The Central Bank of Nigeria has ordered banks operating in the country to start charging a cybersecurity levy on transactions.

A circular from the apex bank on Monday disclosed that the implementation of the levy would start two weeks from today.

The circular was directed to all commercial, merchant, non-interest and payment service banks, among others.

The circular revealed that it was a follow-up on an earlier letter dated June 25, 2018 (Ref: BPS/DIR/GEN/CIR/05/008) and October 5, 2018 (Ref: BSD/DIR/GEN/LAB/11/023), respectively, on compliance with the Cybercrimes (Prohibition, Prevention, Etc.) Act 2015.

The recent public engagements by the Office of the National Security Adviser on the above subject, also refers.

Following the enactment of the Cybercrime (Prohibition, Prevention, etc) (amendment) Act 2024 and under the provision of Section 44 (2)(a) of the Act, a levy of 0.5 per cent (0.005) equivalent to a half per cent of all electronic transactions value by the business specified in the Second Schedule of the Act, is to be remitted to the National Cybersecurity Fund which shall be administered by the Office of the National Security Adviser.

The CBN said that all banks, other financial institutions and payment service providers are now required to implement the directive, saying, “The levy shall be applied at the point of electronic transfer origination, then deducted and remitted by the financial institution. The deducted amount shall be reflected in the customer’s account with the narration, ‘Cybersecurity Levy’.

“Deductions shall commence within two weeks from the date of this circular for all financial institutions and the monthly remittance of the levies collected in bulk to the NCF account domiciled at the CBN by the fifth business day of every subsequent month.”

Exempted from the levy include loan disbursements and repayments, salary payments, intra-account transfers within the same bank or between different banks for the same customer, intra-bank transfers between customers of the same bank.

Also exempted from the levy were inter-branch transfers within a bank, cheque clearing and settlements, ⁠Letters of Credits, ⁠Banks’ recapitalisation-related funding only bulk funds movement from collection accounts, savings and deposits including transactions involving long-term investments, among others.

The CBN, in recent times, has been making an effort to sanitise the financial sector. It recently issued a directive which barred fintechs from onboarding new customers.

The fintechs have in turn warned their customers against engaging in crypto transactions on their platforms.

This also comes barely a week after the Federal Government had directed Deposit Money Banks to immediately begin the deduction of 0.375 per cent stamp duty charge on all mortgaged-backed loans and bonds.

In pursuit of securing a new $750m loan from the World Bank, the Federal Government may reintroduce previously suspended telecom tax and other fiscal measures.

This is according to the Stakeholder Engagement Plan for Nigeria – Accelerating Resource Mobilisation Reforms programme between Nigeria and the World Bank.

A copy of the plan’s document posted on the World Bank website indicated that the government might reintroduce the excises on telecom services, and EMT levy on electronic money transfers through the Nigerian Banking System among other taxes.

President Bola Tinubu in July 2023 ordered the suspension of the five per cent excise duty on telecommunications and the Import Tax Adjustment levy on certain vehicles.

However, it appears that this suspension may be lifted to meet the programme targets for a new, yet-to-be-approved World Bank loan with negotiations ongoing between the government and the World Bank.

Checks by our correspondent showed that the government had initially requested to obtain the loan in 2021 but was halted without clear reasons.

The programme’s development objective is to strengthen the government’s financial position by enhancing its capacity to manage and mobilise domestic resources effectively, which includes improving tax and customs compliance and protecting oil revenues.

The planned tax reforms under the ARMOR programme are expected to have significant implications across various economic sectors.

The PforR Programme is part of a larger governmental initiative running from 2024 to 2028, aimed at reforming tax and excise regimes, enhancing the administrative capabilities of tax and customs, and ensuring transparency in oil and gas revenue management.

The World Bank’s contribution of $750m constitutes a significant portion of the programme’s budget and the government is expected to contribute $1.17bn through annual budgetary.

According to the plan, affected stakeholders will include manufacturers of goods such as alcoholic beverages, tobacco products, sugar-sweetened beverages, telecom and banking service providers, as well as the general tax-paying public, importers and international traders.

Key industry groups such as the Association of Licensed Telecom Operators of Nigeria are engaged regarding the excise duties on telecom services.

