Can introduction of eNaira increase Nigeria’s GDP by $29bn?

Over the last few years, the fintech industry has taken the world by storm, with people constantly moving away from conventional payment and remittance methods. This has been clear to see with the growth of internet banking, cryptocurrency, and the introduction of new digital payment methods.

At the end of October last year, the Federal Government of Nigeria (FGN) and the Central Bank of Nigeria (CBN) officially introduced the blockchain-based eNaira as a means of payment, making Nigeria the first African country with an official digital currency.

Now, what exactly is the eNaira? The eNaira is a digital version of the Naira, a Central Bank Digital Currency (CBDC) to be more specific.

It is issued by the CBN and distributed to financial institutions. Transactions are recorded using blockchain technology, more specifically a permissioned (private) blockchain.

This technology allows the CBN to control who can join the eNaira network and regulate all eNaira transactions.

In simple terms, a blockchain is a digital ledger that shows all transactions on a network. It is stored across multiple computers known as nodes, hence why blockchain is referred to as Distributed Ledger Technology (DLT).

Each time a transaction is made with eNaira, it is recorded on the blockchain across all nodes. The transaction is recorded and added to the existing chain of eNaira transactions as a ‘block’ on the blockchain.

This technology makes it difficult to counterfeit or duplicate the eNaira – a key aspect of blockchain technology, as any alteration will be rejected across all nodes storing the eNaira blockchain.

Both the FGN and the CBN are optimistic about the eNaira because of the economic impact they believe it could have on Nigeria.

With President Muhammadu Buhari claiming that over the next 10 years the eNaira will lead to a $29 billion increase in Nigeria’s GDP.

The CBN governor, Godwin Emefiele, further asserted that the eNaira will help reduce Nigeria’s heavy reliance on imports. But how realistic are these claims, and goals set for the eNaira?

Domestically, the eNaira could benefit Nigeria significantly by increasing the velocity at which money moves through the economy and the total amount of money cycling through the Nigerian economy, namely, gross domestic product (GDP).

This is due to the likelihood of less money being lost in physical cash handling and more transactions occurring.

Read also: How seven banks disbursed N23.2bn under CBN’s 100 for 100 scheme

For Nigerians, it offers a payment method that does not require conventional financial institutions, such as banks.

This aspect is also a popular feature of cryptocurrency. ENaira could also play a significant role in the government’s goal in collecting tax revenue as Naira will be far easier to track with it being digitised. With more tax revenue, the Government can use this for further economic development.

The eNaira and CBDCs could be vital in making cross-border trade within Africa easier.

Trading among African countries is currently difficult due to different currencies and complicated exchange rates.

With a digitalised currency it could allow for transactions to be made much faster and bypass these exchange rates.

Easier trade within Africa would be beneficial, as it would allow for Nigerians to access cheaper goods and services from various parts of the continent.

It would also give Nigerian businesses opportunities to tap into new markets which could increase Nigerian exports.

This would not only increase Nigeria’s GDP, but it would help reduce the size of Nigeria’s trade deficit (the difference between exports and imports).

Although, for this to be effective it would require other African nations to establish their own CBDCs. So, it is possible that the eNaira has the potential to impact the Nigerian GDP as claimed by the President.

However, there are major barriers and structural problems that could hinder the eNaira’s success and will need to be addressed.

One of these issues is the lack of nationwide internet access. For many Nigerians, internet access is not easy to come by and the cost of usage is quite high, even when compared to other African countries.

This is reflected by the fact that only 4 percent of Nigerians use mobile banking, according to the World Bank. In the same report, the World Bank estimated that 42 million Nigerians live in areas that do not have formal banks.

As eNaira requires a formal bank account, these 42 million people will not be able to use eNaira. These ‘hurdles’ account for the low uptake of the eNaira, making up just 10 percent of all peer-to-peer transactions, which is much lower than the CBN would have aimed for.

In February 2021, CBN banned all cryptocurrency transactions across Nigeria and had mentioned that it would produce an alternative.

One of the main reasons being that it cannot be regulated or controlled by the apex bank. Similar to cryptocurrency, the eNaira offers a blockchain-based peer to peer payment method for Nigerians.

However, where eNaira differs is that it requires identification linked to a bank account, so that all information is visible to the CBN.

For a lot of Nigerians accessing formal identification such as National Identification Number is difficult and can take months to attain.

This also leads to the issue of privacy; as Naira transactions will now lose their anonymity with eNaira.

Many governments worldwide have been sceptical about CBDCs due to this issue of privacy. This was the main reason the UK Parliament rejected adopting digital Pound Sterling and will not introduce it until this issue can be resolved.

Although the Central Bank has said the eNaira is built with “deep considerations around privacy,” many observers remain sceptical.

So, from what has been said, the eNaira has the potential to positively impact Nigeria’s economy, in different ways.

However, there are many barriers that are likely to be inimical to the growth and success of the eNaira, which the CBN and FGN will have to overcome to make eNaira accessible and common means of payment for Nigerians nationwide.

Babalola, a social commentator, writes from Lagos