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Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Kelklein(m): 7:14pm On Dec 28, 2015
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By Femi Fawehinmi

The story of how Nigeria’s then Central Bank governor Sanusi Lamido Sanusi, in August 2009, shook up the local banking establishment is well told. He bailed out five banks and dismissed their chief executives and introduced reforms like capping the duration a bank boss could stay in office to ten years.

But something else happened as a result of his intervention—the centre of gravity of retail banking in Nigeria quietly shifted. The sudden realization that some of Nigeria’s banks were effectively insolvent triggered a kind of flight to safety. The banks which were untouched by ‘Hurricane Sanusi’ became very safe in the eyes of customers.

The most upwardly mobile and footloose Nigerians bank with names like GTBank, StanbicIBTC, First Bank, Diamond Bank and Access Bank these days. They go on holidays to Dubai, shop in London and take their kids to Disney World in Florida now and again. Unlike, say, the UK where the idea of travel money is cultural, Nigerians over the years have come to rely on their debit cards anytime they are outside Nigeria. The exchange rates are generally decent so as long as you have naira in your linked account,it’s always more convenient to pay for things in Debenhams with your bank card.

There’s also the coterie of Nigerians who run a variety of web-based businesses that require them to pay for things like server space and web hosting in Europe or America on an ongoing basis. Many of these people use their debit cards to make payments online.

This is all well and good when it works but right now all the major banks are dealing with the same problem at the moment.

[img]http://qzprod.files./2015/12/rtx1rwgr-e1450921058874.jpg[/img]
Central Bank Governor Godwin Emefiele
(Credit: Reuters/Afolabi Sotunde)

Nigeria is running against strong economic headwinds right now with oil prices below $40 and foreign reserves below $30 billion—enough to pay for maybe six months of imports at most. The Central Bank governor, Godwin Emefiele, has introduced ‘demand management’ in response to the challenges he’s faced with. In practice, this means stifling demand for foreign exchange by declaring certain imports unworthy of expending Nigeria’s precious foreign reserves.
Certain things have been discouraged from importation with the country’s foreign reserves—toothpicks, some types of steel, wheelbarrows, even Indian incense. This is effectively a ban if the importer doesn’t already have their own foreign currency in banks abroad or under a pillow somewhere. This has been accompanied by nationalist rhetoric about how Nigeria shouldn’t be importing things it can produce. If you can’t access foreign currency through official channels, you are left with no choice but to use the black market at much higher rates. At times, it does feel like the Central Bank is determined to burn down the village in a bid to save it.

International nightmare
So what does this have to do with the retail banks named above? They have been hit hard by the demand management policy. Buying dollars from the Central Bank to settle international payments for their customers is a nightmare these days. The banks typically don’t have many customers who export—mirroring the wider Nigerian economy which depends on oil for the vast majority of its forex earnings.

All of a sudden, having so many upwardly mobile and jet setting customers is not that much fun anymore for the banks. Almost on a daily basis, people have been getting emails from their banks telling them the daily or monthly or annual limit dollar spend on their debit cards have been adjusted—almost always downwards.

Stories abound of people who travelled abroad and when they tried to settle their hotel bill, their cards were declined. As at last week, some banks were sending emails saying the daily spend had been reduced to $100. It is hard to find any bank that allows more than $300 per day spend now. One friend who needed to make a business payment online for $1,800 had to plead with the supplier to allow them pay $300 per day over 6 days as a workaround.

All of this desperation is also encouraging people to come up with all sorts of daring ways to get their hands on foreign currency. One example is that of people travelling out of the country with as many debit cards as they can lay their hands on. These cards are then used to make withdrawals at the ATM and taken back to Nigeria. In October, a man was caught with 108 debit cards trying to leave the country through the international airport in Lagos. Just a few days ago, this time in Kano, another man was caught trying to leave with more than 800 debit cards. One has to assume others have managed to get through.

[img]http://qzprod.files./2015/12/ap_06122402091-e1451187125483.jpg[/img]There will be fewer Nigerians than usual shopping in Dubai over the holidays this year. (Credits: AP Photo/Kamran Jebreili)

As I live in the UK, nearly everyday I get a request from someone in Nigeria asking to swap naira for pound sterling. But there is a limit to how much naira anyone wants as the currency is not convertible. Further, everyone assumes another devaluation will happen sooner rather than later. Why hold naira?