“Committee of Bankers: Introduction of EMT levy on electronic money transfers through the Nigerian Banking System would need the buy-in of all banking institutions

“Manufacturer’s Association of Nigeria: Manufacturers of tobacco products, sugar-sweetened beverages and alcoholic beverages who would be required to collect excises on their products are critical stakeholders for the introduction of the new excise regime. They are currently organised into various sectoral groups under the Manufacturer’s Association of Nigeria. Producers of alcoholic beverages organised under the Distillers and Blenders Association of Nigeria also need to key into the reforms.

“Also, strategic partners involved in the importation of different items into the country will be mobilised to participate in the ARMOR programme. A key stakeholder group is the Association of Nigeria Customs Agents.

“Vehicle Importers and Manufacturers: Stakeholders in the automobile trade industry must be engaged in reforms involving the introduction of green taxes on high GHG emission vehicles. Local manufacturing and assembly of vehicles is growing through a phase of growth in Nigeria. The demand for vehicles is mostly met through importation by vehicle importers under the aegis of the Association of Motor Dealers of Nigeria.”

The document also emphasised the importance of engaging vulnerable groups to ensure they are not disproportionately affected by these changes.

It also said, “Services that will be subjected to the newly introduced excises are regulated by key public sector agencies. The introduction of the new revenue measures will require the application of existing regulatory mechanisms available within these institutions. The concerned institutions include the Nigerian Communication Commission, the Central Bank of Nigeria.

“There are also agencies with the mandate for making policies on some of the issues covered in the ARMOR program concerning policy framework on matters of public interest in Health and Environmental Protection. The government institutions relevant to ARMOR in this regard are the Federal Ministry of Environment, the National Environmental Standards Regulatory and Enforcement Agency, and the Federal Ministry of Health.”

Additionally, the programme outlines specific allocations for technical assistance, with $5m each going to the Federal Inland Revenue Service and the Nigeria Customs Service to support their capacity to implement these new measures effectively.

This includes the development of systems for better data sharing, risk-based audits, and compliance processes, as well as substantial investments in program management and capacity building.

“The government program is funded from annual budget allocations of $1.17 billion to FMF, FIRS and NCS. The PforR with results-based financing of $730m, and $20m investment financing, is 62 per cent of the program budget”

“There will also be $10m for project management, tax policy capacity-building and other expenses. In total, the amount makes the $20m investment financing before the release of $730m in line with the fiscal targets met.”

1. Loan disbursements and repayments

2. Salary payments

3. Intra-account transfers within the same bank or between different banks for the same customer

4. Intra-bank transfers between customers of the same bank

5. Other Financial Institutions instructions to their correspondent banks

6. Interbank placements,

7. Banks’ transfers to CBN and vice-versa

8. Inter-branch transfers within a bank

9. Cheque clearing and settlements

10. Letters of Credits

11. Banks’ recapitalisation-related funding – only bulk funds movement from collection accounts

12. Savings and deposits, including transactions involving long-term investments such as Treasury Bills, Bonds, and Commercial Papers.

13. Government Social Welfare Programmes transactions e.g. Pension payments

14. Non-profit and charitable transactions, including donations to registered non-profit organisations or charities

15. Educational institutions’ transactions, including tuition payments and other transactions involving schools, universities, or other educational institutions

16. Transactions involving bank’s internal accounts such as suspense accounts, clearing accounts, profit and loss accounts, inter-branch accounts, reserve accounts, nostro and vostro accounts, and escrow accounts.

The Federal Government has announced plans to delist the naira from all peer-to-peer (P2P) platforms.

The Director General of the Securities and Exchange Commission, Emomotimi Agama, made this disclosure in a virtual meeting with blockchain stakeholders on Monday.

This decision aims to tackle the manipulation of the local currency’s value in the foreign exchange market.

The country’s regulatory authorities have been investigating and scrutinising cryptocurrency exchanges in recent months.

On March 8, the biggest cryptocurrency exchange, Binance, stopped its naira services.

Dollarization is a phenomenon that has become increasingly familiar to inhabitants of weak or troubled economies, invariably developing or underdeveloped economies. It is the official adoption by a country of the United States dollar (USD) as a legal tender side by side with its national currency or as the only and exclusive legal tender for a number of years, which is not usually predetermined. On the other hand, it is or could be the unofficial adoption of the USD as a legal tender or an increasing or overwhelming preference for the USD by business people and other key economic agents in a country. The latter is what by and large approximates the Nigerian experience in recent times: the phenomenal ascendency of the USD as a preferred means of transaction, store of value, or currency speculation. This has been due to the poor economic management of the previous decade, which has plunged the nation into avoidable economic crises. The consequent weakening or unprecedented depreciation of our national currency, the naira, led to a flight to safety in strong foreign currencies, especially the USD.

