Election spending in Africa’s biggest economy is expected to decline as naira in circulation is shrinking ahead of the general election slated for February and March.
This is seen as one of the upshots of the Central Bank of Nigeria’s (CBN’s) revised cashless policy and naira redesign announced last year.
CBN data show a reduction of cash in circulation by 3.95 percent between October and November 2022, and analysts see this dropping further in December.
Naira in circulation decreased to N3.16 trillion in November from N3.29 trillion in October, after the central bank announced plans to redesign high-value naira notes.
“The redesigned naira and the withdrawal limits are expected to put a cap on the amount politicians can use to buy votes,” said Johnson Chukwu, managing director/CEO of Cowry Asset Management Limited.
He said those who want to compromise the electoral process by carrying some cash and buying voters’ conscience may be highly constrained.
In the pre-election year of 2018, currency in circulation increased by 7.14 percent between October and November 2018.
The data obtained from the CBN showed that currency in circulation, which stood at N1.96 trillion in October 2018, rose to N2.10 trillion in November of that year.
The CBN, on October 26, 2022, announced that N200, N500 and N1,000 notes would be redesigned and introduced into the economy from December 15, 2022 while commercial banks were directed to return existing denominations to the apex bank.
The distribution of the redesigned notes started on December 15, 2022, after it was unveiled by President Muhammadu Buhari on November 23.
The apex bank had in early December slashed the limits on cash withdrawals over the counter and via Automated Teller Machines, Point of Sale terminals and cheques. It set N100,000 and N500,000 as the maximum limits for withdrawal over the counter by individuals and corporates respectively, among others.
The CBN, however, revised the cash withdrawal limits on December 21, 2022, in response to mounting pressure from the public. It increased the weekly limits for cash withdrawals across all channels by individuals to N500,000 from N100,000 and corporate organisations to N5 million from N500,000, effective Jan. 9.
Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said the decline in circulation of cash could be connected with the immediate impact of currency redesign that was announced in October.
He said the apprehension generated by the announcements may have slowed the injection of cash into the system by politicians.
“Closely related to this is the lagged effect of CBN monetary policy tightening, which began in May 2022 and which effectively reduced money supply. The currency redesign and cash withdrawal limit will contribute to disinflation in the Q1 2023,” Uwaleke said.
Festus Omoregbe, a politician, said this year’s election is dry in terms of cash flow.
Omorogbe is suspecting that the politicians were still being sceptical about who their true followers are because of the revolutionary trend that the Labour Party candidate seems to have brought into the political space.
“The politicians were being cautious of releasing money at the moment; so the whole place is still dry,” he said.
Omoregbe however observed that the new CBN cashless policy may have a big impact on election spending.
Henry Obodo, a politician, who said parties were not yet mobilising for campaign, said what was being done at the moment was to create structures from the national to the ward levels.
“For our party, what we are doing at the moment is to put structures in place and we hope that there will be mobilisation to win votes ahead of the pool on 25th February.”
On whether he thinks the CBN policy will affect election spending, he said: “I just heard about it more in our LGA party meeting over the weekend, but we don’t know yet how it will be managed because we need money to mobilise our party members, ” he said.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the drop in currency in circulation could be that more people are now moving online for easier transactions, adding that election campaign spending does not necessarily have to do with cash.
Uwaleke said the pre-election year of 2022 in Nigeria was characterised by tension and uncertainties ahead of the general elections with adverse consequences for the economy and the equities market in particular.
According to him, during the electioneering period, investors are advised to take a longer term perspective as the second half of the pre-election year is a good time to identify and take positions in undervalued stocks especially in dividend aristocrats.