All of this has greatly added to the economic uncertainty since the new government of president Muhammadu Buhari took office in May. Nigerians have also been dealing with fuel queues for months on end now. Stress levels are very high, to put it mildly.

The latest comments by Emefiele suggest that, far from easing the restrictions, he is going to double down and shut down what he has decided to be ‘illegitimate’ demand for scarce foreign exchange.

Most Nigerians intuitively understand that the country is in a pretty bad place as a result of walking into the oil price crash practically naked with no national savings. Nigerians are also a resilient people who will make adjustments if they need to. They have not turned on president Buhari yet. They know he got dealt a bad economic hand.

Yet, a lot of this feels like needless suffering. The rhetoric that has accompanied the restrictions often sounds like Nigerians are being blamed for having the nerve to buy things that are not made in Nigeria. To be clear, some of the things Nigerians import, on the face of it, look ridiculous. But they are almost always a response to an environment that can be extremely hostile to any kind of business. It also does not help that, based on ongoing corruption trials, when politicians steal public money, the first thing they almost always do is change it to foreign currency. It is sometimes difficult to figure out how much demand for foreign currencies is genuinely for productive purposes in that sense.

Free floating naira?

What to do? There are no easy answers. But it surely must be counterproductive to arbitrarily shutdown legitimate economic activity in the name of demand management. The more these restrictions go on, the more they open up gaps for corruption to flourish and for the well connected to game the system. History teaches us this – from Venezuela to Argentina where the new president, Mauricio Macri, is now drawing 12 years of ‘El Cepo’ to a close .

Nigeria has to earn its keep in other ways by producing things that other countries want that are not crude oil. This is obvious enough but by no means easy—infrastructure is terrible to non-existent and productivity will take time to build up. It is tempting to pray for oil prices to rise again to give the country some breathing space but it is more likely that the country will simply return to its old spendthrift ways.

Should foreign exchange be made available to people who simply want to go shopping and enjoy themselves in Dubai at a time when it is scarce? Asking questions like this leads to all sorts of dangerous places. What exactly is legitimate demand? How do you curb ‘illegitimate’ demand without hurting people who are genuinely trying to run their business?

The only answer to this is pricing. Freely floating the naira will allow the market determine what is the real value of the currency. But the political appetite for such a policy move is exactly zero. Politicians are just not going to accept that the currency is something they have no control over.
I fear that things may be this way for a while yet. And the longer it goes on, the more damage it will do to the economy and ordinary Nigerians. Will it be worth it?

Source
cc: lalasticlala, Seun

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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by fabulous660(m): 7:28pm On Dec 28, 2015
ok.... I'm enlightened a bit.

1 Like

Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by sholay2011(m): 7:34pm On Dec 28, 2015
I'm enlightened. God bless you OP.

1 Like

Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by tuborme: 7:39pm On Dec 28, 2015
Five months ago, i saw what emefiele did not see, Nigeria can not develop until the naira becomes free flowing.
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Nobody: 7:59pm On Dec 28, 2015
We discussed this point earlier today. This is simply a codification of fact at high celebral and experiential levels.

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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Lusola15: 8:06pm On Dec 28, 2015
The question now is how should the common man prepare for what is coming ahead.

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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by tomakint: 8:22pm On Dec 28, 2015
The issue here is that Nigeria is not running a product-based economy to suddenly take this ill-timed decision of stifling businesses of Nigerians involved in genuine businesses abroad.....I beg to differ this decision will still mess this administration up on the long run.
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Nobody: 8:34pm On Dec 28, 2015
Lusola15:
The question now is how should the common man prepare for what is coming ahead.

