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Scarcity of N5, N10, N20, N50 threatens informal sector

By on July 7, 2013

The informal sector of the Nigerian economy is under threat as a result of shortage in supply of the lower naira denominations such as N5, N10, N20 and N50, Saturday Independent investigations has revealed.

The shortage of the denominations in circulation has become very noticeable among retailers, bus conductors and petty traders. Many traders and commuters have been forced to abandon their balances after purchase or exchange of services due to the fact that concerned sellers and/or bus conductors could not raise the necessary balance to complete transaction.

Saturday Independent investigations, however, revealed that such shortage is not experienced among “currency hawkers,” who line the streets of Lagos on Fridays and Saturdays, selling crisp notes, particularly in lower denominations.

Some Nigerians have attributed the development to the Central Bank of Nigeria’s (CBN) cashless policy while others said the failed planned introduction of N5,000 note in 2012 may be responsible.

In September 2012, following the outcry from Nigerians over the planned introduction of the N5,000 note, the Federal Government stepped down the introduction of the note by the CBN under its governor, Lamido Sanusi

Presidential spokesman, Dr Reuben Abati, said the move was to allow more enlightenment by the Central Bank of Nigeria.

Abati while justifying the government position said: “The introduction is being suspended for now to enable the CBN do more enlightenment on the issue. Yes, President Jonathan has directed that the implementation of the new N5, 000 note be suspended for now. This is to enable apex bank to do more in terms of enabling Nigerians understand why it proposed it in the first place. So, for now, the full implementation is on hold.”

Speaking with Saturday Independent, a bar tender in Ikeja, Miss Funke Adeyemi, said the issue of “change” (balance) in lower denominations is becoming a big problem for retailers, saying; “We hardly have ‘change’ to give to customers after purchase and this is causing problem for us because most customers believe that we don’t want to give them ‘change.”

Also highlighting their challenge, a bus conductor at Oshodi, Hafeez Ibrahim, told Saturday Independent that the scarcity of lower denominations in circulation is a major issue between bus conductors and commuters.

“We have to contend with abuse and curses from passengers who are not able to get their balances after a our service. In most cases, we have to forgo our own fair for peace to reign and often we do advise passengers to board with their ‘change’ to avoid any quarrel,” he said.

The situation is not also palatable in major shops such as Shoprite, Just Rite and other departmental stores in Lagos. Even eateries like Mr Biggs, Tantalizers and Tastee Fried chicken are not spared.

A consumer, Victor Enyinnanya, said: “Retrieving your balance after transaction is not easy nowadays. Even at the banks, it is becoming a major crisis point and I have witnessed a major fracas break out because of as little as N10. It is a big problem and I think government should do something about it before it becomes an economic challenge,” he said.

The CBN Director of Communications, Ugo Okoroafor, while explaining the situation, acknowledged the shortage of the lower denominations in the system but said the situation has improved.

A source in CBN, who did not want his name published, said the scarcity of lower denominations may not be unconnected with the government’s suspension of the introduction of N5,000 note, which would have also ensured that lower denominations are minted to replace old ones.

“We (CBN) do not want to talk so that it would not be like we are forcing the Federal Government to reverse the suspension. But the scarcity cannot be far from the suspension of the N5,000 note proposal last year,” he said.

Beside their non-availability, six years after their introduction by the CBN, the public has almost lost interest in monetary transactions involving the exchange of N5, N10, N20, and N50 polymer notes.

Public attitude to these notes is predicated on what economists describe as their poor quality that has somewhat reduced their quality, over some periods of transaction, to an insignificant difference between them and mere papers.

“In some instances, the qualities that validate these notes as part of the Nigeria’s monetary system or legal tenders are not there altogether, including the inscriptions, rendering them not suitable for transactions,’’ Mr. Tunde Egbinola, an economist said.

Egbinola said the currency reform carried out in 1991 in which 2 kobo and 5 kobo coins were phased out and 1 kobo, 10 kobo and 25 kobo coins were redesigned, should not have been reversed.

He observes that the subsequent coinage of 50k and N1 notes when the N50 note was put into circulation, could, somewhat be cited as the cause of sudden disappearance of coins in some business transactions.

According to him, while other developed and developing countries make use of coins for daily financial transactions, it is unfortunate that the coins, comprising 50 kobo, N1 and N2, have failed in that regard.

Okoroafor notes that the apex bank could have replaced the polymer notes with coins but the Federal Government stopped currency restructuring.

According to him, the CBN does not print new polymer notes now but it is operating with the existing ones because they fade quickly.

To stop the abuse of the naira, he says the bank will continue “massive campaign’’ to ensure that government does not continue to spend huge sums of money in printing new notes to replace torn ones.

The volume of raw cash in circulation dropped significantly in January as the cash-lite policy of the CBN continued to gain ground. At N1.457 trillion, currency in circulation fell by 10.7 per cent value, in contrast to an increase of 4.2 per cent value at the end of December 2012.

According to the January Economic report of the CBN, the development reflected 11.2 per cent value decline in the amount of currency outside banks. Total deposits at the CBN amounted to N6.787 trillion, indicating a decline of 7.7 per cent below the level in last December. The development reflected, largely, the fall in Federal Government and deposit money banks’ (DMBs) deposits, which more than offset the increase in deposits by “others”.

Of the total deposits, the percentage shares of the Federal Government, banks and “others” were 63.4, 26.2 and 10.4 per cent, respectively. Also, total foreign net assets of the banking system rose by 2.2 per cent at the end of January to N9.302 trillion compared with the increase of 27.5 and 3.9 per cent at the end of the preceding month and the corresponding period of 2012, respectively.

The apex bank attributed the development to the 2.6 per cent increase in the CBN’s holdings of foreign assets. Other assets (net) of the banking system, on a month-on-month basis, fell by 8.7 per cent to negative N8.615 trillion, compared with 5.4 and 2.1 per cent decline at the end of the preceding month and the corresponding period of 2012, respectively. This reflected the fall in unclassified assets of both the CBN and the DMBs.

Aggregate banking system credit to the domestic economy in the first month of 2012 stood at N14.482 trillion, a 3.8 per cent increase on month-on-month basis, as against the growth of 1.9 and 2.0 per cent at the end of the preceding month and corresponding period of 2012, respectively.

The irony in the Nigeria’s informal sector is that while the lower denominations are exiting the currency circulation system, the higher denominations such as N100, N200, N500 and N1,000 are prevalence.

Observers noted that the current scarcity of the denominations may be associated with the handling of the notes by the public. They, therefore, call for caution.

According to Okoroafor, the CBN doesn’t print new polymer notes now but operates with the existing ones because they fade quickly.

The bank’s Deputy Governor, Mr. Tunde Lemo, however, gave the assurance that by the second half of the year, “we will start to produce the second generation of lower denomination notes, now in paper not in polymer.”

As it stands, it is a major concern for the retail end of the economy because their activities can only be sustained by adequate supply of lower denominations.

According to Mrs. Njideka Chima, a petty trader in Agege, “If Central Bank of Nigeria fails to do anything to address to shortage in supply of these currencies, we will wake up one day to find that N5, N10, N20 and N50 have been rested and we will be forced to buy a product of N10 for N100.”