No doubt Mthuli Ncube is the man on the spotlight in Zimbabwe right now. Some are wishing him to do magic, some hope he fails for their own selfish reasons and there aren’t many in the middle.
No doubt there is a currency crisis in Zimbabwe right now. Most would describe coming across any small sum of cash as a magical experience. Very few have handled a physical amount above $50 since two Septembers ago.
No doubt EcoCash is the de facto cash in Zimbabwe right now. Many in the banking sector wish the Fintech company a magical misfortune and there aren’t many above the indifference zone on ‘the negative to positive vibes scale’ towards EcoCash.
Where is the connection between the above and how do they relate to progress backwards?
Mthuli Ncube
I wouldn’t want to be in Mthuli Ncube’s position, I wouldn’t want his job. The country is watching him and expecting either too much or nothing. The fact that he took the job makes me respect his bravado and appreciate his sense of duty. You have to be either very patriotic and brave or insane to willingly preside over the Zimbabwean economy. A lot of the former and a bit of the latter is needed to turn this country around actually.
Mthuli did not take time to address the priority area he will focus on in the first few months of his tenure. He clearly presented his three options to deal with the cash crisis. All three are not easy and they need not be mutually exclusive. In his consultations with industry some of the feedback he got is that his alternatives cannot be as immediate.
I can’t say I agree with that sentiment. I don’t expect magic but if the political will is there, stability can be achieved by year end. The validation of how responsive to change the Zimbabwean markets are comes from a weird place:
Runaway USD/Bond rate
The day after the new cabinet was announced the USD to Bond and USD to transfer money rates started going down. I remember the rates fell from a premium of 75% to a premium of 53% between the USD and the pseudo USD in our bank accounts.
This trend was very temporary. The rate started picking up again and as of yesterday the premium is slightly above 100%. There could be a few reasons why this is so and I have asked a colleague to explore them. I will pick the one possible reason that made a lot of sense to me.
A friend whose business has only managed to survive these past two years by converting sales revenue to USD as quickly as possible (yes on the black market) was telling me that the rate going crazy is a reaction to the Minister of Finance’s proclamations.
The declaration to bring about currency reform by the end of the year sent people holding large sums in bank accounts into a frenzy. They are afraid they may wake up one day and discover that what they have in their bank accounts is useless thus they are buying USD like crazy. It’s not like it didn’t happen in India!
This is of course not intended but it gives you an idea that the market (the black market is the real free market in Zimbabwe) ‘believes’ Ncube can pull it off. Not just the black market though:
The EcoCash riot act
EcoCash is taking a very strong stance with its agents. They are threatening them in very strong terms if they continue charging a premium for cash outs. This again tells you that the company believes Ncube can pull a rabbit out of the hat in a short space of time.
What EcoCash is doing is to anticipate the emergence of cash in Zimbabwe again and they want to protect themselves and keep their ecosystem relevant when that happens. Right now, everyone uses EcoCash because there is nothing else really for peer to peer transactions and for most informal businesses.
People using your service because there is a crisis leaves you vulnerable to the possibility of the crisis ending. That vulnerability is increased when there is ‘an abuse’ of the service in such a way that it negatively affects the perception of your service and brand in the eyes of the general populace. This is the case with EcoCash and the premium demanded by agents for cash outs.
In a way, I would say EcoCash is pretending as if the agents are just being mean for asking for the premium. I say pretending because no one knows how much there is a disparity between cash and money in electronic circulation as EcoCash and the rest of the Econet group does. The cash out premiums are a result of market forces and not greed as readers here were claiming the last time I said this.
Econet knows this. They had record breaking revenue and profit performance last year but they know all that money in their bank account cannot buy equipment.
The reason, EcoCash is going after agents is because if cash is going to be available in Zimbabwe again then the agent will start to matter again within the EcoCash ecosystem and they don’t want the agents to carry over the practice of the cash crisis into a new era. If that happens people will ditch their ecosystem en mass.
