• Thursday, July 18, 2024
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BusinessDay

New naira crisis exposes Nigeria’s weak minting capacity

Naira currently undervalued – Cardoso

With chaos spreading due to the scarcity of new naira notes, Nigeria’s attempt to replace its high-denomination currency notes less than a month before a crucial general election has put a spotlight on the local capacity of Nigeria’s print company.

In Africa’s biggest economy, lengthy queues are the new norm at banking halls and Automated Teller Machines (ATM) as most Nigerians struggle to access money in a slow-growing economy still largely reliant on cash transactions.

BusinessDay gathered that there is a level of secrecy surrounding the actual volume or value of new naira notes in circulation since the Central Bank of Nigeria (CBN) introduced the new N200, N500 and N1,000 notes as legal tender in December 2015.

Findings showed the scarcity of the new naira has raised questions on the capacity of Nigerian Security Printing and Minting plc (NSPM) to meet printing demands, especially considering the short time frame.

“The system has never been tested for the kind of demand we are seeing,” a source familiar with the minting company operations.

NSPM’s latest data show that the company has an installed capacity to produce four billion pieces of banknotes per annum. In 2020, a total of 2.52 billion pieces of banknotes were produced, compared with 3.05 billion pieces of banknotes in 2019. This represented a decrease of 529.31 million pieces or 17.37 percent.

“The timing and implantation of the new naira showed a lack of understanding Nigeria’s domestic terrain,” a source told BusinessDay.

The NSPMC, also known as The Mint, was established in 1963 with the objective of producing the nation’s currency notes and coins for the CBN as well as security documents for ministries, departments and agencies of government, banks and other blue-chip companies.

Data from the World Bank showed there are 16 ATMs per 100,000 adults in Nigeria. This means for a population of at least 200 million people there are at least 32, 000 ATMs across the federations.

Putting a minimum of one million in each of these ATMS will require daily cash of N32 million, BusinessDay’s calculations show.

“They don’t have the structure to meet this demand irrespective of the cashless policy being championed,” another source said.

The chief financial officer of one of Nigeria’s biggest lenders told BusinessDay that commercial banks are not receiving enough naira notes from NSPM through CBN to meet local demand.

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“I agree that some banks misbehave in terms of hoarding but those are the outliers; we shouldn’t ignore the fact that the central bank is simply not printing enough. There is simply not enough,” a senior executive in Nigeria’s banking sector said.

He added, “There is no money anywhere – our daily consumption is around N4 billion, but the CBN now gives us a maximum of N1 billion which we have to ration across the branches and ATMs.”

When grilled by members of the House of Representatives during a plenary session, Aishah Ahmad, the deputy governor of CBN, said she did not know “how much was printed of the new naira notes”.

“We ordered 500 million pieces of currency from the Mint but I can’t provide accurate figures on the exact amount printed,” Ahmad said. Her response caused a stir in the chamber as the lawmakers wondered why she would not be aware of the figure.

After adjusting for the 2022 average inflation rate, BusinessDay’s calculation showed the cost of printing the new naira notes may cost Africa’s biggest economy N77.6 billion while another cost of N6billion would be incurred distributing the new naira notes across the 36 states and the Federal Capital Territory (FCT).

“It’s a big distraction. It’s going to impose lots of costs on the economy. It’s not going to be cheap. We are talking about printing N3.3 trillion currency notes,” said Muda Yusuf, the executive director, the Centre for the Promotion of Private Enterprise (CPPE) and former director-general of the Lagos State Chamber of Commerce (LCCI).

Data sourced from CBN showed the logistic cost of printing new naira notes jumped by 75 percent from N33.3 billion in 2016 to N58.6 billion in 2020. The cost of printing the new naira stood at N49.5 billion in 2017; N64 billion in 2018 and N 75.5 billion in 2019.

Further breakdown showed the cost of distributing the naira decreased by 21 percent to N4.5 billion in 2020 from N5.7 billion in 2018.

After adjusting for the average inflation rate, BusinessDay’s estimation showed the cost of distributing the new naira notes hit N5.3 billion in 2021 and N6.0 billion in 2022.

“At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise.

“Currency as a percentage of money supply is less than seven percent. The exercise, therefore, has no monetary policy significance,” said Yusuf.

He added that there were more urgent issues demanding the attention of the CBN.

“We have issues with liquidity in the foreign exchange market, the depreciating currency, the recent Moody’s downgrade of Nigeria, soaring inflation, and many more,” he said.