On October 25th the Nigerian government launched Africa’s first central bank digital currency (CBDC), and only the eleventh in the world. The Central Bank of Nigeria, in partnership with Barbados based Bitt Inc. have been working towards this goal since 2017. Central bank governor Godwin Emefele stated the wallet would work to allow Nigerians to hold existing funds in their bank account. With over a third of Nigeria’s population unbanked, new technology seems set to change that, as the government had plans to reduce that number to 20% by 2020.
Yet experts say the e-naira, what the CBDC is called, is ‘not for the unbanked’. Chiagozie Iwu, the founder of Naijacrypto and CEO of CI Cryptosolutions, explained:
“Firstly, the app requires me to use my bank’s app before I am able to transact with it; so what service does it offer me that my banks don’t already offer? So it doesn’t look to me that the CBN is targeting people that do not have a bank account. Obviously, anybody with a smartphone to download an app should also have a bank account in the first place. The fact that I have to use my bank account to log in defeats the saying that they are going to “bank the unbank.”
While the central bank says it has plans to remedy these problems, the release of the e-naira, like much of the Nigerian states’ actions, is aimed at those who can afford it. The same can be said for Eko Atlantic, the multibillion dollar reclamation in Lagos.
A country of extremes Nigeria is full of problems like terrorism, poverty, inequality. The nation also has immense power and a forward looking, entrepreneurial population. As important is the demographics of the population. Over 211 million people as of 2021, it is expected Nigeria will overtake the United States for the third largest population in the world by 2049 at 400 million citizens. In just 30 years Nigeria is growing at a pace unseen.
The demographic trends of the nation, and Africa as a whole, have economists and policy makers salivating. Orthodox economics states the importance of the demographic dividend necessary for economic development. Proven most recently with the ascension of China, the general theory believes that a large and young population has the capabilities to drive manufacturing growth and consumption. A useful gauge of a young population is an average population age of about 22 years. This is why we will look at China in the eighties, and India in the new century as examples. Nigeria’s booming population has given it one of the youngest populations on Earth, with the median age of 18 years. Incredibly young now, many are excited as more and more Nigerians will reach working age populations. By 2050 Nigeria’s population will be firmly in the ‘sweet spot’ of demographic dividends, when the average population age will reach about 22 years.
In comparison India’s average population age was 22 years old in 2000.
Twenty years earlier than India exactly, China had an average age of 21.7 years old.
As the graph above shows 2000 aligns with some impressive jumps in India’s GDP. We can see similar things with China in 1980.
Given these population parallels can we expect Nigeria to follow the path of India, and even China?
Productivity & Employment
The confluence of growth with demographics is a hallmark of orthodox economic thinking. According to the Lewis dual sector theory any nation displaying a large population will begin to industrialize due to the availability of cheap labour and an increase in capital accumulation.
As labour moves from rural agriculture and informal urban work to modern manufacturing the increased employment raises wages and increased productivity makes agriculture more profitable as well . At what is termed the Lewis Turning Point productivity in agriculture and manufacturing are equivalent which balances out wages decreasing inequality as poor rural regions earn income more aligned to that of urban workers. Islam & Yokota prove the applicability of the Lewis model to China with certain caveats:
“The results show that the marginal product has increased (from below) faster than wage, as envisaged by the Lewis model, so that the gap between the two has narrowed over time. The findings therefore indicate that China is gradually moving toward the Lewis Turning Point though has not crossed that point yet”
(Islam & Yokota, 2008)
Lewis’ Turning Point is an economic sign demographics are being used optimally.
If we assume India is about 20 years behind China, as the population pyramid suggests, then it is in the 2020s we should start to see India hit the Lewis turning point. Pandemic aside, India over the twenty years since hitting their demographic dividend (average population age of 22 years), has grown at a slower rate than China. Evident in the lower r-value, in the twenty years since 2000, India’s GDP growth rate has averaged about one percent, compared to China at four percent.
According to Balwant Mehta, at the Institute for Human Development India, as of 2018 India was moving towards Lewis Point, albeit at a slower pace than China. He goes on point to the slower pace:
“The unregistered units in the informal sector face problems of access to credit market and other government subsidies. These units should be encouraged for registration by adopting proper process, so they can grow by accessing credit from formal financial institutions and also take advantage of other subsidies and create more employment for the unemployed youth”
Access to credit and subsidies are generally tied to bank accounts even in developing countries. As of 2017 India had a banked population rate of 80%, much higher than Nigeria’s 66%. As well, both nations have issues with giving credit to large parts of their population with no collateral.
If Nigeria is to properly take advantage of its demographic dividend, the e-naira will need to reach the unbanked and poor of the nation.
Migration & Money
Nigerian immigrants are everywhere. In the US alone there are over 600,000 people of Nigerian descent. Much like immigrants from China and India many of them come and attain great success, especially in education. The ethnic group with the highest level of education, Nigerians send billions in remittances back home. In 2019 remittances made up 5% of the Nigerian economy.
As the doctors and professors of Nigerian descent in London, Toronto and Washington send money back home there is an incredible opportunity to link its citizens at home and abroad through the e-naira. Although not in practise anywhere, the government of China has taken steps to internationalise the digital yuan. In a government white paper they state:
“Though technically ready for cross-border use, e-CNY is still designed mainly for domestic retail payments at present.”
Given its better relations with the international community, an e-naira, which would need to be maintained within global cross border transaction standards, could make it so an import export business can easily trade with Lagos based companies, or informal business owners could raise funds from the international Nigerian community, as opposed to going to generally inefficient local banks. The internationalisation of the e-naira through the growing Nigerian diaspora would support economic activity, in a way that would move Nigeria closer to the Lewis Turning Point, and so developing at a rate even higher than Indias and maybe even China’s.
As currently formulated the e-naira has little way to reach its unbanked population, and international systems have yet to be put into place to allow cross border transactions. With 30 years until the window of demographic dividends peaks, the e-naira has the opportunity to super boost a sleeping Nigerian giant.
One of the major pillars in national development is access to finance. As populations grow, and come of working age, many will need loans.
According to the Institute For Human Development, access to credit constitutes a major factor holding back growth in nations like India. Without proper access to finance, business cannot grow. In terms of employment, without access to credit, the marginal productivity of labor stays flat.
With only two thirds of the population banked in 2020, Nigerians have a low rate of access to finance. Figures this low do not bode well for the young nation. The central bank governor of Nigeria has set a goal of 2024 to reach 95% financial inclusion.
Will Nigeria have 95 percent of the population banked by 2024?
This question will be resolved if the Nigerian government can take steps to introduce broad based financial access by 2024, defined by the amount of citizens with a bank account. Figures are taken from the CBN