President Bola Ahmed Tinubu has directed the Central Bank of Nigeria to suspend the implementation of the Cyber Security Levy. The decision was made due to widespread signs of resentment. Here we shall examine the National Cyber Security Fund, the Cyber Security levy, and the arguments for and against its implementation.

In 2015, Nigeria took a significant step forward in combating cyber threats with the enactment of the Cybercrime Act. This legislation established a cybersecurity fund to finance diverse initiatives aimed at bolstering Nigeria’s cybersecurity infrastructure. Additionally, the Act introduced a cybersecurity levy on the total value of electronic transactions to serve as a financial source for the fund. Alongside the levy, the Act outlined the following alternative funding sources to enhance Nigeria’s cyber defences:

• Grants-in-aid and assistance from donor, bilateral, and multilateral agencies;
• All other sums accruing to the Fund by way of gifts, endowments, bequest or other voluntary contributions by persons and organizations: Provided that the terms and conditions attached to such gifts, endowments, bequest or contributions will not jeopardize the functions of the Agency;
• Such monies as may be appropriated for the Fund by the National Assembly; and
• All other monies or assets that may, from time to time accrue to the Fund.

The Amendment of 2024:  These amendments were made to eliminate ambiguities and strengthen cybersecurity provisions. The amended act established a clear framework for the cybersecurity levy, setting it at 0.5% of the value of electronic transactions. The Central Bank of Nigeria directed financial institutions to start deducting the levy on May 20, 2024. This directive sparked public discourse with many people scrutinizing and debating its potential impact on Nigerian society.

However, according to the Central Bank of Nigeria, the following transactions are exempted from the levy:

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 organizations 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.

Arguments for the Levy:

1. Simplicity and Administration Ease: A flat levy is easy to administer, reducing bureaucratic hurdles and ensuring efficient collection of funds. This streamlines the process for both government agencies and businesses, allowing resources to be allocated more effectively towards cybersecurity initiatives.
2. Promotion of Financial Inclusion: A flat levy is preferable over a progressive rate as it doesn’t discourage individuals from engaging in large-value electronic transactions. This, in turn, supports financial inclusion by ensuring that people from all income brackets can participate in the formal financial system without facing additional barriers. Moreover, a more secure cyberspace fosters confidence in the Nigerian financial system, encouraging greater participation and trust.
3. Cybersecurity Enhancement: The funds generated from the levy are essential for strengthening Nigeria’s cybersecurity defences. Combatting cybercrime, protecting sensitive data, and safeguarding critical infrastructure requires substantial resources. By supporting initiatives like establishing counter-violent extremism cybersecurity research centers and promoting graduate traineeships in cybersecurity, the levy can help develop a skilled workforce and address emerging cyber threats effectively.

Arguments Against the Levy:

1. Impact on Low-Income Earners: Critics express concerns about the levy’s potential burden on low-income earners. The additional financial strain on vulnerable segments of society could exacerbate existing socioeconomic disparities, making it harder for them to access financial services and participate in the economy.
2. Timing and Economic Challenges: Introducing the levy during economic challenges may further burden businesses and consumers. Some fear the increased business costs would be passed on to consumers, contributing to inflationary pressures and hindering economic recovery efforts.
3. Need for Balancing: Critics have emphasized the importance of balancing cybersecurity priorities with socioeconomic realities. Although cybersecurity is undoubtedly crucial, policies must consider their potential socioeconomic impact; taking into account the needs of low-income earners and the broader economic context.

Furthermore, effective implementation of the cybersecurity levy hinges on robust oversight mechanisms and transparent management of the cybersecurity fund. Following the Cybercrime Act, the fund is domiciled with the Central Bank of Nigeria, with the Office of the National Security Adviser tasked with administration, keeping records of accounts, and compliance monitoring. Furthermore, stringent auditing protocols outlined by the Auditor General of the Federation ensure accountability and transparency in fund utilization.

As Nigeria confronts the challenges of its cybersecurity landscape, the debate surrounding the cybersecurity levy underscores the delicate balance between security imperatives and socioeconomic equity. While the levy holds promise in strengthening Nigeria’s cyber defenses, it is imperative to navigate its potential impact on the average Nigerian carefully. Thus, the development of effective policies to safeguard Nigeria’s digital future requires ongoing dialogue, stakeholder engagement, and robust oversight to uphold principles of fairness and inclusivity. Through these concerted efforts, Nigeria can forge a path towards a resilient and secure digital ecosystem for all.

On July 28, 2023, I wrote that “Nigeria will either pause the full floating of its currency or return back to fuel subsidy” because using basic economics, Nigeria cannot handle both at the same time due to the heterogeneous nature of the economy, across regions. In other words, full removal of fuel subsidy will annihilate the northern region’s economy, as costs of logistics will skyrocket even as comparative advantages remain muted. 

When the government announced the policy, I posited that it was going to be reversed since there was no basis for it to even work. Nigeria is a one-city supply chain country, on global logistics. Yes, Lagos runs the show, and more than 90% of imported shipped items used in Nigeria come via Lagos. 

If you remove fuel subsidies, you give Lagos an asymmetric comparative advantage as production cost will become unusually cheaper in Lagos than other parts of the nation, even as Lagos retains most of its current advantages in other dimensions. Who will go to Sokoto, Uyo, Okigwe, etc to set up a factory considering that energy cost is a key component of production in our generator-run economy?

But if Nigeria has a working railway system, you can do that. You can also do that if you have a diversified deep seaport system which would have reduced cost for the east-northern corridor for imports via Cross River and Akwa Ibom states. We do not feel the fuel pricing imbalance because of the petroleum equalization fund which is a “magic fund” which is used to pay transporters to ensure fuel prices are largely uniform across Nigeria. 

You want to remove that without providing options? You do not understand the geography of Nigeria.  Good People, Bloomberg just made it clear that Nigeria has since reintroduced fuel subsidy.  I am happy the experts are seeing what I saw in July 2023. 

From Bloomberg: “Nigeria’s reintroduction of a gasoline subsidy months after it was scrapped is expected to guzzle almost half of its projected oil revenue this year, according to the International Monetary Fund. The implicit subsidy will cost Africa’s largest crude producer an estimated 8.43 trillion naira ($5.9 billion) of its projected 17.7 trillion naira of oil revenue, the IMF said in a report published on Thursday. Its forecasts are similar to Bank of America’s, which projects it could cost Nigeria between $7 billion and $10 billion this year if it imports between 18 and 25 billion liters of gasoline…”

On July 28, 2023, I wrote that “Nigeria will either pause the full floating of its currency or return back to fuel subsidy” because using basic economics, Nigeria cannot handle both at the same time due to the heterogeneous nature of the economy, across regions. In other words,… pic.twitter.com/N0nnhM7naX

— Ndubuisi Ekekwe (@ndekekwe) May 12, 2024