nigerians can only hope that the new government that is set to take office will be the sort of government that is keen on spurring the country to sustainability and growth in terms of harnessing the digital and technological potentials of the nation.