Quite a few small countries, and especially a good number of island countries in the world with an eye on serving as foreign direct investment or tourism destinations, have adopted the USD as legal tender alongside their national currencies. But I will like to dwell briefly on two countries, one in Central America and the other in Southern Africa, that have used dollarization as deliberate monetary and exchange rate policies for different reasons: El Salvador (with a 2024 GDP of $35.3 billion) and Zimbabwe (with a 2024 GDP of $34.4 billion), respectively. In 2001, El Salvador embarked on dollarization for purely strategic economic reasons. The economy was doing relatively well, inflation was low and stable, external debt was manageable, and the financial system was stable. The dollarization policy was adopted to align the Salvadoran economy more closely with the US economy, attract foreign direct investment (FDI), and spur trade and economic growth.

Q: “The consequent weakening or unprecedented depreciation of our national currency, the naira, led to a flight to safety in strong foreign currencies, especially the USD.”

In the case of Zimbabwe, the economy was ravaged by an unprecedented level of hyperinflation, which, according to a September 2019 report by Al Jazeera cable news service, was “79.6 billion percent month-on-month and 89.7 sextillion percent year-on-year in mid-November 2009. Hyperinflation only ended the following year with the adoption of the US dollar.” These mind-boggling, terribly incomprehensible figures show how totally useless the Zimbabwean dollar has become, necessitating the adoption of the USD.

A month ago, on April 5, 2024, Zimbabwe introduced a new currency, the ZiG, which stands for “Zimbabwean Gold” and is backed by the country’s gold reserves. It was introduced electronically, but currencies and coins have since been issued. But there are early signs that the newest currency in the world will experience turbulence. And predictably so. It will inevitably be faced with the challenges that led to the abandonment of the Gold Standard by the rest of the world in 1971: the limitation it places on economic growth and the volume of financial transactions and economic activities since the value of ZiG is directly linked to gold and Zimbabwe’s gold reserves are limited in supply. Second, the ZiG limits the flexibility of the Reserve Bank of Zimbabwe to respond creatively and strategically to emerging changes and opportunities in the economy.

Coming closer home, the avoidable and wasteful economic mismanagement of the last decade combined with the roller coaster experience of the economy in the last year have combined to make the naira one of the worst performing globally. Mr Aliko Dangote succinctly describes the heart-wrenching experience as the biggest mess created” in the last year with the naira plummeting from N460 to N1,400 to the dollar between May 2023 and the first quarter of 2024. For a precariously import-dependent economy, the pass-through effect on inflation was significant. Headline inflation spiked from 22.41 percent in May 2023 to 33.2 percent in March 2024, the highest in 28 years.

Even the 22.41 percent inflation rate in May 2023 was already indicative of a distressing economic scenario. It revealed that the destruction of our economic fundamentals started manifesting about a decade before in de-industrialization, the stultification and near collapse of the power sector, the unprecedented level of oil theft and mineral theft in the oil and gas sector and solid mineral sector, all combined to limit the productive base of the Nigerian economy, its ability to produce for local consumption, its ability to produce for exports, not to mention hostile economic policies that led to the flight of capital. The net effect of this unpleasant narrative has been our heightened import dependency syndrome, the resultant massive devaluation of the naira, and the consequent dollarization mentality, which has willy-nilly been hoisted on a cross-section of economic agents in Nigeria, albeit unavoidably.

Mr Dangote, speaking from a microeconomic perspective, was right about the mess the massive depreciation of the naira has done to the finances of his businesses and his fortune. On the other hand, President Tinubu was equally right in his macroeconomic perspective when he said at the recent World Economic Forum in Riyadh, Saudi Arabia, that Nigeria was on the brink of public finance insolvency and economic collapse at the point where he introduced fundamental economic reforms by merging the naira exchange rates and largely removing fuel subsidies.

The unofficial dollarization of the Nigerian economy is a consequence of many years of economic mismanagement. It is a national economic challenge that we should all join hands with the government to reverse through enabling policies and decisions to invest and produce locally and to be intentional about buying and consuming locally made goods.