Nigeria will continue to lose over $6b yearly to cash economy if the Federal Government fails to urgently address prevailing challenges that are hampering the nation’s transition to a digital economy. Stakeholders in the financial and technology sectors are deeply concerned that the country continues to record huge losses in the global digital economy estimated at over $3t.
Experts are equally quick to note that full migration to digital economy could bring a quick turnaround in the nation’s wobbly economy, especially with its capacity to block economic leakages, reduce cost of printing, transporting and protecting cash, as well as creating avenues for business, especially SMEs to access fund and increase their turnovers.
The Central Bank of Nigeria (CBN) stakes as much as N64b annually to print notes, and stakeholders, at a recent Nigeria Digital Economy Summit, in Abuja, insisted that key challenges, including dearth of infrastructure, poor policies, raging cybercrimes, and multiple taxation must be addressed as they seriously encumber the country’s migration to digital economy.
While the Federal Government says it remains committed to migration to a digital economy, it recently introduced taxes on some technologies that would have aided the movement towards a cashless economy.
For instance, while the Chairman of the Federal Inland Revenue Service, Babatunde Fowler, said Nigerian banks would start charging Value Added Tax (VAT) on local and foreign online transactions from January 1, 2020, the CBN and the Nigeria Interbank Settlement System (NIBSS) have started the implementation of Merchant Service Charge (MSC), which imposes more charges on all Point of Sale (PoS) transactions.
The Federal Government’s apparent backward steps are coming at a time when some African countries like Uganda have removed MSC. Experts, key government and private sector players, including China’s e-commerce mogul, Jack Ma, Minister of Industry, Trade and Investment, Niyi Adebayo, Sweden’s Minister of Foreign Trade, Anna Hallberg, Divisional President for Sub-Saharan Africa, Mastercard, Raghav Prasad are of the view that shifting from a cash-based economy would address key loopholes in the country.
Ma, who described the Federal Government’s plan to lift about 100 million Nigerians out of poverty within 10 years as laudable, added that this can only become a reality if the government prioritise education, empowers young people, especially entrepreneurs, creates more jobs and bridges infrastructure deficits.
With only about 25 million smartphone users and 47.1 percent Internet penetration, Ma canvassed investments that would bridge the shortfall and provide reliable and affordable smartphones and data.Ma, a co-founder of Ali Baba, said there was the need to adopt a futuristic approach that would allow entrepreneurs to drive economic growth, insisting that only entrepreneurs could rapidly speed up the growth of the economy.
Prasad on his part said reliance on cash economy currently creates losses of as much as $4b -6b for the Nigerian economy considering the cost of printing currency notes, extant leakages, security and other implications for businesses, especially entrepreneurs.
According to the Mastercard chief, in Nigeria, more than 90 per cent of payments are still done in cash, adding that cash exerts a very heavy toll on the economy. He stated that the cost of cash, which includes the burden of printing the cash, storing it safely, transporting it and providing the on and off-ramps for it to enter and leave the economy, is on the average 1.5 per cent of a country’s GDP.
Prasad said: “Cash is the life-blood of the shadow economy and leads to tremendous revenue leakage for the government in lost taxes and inefficiencies. It also facilitates corruption. This takes away from the government’s ability to make the much-needed public investment, which would fuel faster economic growth. The digitisation of payments leads to visibility and traceability of payments flows thereby driving economic growth.”
He pointed out that the Internet and the ability to access and transact on it is going to be transformative for the digital economy, adding that bringing down the cost of access to the Internet, and improving the quality of Internet access is critical.Calling for an aggressive policy and immense willpower to turn things around, Prasad said: “The government can overnight mandate the need or the requirement for digital payments. It’s those kinds of bold policies that I think will make a big difference.”
In his remarks, Adebayo noted that the Federal Government remained committed to a digital economy, stating that the government would leapfrog the opportunities of a digital economy to lift people from poverty. Facebook’s Head of Public Policy, Africa, Kojo Boakye, noted that poor data, inappropriate regulations, poor implementation of national broadband plans, legacy telecommunication challenges, high taxes on ICT sector, delay in digital switchover, as well as ineffective spectrum management remained serious barrier to the digital economy in the country.