Electronic Payments and Economic Growth in Nigeria

June 1, 2014

The full potential of economic impact from electronic payments is estimated to be very large in Nigeria. In 2012, electronic payments are assessed to have the potential of adding 3.5% to Nigeria’s GDP, and projecting forward to 2017, 3.9%

The table below shows the key channels through which electronic payments could contribute to economic growth and their respective shares of the total potential contribution. The 1.7% GDP gain in employment generation is for example equivalent to a net increase of 645,077 jobs over a five-year period. The two most significant are the reduction in corruption and crime, and the increase in domestic trade. Electronic payments in the short term, however, are estimated to have only limited impact on reducing the cost of cash, which will require very significant investment in payments infrastructure over time.

 Estimates of Channels and Shares of E-payments Potential Impacts in 2012
 Reduction in corruption and crime

35.7%

 Increase in domestic trade

35.7%

 Increase in tax revenue

13.6%

 Increase in imports

9.6%

 Savings from Agri E-Wallet Scheme

2.1%

 Employment generation

1.7%

 Reduction in cost of cash

1.6%

In 2012 an e-payment user survey was conducted in five key regions in Nigeria in order to gain a better understanding of what constraints are holding back its growth. The most significant constraint reported is “network problems and service failures”, identified by close to 35% of the respondents. This is followed by “slowness of transaction” (25%), “perceived risks” (20%) and “power failure” (17%).

The potential of e-payment is well recognized. Over 85% of respondents believe that e-payments could contribute to increased sales, productivity and overall growth; and 50% acknowledged that e-payments have already influenced their consumption patterns through easier, faster, more transparent, and less restricted transactions.

Given the massive potential of electronic payments in Nigeria, appropriate public policies in addressing the constraints that are holding back its growth would deliver significant benefits to all segments of Nigerian society. Much of this can be accomplished through creative public-private partnerships. In this regard, the Central Bank of Nigeria’s “Cashless Lagos” program, which aims to encourage electronic payments to replace cash in the Lagos State of Nigeria, is a very promising start.

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