Nigeria grapples with cash crisis ahead of elections

Unlike at petrol stations, queuing up at cash machines wasn't a norm in Nigeria, but for weeks now, it has become the scene that greets people. Africa's largest economy is experiencing a cash crisis, which has sparked chaos all over.

Dr. Ernest Ereke, a Nigerian political economy and development analyst, told DW that ordinary people are finding it difficult to cope with the cash crunch. "On a general note, the impact on the economy and the socioeconomic wellbeing of citizens has been felt very badly."

Last year, the Central Bank of Nigeria (CBN) decided to circulate newly designed bank notes.

Citizens had until January 31 this year to get rid of their old notes. The fear of being unable to use their old notes after the first deadline got many Nigerians panicking but a second deadline of Friday, February 10, isn't helping either. Nigeria's Supreme Court has suspended that deadline, pending a legal challenge from three states who had argued that the note swap plan was causing hardship ahead of the elections.

According to Ereke, many citizens cannot transact businesses and carry out activities that should usually be stress-free.

Nigerians hard hit by cash crisis 

"For instance, people who would enter vehicles to transact their businesses or to go to work or people who would normally enter the tricycle, the operators are not inclined to online payments. So, it is taking a toll on the daily activities and lives of Nigerians," the University of Abuja lecturer added.

Since the rollout of the naira note exchange, residents have had to spend hours at banks or cash machines to get hold of the new notes. "It's terrible, we don't just know what is happening," one resident in Lagos who had queued at an ATM for hours told DW.

Millions of people have already spent their old money and need new cash. They can't buy everyday goods, and shops refuse to accept the old naira notes.

"Without cash that means everything will definitely be put at a stop. So, it's very difficult, as I am talking with you now, I don't have cash with me. But I'm hungry, so how am I going to eat? It's very difficult," another resident told DW. 

Why the new banknotes?

According to the CBN, the new policy was meant to reduce the amount of cash in circulation and move towards a cashless economy. It also hoped that this would help control liquidity and reduce inflation. From January onwards, the CBN began limiting weekly cash withdrawals for bank account holders at 100,000 naira ($217, €202) to achieve this aim.

Almost 85% of the 3.23 trillion naira in cash in circulation had been held outside banks. Since the policy's rollout in October last year, around 1.3 trillion naira have been deposited into banks, the central bank said. The central bank also wanted to use the exchange of the banknotes to reduce fraud, with the new notes having extra security  

Citizens with bank accounts were required to send their old banknotes to the banks and have the corresponding amount credited to their accounts. However, you are charged commissions if you go to the ATM machines to withdraw. With the scarcity of new notes, the commissions are shooting up.

Nigerians without bank accounts, especially in rural areas, were then to exchange their old notes for new ones at banking agents. But the rollout has left much to be desired.

"If you're going to bring out new cash and you don't want people to keep using the old one, then you should make it make sense. Have enough cash, have enough of the new cash, populate out there, then you can now retrieve the old one back," a frustrated resident told DW. 

The political implications

The government hoped the new currency would also help fight corruption ahead of the February 25 elections. Nigerians will vote for a new president, lawmakers, and local leaders. Vote buying has been a major issue in Nigeria's general elections. Ereke told DW that the civil society in Nigeria believes that restricting cash used for vote buying was good for the upcoming elections.

"People reckon that it would reduce vote buying, which has become a major factor especially with the improvement of the administration and management of elections by INEC [Independent National Electoral Commission]," he said.

According to Ereke, the limited access to influence election results through the INEC system has forced politicians to resort to vote-buying. The cash crunch could be counterproductive in that regard.

"With the shortage of cash within the economy, it is believed that politicians would not be able to mobilize the kind of cash needed to buy vote across the thousands of polling units where these elections would be conducted," Ereke said.

Black market flourishing

But this strategy may have backfired. Instead of curbing bribes and vote-buying, the cash shortage has caused a massive shock to the system and created a black market for the new notes at inflated prices.

Ezenwo Nyesom Wike, a Nigerian politician from the opposition People's Democratic Party (PDP) and current Governor of Rivers State, told a campaign rally that the naira exchange policy was flawed and provocative. "Will this [policy] fight corruption? This policy is just to provoke people to demonstrate and spark riot so they can ask for the elections to delay. That won't happen," Wike said.

Some election watchers have argued that the cash crunch would hit the ruling APC's candidate harder ahead of the elections, a view Ereke also holds. "The ruling party's candidate believes that it is a policy targeted at tarnishing his image and reducing his chances of winning the elections," he said, signaling the anger among citizens could force them to vote against the ruling party.

But Ereke said he doubted the current cash crunch would significantly sway people's choices on voting day.

"In African elections generally, certain factors influence behaviors and voting patterns," Ereke said, adding that people already have their minds on who they will vote for irrespective of the beautiful policy being canvassed by candidates.

However, he added that some aggrieved persons might likely factor the crisis into deciding who they vote for. "That is not to say that Nigerians who feel the impact of this cash crunch would not be swayed to vote in a particular way. So, the cash shortage would affect the election positively and negatively."

Olisa Chukwumah in Nigeria contributed to this article

Edited by: Chrispin Mwakideu