The cash withdrawal limits, which took effect on January 9, 2023, may affect food production in the near future, stakeholders in the agricultural industry have said.
Food inflation in Africa’s biggest economy surged to a 17- year high last year on the back of the fallout of the Russia-Ukraine war and the floods that ravaged many parts of the country.
“The rural economy is 100 percent cash because there are limited banks, Point of Sale terminals, Automatic Teller Machines (ATMs), and the banks are very far,” Africanfarmer Mogaji, chief executive of X-Ray Farms Consulting, told BusinessDay.
He described the economy as very fragile “as we are not producing enough food across boards.”
“It will affect food production, thereby making food more expensive because most farmers would want cash for their produce since they don’t believe in bank transfers,” he said.
According to Mogaji, the implication of the cash limit policy “is something that should take like two years since most rural people take a long time to adjust to things.”
Following the redesign of N200, N500 and N1,000 notes, the Central Bank of Nigeria (CBN) introduced a new policy limiting over-the-counter cash withdrawals by individuals and corporate entities to N500,000 and N5 million, respectively, per week.
The CBN expects this policy to encourage a cashless economy, stave off cash hoarding, and lower kidnapping rates and terrorism.
According to the apex bank, the money supply rose to an all-time high of N50.58 trillion in October 2022, a 21.97 percent rise from N41.47 trillion in the same period of 2021.
“We have been receiving a lot of complaints about the withdrawal limit,” said Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME).
“The networks in the rural areas are weak; there are issues of integrity and trust in the electronic payments systems, and also most people in the villages don’t have electricity to charge their phones.”
“So, it will have an impact on food production because the people who buy the seeds, clear the lands, etc. are paid in cash by the farmers. Most rural dwellers live by the day; they can afford to have a phone because all they want to do is survive first,” Yarima added.
Agriculture is a major contributor to Nigeria’s Gross Domestic Product and more than 80 percent of farmers in the country are smallholder farmers in rural areas. So they play a dominant role in the economy.
But the rural areas where land for agricultural enterprise is available in abundance are bedevilled by challenges that limit financial access to millions of Nigerians living in the areas.
Data from a 2021 Enhancing Financial Innovation & Access report show that while 71 percent of urban adults have bank accounts, only 40 percent of those in rural areas have a formal account.
Read also: CBN cash limit chokes informal businesses
“More than 60 percent of rural communities surveyed don’t have a bank branch, agent or ATM,” it said.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said: “When you elevate the discussion to a business level in the rural economy, all agric commodities are being traded in the rural areas which run into millions in transactions.
“So, the whole thing is not realistic; it is not taking into account the realities on the ground. It is an incentive that you use to draw people into the system and that is the way you run an economy.”
Yusuf added that the CBN should review both the limit and deadline. “Agric and livestock are the sectors that the limit will hit the most and these are very critical elements of our economy.”
The NASME boss, Yarima, described the timing of the withdrawal policy as wrong, saying: “We need to sit down with stakeholders to find other ways. Create a lot of initiatives for people to really come on board and also work with the network operators.”
Although electronic transactions have surged in recent years, Nigeria is still largely a cash economy. According to the Nigeria Inter-Bank Settlement System (NIBSS), the total volume of NIBSS Instant Payment platform transactions rose by 613.1 percent to 5.2 billion in 2022, the highest in five years.