The common man can prepare himself by simply locating the houses and families of Ebele Jonathan, Diezani Madueke, Ngozi Okonjo Iweala & Sambo Dasuki and then hold them accountable [By doing the needful], otherwise the common man will die alone! grin

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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by macklef(m): 9:19pm On Dec 28, 2015
One assertiob that seems to bother me here is those pipu cot with
Multiple debit cards. How can one use multiple debit cards that unscrupulously?
Can one have more than one debit card with a bank n has he opened account with all d DMBs
That allow international transactions? Thersz more to that ish jareh?
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Acjohn(m): 9:29pm On Dec 28, 2015
allowing Naira to flow freely when our foreign reserve is at the ebb and we don't have products for the foreign market will only spell doom for the economy.
I support the stifling because
it will encourage the patronage of local goods and discourage the flirtatious spending habit of Nigerians
it will encourage the growth of local industries and discourage industries based abroad that Nigerian are their major customers like the Thailand rice and stock fish importation
it will for the time been deny politicians access to dollar that they will hoard
it would generate a positive adaptive response to our disrespect for Naira. many companies in Nigeria prefer doing their transaction in dollar which is bad.
Lastly, we have not experimented this path before and it won't be a crime to give it a try.
it is painful but it may be the only unfortunate way that we can stand like China.

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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by wateasarw: 9:38pm On Dec 28, 2015
Xxcbnmll
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Amberon: 10:53am On Dec 29, 2015
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Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by masseratti: 11:33am On Dec 29, 2015
Really don't know why they keep official rate,it's terrible, allow the market force to be the only thing dictating the value of the Naira,that's the best thing.
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by SIRTee15: 12:02pm On Dec 29, 2015
tuborme:
Five months ago, i saw what emefiele did not see, Nigeria can not develop until the naira becomes free flowing.

the govt cannot allow naira to be free flowing
if they allow that, the naira will move in only one direction.......downward depreciation of the naira against the dollar
the effect will be inflation spiraling out of control and higher interest rate from banks.
besides the F.G has gone to the international bond market to borrow from foreign lenders......
A weaker naira means larger amount of naira will be needed to service our foreign debts in dollars........
In the 2016 budget presented to the senate, 1.3 trillion naira was set aside for debt servicing.......at $1 to #197
if the naira is devalued to say $1 to #250, we may end up using close to #2 trillion to service our debt.
Moreover, it will be more difficult for F.G to purchase goods and services in the international market if the naira is weaker.
The truth is there's is no easy way..........
we squandered during the time of plenty and we must learn the hard way during the time of scarcity.
we have very few choices
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Bevista: 12:26pm On Dec 29, 2015
SIRTee15:
the govt cannot allow naira to be free flowing
if they allow that, the naira will move in only one direction.......downward depreciation of the naira against the dollar
the effect will be inflation spiraling out of control and higher interest rate from banks.
besides the F.G has gone to the international bond market to borrow from foreign lenders......
A weaker naira means larger amount of naira will be needed to service our foreign debts in dollars........
In the 2016 budget presented to the senate, 1.3 trillion naira was set aside for debt servicing.......at $1 to #197
if the naira is devalued to say $1 to #250, we may end up using close to #2 trillion to service our debt.

Moreover, it will be more difficult for F.G to purchase goods and services in the international market if the naira is weaker.
The truth is there's is no easy way..........
we squandered during the time of plenty and we must learn the hard way during the time of scarcity.
we have very few choices
The bolded is true, but you should also consider that if Naira were to depreciate to N250/$, government revenue from oil would also increase reducing the need to borrow that much.
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by Anticabal: 12:27pm On Dec 29, 2015
NAIRA means

NEVER
ALLOW
IGBO
RULE
AGAIN

It was coined during the war by Awo when the FG change to currency to defeat Biafea. It's an evil currency that's going nowhere but down.
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by seunny4lif(m): 4:21pm On Dec 29, 2015
grin grin
Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by seunny4lif(m): 4:21pm On Dec 29, 2015
undecided
Anticabal:
NAIRA means

NEVER
ALLOW
IGBO
RULE
AGAIN

It was coined during the war by Awo when the FG change to currency to defeat Biafea. It's an evil currency that's going nowhere but down.

1 Like

Re: Why Nigerians Can’t Use Their Bank Debit Cards Outside The Country Anymore by roadsta(m): 1:55am On Dec 30, 2015
@ACJohn
I seriously agree with you sir.
The OP/writer mentioned Argentina . When macri took over, the first thing he does was taking this costly decision (well after making known his stance with Mr Maduro of Venezuela).
Now go check the current value of their currency. Dropped 30% further just after 48 hours.
Freeing the currency will only cause more hardship in the long run.

1 Like

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