Bumper times for gold, grain traders as Nigeria redesigns its currency
Sadi Babalolo sorted through gold baubles and necklaces in the showcase of his small shop in the main jewelry market in Kano, explaining how business had boomed since Nigeria’s central bank announced a plan to replace old currency notes.
“We have seen a lot of demand for gold in the past few weeks simply because many people are afraid to take their money to the bank,” he said.
Like many traders in northern Nigeria’s teeming commercial center, Babalolo has seen brisk trade since the bank announced in October that it would replace an estimated 2.7 trillion naira ($6 billion) that’s outside the formal sector with redesigned notes. Nigerians have six weeks starting Thursday to swap their bills, and many have spent the past month scrambling to turn their old cash — some of it illicit — into hard assets: grains, cars, or, much to Babalolo’s delight, gold.
In a country where cash dominates transactions and nearly half the adult population lacks bank accounts, 85% of hard currency lies outside of bank vaults, according to the central bank. That has meant boom times for commodity traders in Kano, who have a front-row seat to how the policy is supercharging inflation — already at a 17-year high — and bringing people wary of attention from anti-corruption agencies to the market.
“People that are afraid of getting caught with a huge amount of money are coming to buy grains,” said Baba Wawu, deputy chairman of grains traders association. The influx is causing wholesale food prices to rise, he said.
Nigeria’s redesign comes six years after India announced a complete demonetization program overnight in a bid to curb corruption and crack down on unaccounted wealth. It resulted in scenes of chaos as villagers trekked to banks, and slowed economic growth without denting corruption or the amount of cash circulating outside the banking system.
Godwin Emefiele, the Nigerian central bank governor, has said Africa’s biggest economy can avoid India’s fate because Nigeria’s window is longer and local banks have extended hours and hired thousands of agents to reach rural dwellers.
But “the experience from India suggests that indeed the disruption to the economy, the damage to economic activity is quite severe,” said Virág Fórizs, an economist at Capital Economics.
“That six weeks falls in the middle of the festive season when lots of people would go to remote areas where there is limited bank coverage,” she said. “So exchanging notes may not be that easy and this risks creating cash shortages.”
Cattle v Gold
While grains and gold dealers are recording huge sales, trade at the Unguwa Uku livestock market on Kano’s east side has been slow. Both customers and dealers have rushed to the bank to turn in their notes and are wary of getting paid in old naira, Zakariyya Muhammad, a cattle trader, said.
They have also largely stopped restocking. Farmers in remote villages are “afraid to sell their cows, get the money and eventually not meet the deadline” because of how far they live from bank branches, he said.
In the weeks before the central bank’s announcement, hundreds of cattle were bought and sold every day, snarling traffic in the area. In most years, the festive Christmas season would ramp things up even more.
“This market should have been very busy, but look at it now, everybody is sitting idle because of the announcement of the new money policy,” Usman Bala Chedi, a dealer in the market, said. “This is the first time we’re seeing the market this scanty during a festive season. We were making huge sales before the policy.”
Cattle, largely bred for consumption, tends to be a less liquid asset than grains or gold. Babalolo, the jeweler, said his market was staying open an extra three hours, until 8 p.m., to accommodate the “frenzy,” with his sales up 40% from before the policy was announced.
“Since 2009 when I started this business, I haven’t seen much sales in jewelry,” he said. “This is really a good time for us.”
