In October 2021, Nigeria became the first African country—and the world’s second—to launch a central bank digital currency (CBDC). ENaira came just as crypto boomed in the country, with 47% of Nigerians trading over $400 million worth of bitcoin annually.
Fintech as a whole has been on the rise, with Nigerian firms raising $1.2 billion last year, making the country ripe for a forward-facing digital currency plan.
In April 2023, touting its successes, then-Central Bank of Nigeria (CBN) Governor Godwin Emefiele said eNaira registered a 63% increase in transactions and a 12-fold rise in e-wallet subscriptions. This month, the CBN opened eNaira as a payment option for diaspora remittances, which would make it easier for overseas Nigerians to send money home, a potential avenue of growth for both the coin and the overall economy.
But where eNaira was touted as a trailblazer for countries looking to incorporate centralized digital currencies of their own, Governor Emefiele’s arrest and removal as the CBN governor earlier this month, after the government opened a probe into his reign at the central bank, put question marks over eNaira’s fate.
Critics say Emefiele’s arrest is politically motivated, but he is being investigated for misappropriation in his “planned reforms,” which included the launch of eNaira.
Many financial analysts were already questioning the future of a centralized digital currency in Nigeria where up to 65% of the economy is informal and the vast majority of transactions involve cash. Experts also say that despite internet penetration and massive access to mobile phones in Nigeria, many are still reluctant to use digital currencies.
“Our internet space is not secured and data breaches are common. Every day the anti-financial crime agency and other law enforcement agents arrest and parade suspected internet fraudsters for one internet-related crime or another,” Naziru Mikailu, the editor-in-chief of the Daily Trust, told the Daily Dot. “Unfortunately, Nigerians are being associated globally with internet fraud and this has affected the growth of digital currency and financial inclusion in general,” he added.
Alongside a distrustful populace, wary of criminals and the government alike, the disastrous launch of eNaira further doomed its widespread adoption.
The coin was hacked just hours into eNaira launch, which the then-CBN Governor Emefiele blamed on its users.
“If somebody hacks into [your account], it will be because you were reckless in handling your information but not that the system failed,” said Emefiele, who was at the forefront of the launch of eNaira. The hack led to many abandoning the coin.
The skepticism hasn’t abated.
In its report, “Nigeria’s eNaira, One Year After” the International Monetary Fund (IMF) highlighted that in its first year, eNaira had a mere 860,000 downloads, representing less than 1% of active bank accounts in the country.
The number of transactions stood at a meager 14,000 per week, compared to 5.2 billion e-banking transactions in 2022, not to mention the cash transactions that still dominate the culture. And only 1.5% of the downloaded wallets were used at least once a week.
The IMF report, echoed by many critics in Nigeria, underlines that an array of shortcomings, ranging from infrastructure to governance, have hindered eNaira’s growth.
The Daily Dot spoke with numerous eNaira users to gauge the reasons behind the limited usage of the digital currency. For many, the much-heralded eNaira offers more problems than solutions.
“I downloaded the eNaira wallet when it was launched, but I see no benefit in using it. Many merchants do not accept the digital currency. Plus, my bank offers me a good savings rate that eNaira wallet doesn’t—why should I use it?” Onitsha-based housewife Esther Anwulika told Daily Dot.
Financial experts maintain that the average Nigerian is content with using simpler cell phone technology and limiting digital banking apps for transactions over fears of fraud. This makes them opt for regular banks that provide better incentives, as compared to the non-interest-yielding eNaira, which also puts a limit on transaction values.
“The marketing of the product needs to be more strategic, partnership-driven, end-to-end and focused on building trust, keeping in mind that the digital banks and [online-only] banks are providing solutions not very different than the CBDC,” Segun Adams, an analyst at Lagos-based Afrinvest Consult, said to the Daily Dot.
There are broader economic, governance, and technological challenges that have hindered the usage of eNaira as well. The country has a fragmented identity collection and management system, with just 47% enrollment in its National Identification Number (NIN), which is required to obtain the eNaira wallet.
While the government is proud of eNaira’s numbers, it was a self-imposed cash shortage across the country that helped spur the use of eNaira. The currency run was sparked earlier this year by the Nigerian government transitioning from old to new banknotes, part of a strategy to encourage the use of eNaira.
However, despite the struggles, cash remains the preferred mode of transaction in the predominantly informal economy, with mass protests against cash shortage taking place in February.
“The underlying infrastructure to support the digital currencies cannot be trusted. During the recent cash crunch, the banking system was overwhelmed, and a lot of users reported failed transactions. Rather than sell on credit to customers, vendors insisted on cash payments,” said Adams.
To make matters worse, for some of the first users of the country’s CBDC, the tech glitches led to significant personal loss.
In 2021, Port Harcourt-based blogger Mr Emmanuel created a Facebook page in the lead-up to the launch of eNaira. He aimed to educate the locals about going cashless and using eNaira to carry out their transactions.
Immediately after the launch, many users were victims of online theft, as numerous eNaira wallets were hacked, including that of Mr Emmanuel.
“During the first launch of the eNaira application, hackers were able to break into the application. That was the reason we all lost interest. Many Nigerians are not really interested [in eNaira anymore] to be frank,” Emmanuel told the Daily Dot.
Many eNaira users insist that the government wasn’t prepared to cope with the infrastructural challenges and security risks surrounding eNaira, which many maintain was rushed.
Nigeria has witnessed a 64% increase in data breaches in the first quarter of 2023. According to Nigeria Data Protection Bureau National Commissioner Vincent Olatunji, 110 companies have been hit, with the list dominated by banking and telecom firms.
Last week, the Nigerian government passed a data protection law to address the surge in cybercrime, but it has been criticized by legal experts as being vulnerable to abuse. And it didn’t address remittances for those who were hacked during the eNaira launch.
The distrust of the Nigerian citizens goes all the way up the power hierarchy, amid political turmoil in the aftermath of the country’s controversial elections. A recent report by the Action Group on Free Civic Space highlighted the extent of state surveillance in Nigeria, and citizens are wary a government-run blockchain could be accessed for nefarious purposes.
Other cryptocurrencies have also expressed concerns with regard to the country’s digital security, with Binance restricting Nigerian crypto accounts over breaches last year.
The push for a centralized currency, after imposing legal sanctions on the far more popular cryptocurrencies, was also seen by many activists as the state empowering its authoritarian tendencies.
“The central storage of financial information by the government [is] raising eyebrows about likely misuse for political reasons,” said rights activist Rinu Oduala, the founder and director of Connect Hub Nigeria, while talking to the Daily Dot. “When people lack confidence in the political system and leadership, they will be hesitant to embrace a government-backed digital currency,” maintained Oduala.