In other words, EcoCash is sanitizing their ecosystem in anticipation of new dynamics. A new environment where cash is king again. That is where I get concerned:
Progress backwards
Every country in the world is trying to get to become as cashless as possible and Zimbabwe is trying all it can to move from being cashless to become as cash dependent as possible.
The biggest problem is that we did not move to become cashless driven by the convenience of electronic transactions, we were motivated by necessity. This makes it a problem because we now associate cash with freedom and convenience and non cash forms of settlement with the opposite. This will cause a good number of people to switch once cash flows again.
Even the language betrays that we are thinking of this wrong. Everyone wants Mthuli Ncube to solve the ‘cash crisis.’ This means we want cash and we want it now. I think, we should be demanding more that there be proper currency reforms and that the government lives within its means such that money in our accounts is worth what it’s worth. We don’t necessarily need cash.
The issue should not be that there is no cash, the issue is that there is no value. The money we have is a fiat of a fiat based on a government that has not given anyone reason to have faith in it for decades. The first thing Chinamasa and his colleagues did when he presented a progressive budget in November last year was to break the budgetary promise of curbing expenditure. Chiefs were bought vehicles outside of budget, salaries were increased outside budget and it was crazy town.
Unfortunately because things are the way they are, as soon as cash becomes available again, Zimbabwe is going to become a cash economy again. The Germans are still cash loving a century after the Weimer Republic inflation of the late 1920’s. We are going to be the same BUT I hope somehow we won’t.
It’s unfortunate because cash does not encourage savings, it does not promote innovations like e-commerce.
I wish EcoCash the best as they fight to retain and increase usage of their platform even with the threat of the availability of cash.
PS: When we were compiling the State of the Payments Environment in Zimbabwe report, we kept hearing that Zimbabwe’s payments and Fintech infrastructure is quite advanced compared to other African countries and even South Africa in some aspects. The report is selling for $9.99 and you can pay for it with EcoCash below:
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14 comments
I agree with the minister’s approach although any option he takes must be done with due care. Zimbabwe is moving into the cashless path from a wrong perspective. It was taken as a measure to arrest the cash shortage.i urge the minister to have an education compaign. The issue of fiat money must be dealt with at the central government level otherwise having our own currency which is fiat sounds suicidal.
Definitely need for education. Gonna be tricky though, the association between electronic transactions and that things are not well is already made in people’s minds
Pretty good article. Thank you
Thank you
Fabulous article.. It’s indeed worrying that the public focus is on availing USDs in hard notes – whilst this is not entirely bad because it gives people options in terms of how they want to store their value – it would indeed reverse the gains made ref electronic payment systems as mentioned in the article. It would be ideal if the Govt ensures that whatever balance in the Bank or in Ecocash is equivalent to the USD like in the past where one could use debit cards with normal balances instead of the prefunded debit cards..
Yeah, I think this reversal is going to happen. Quite unfortunate BUT it won’t be 100% reversal. We are not going to go back to pre crisis levels of using cash so not so bad
And thank you for the compliment
Very good article. What most people fail to appreciate is the fact that management of the “cash” is what causes corruption. What do you need cash for except “kuroora”. If the system presented a card machine for every transaction, we would know the correct statistics of how many people are unemployed and flows to the fiscus would be more equitable as everybody would pay taxes through transaction figures. Secondly, there is a paper trail for every transaction with large sums automatically flagged up by the system thereby providing a deterrent for corrupt practices. Lastly the cost of handling cash would be eliminated as everybody has to transact using the system. There should be a merchant point of sale card for vendors, govt departments, retailers,transport etc. All personal transactions are easily accounted for upon request by an investigating authority for verification. The mechanisms are already there, it is a question of political will.
Pandakaroora last year I was actually not happy that my in laws insisted on cash!
Yes, electronic transactions trump cash on any day if only money in the bank is indeed equal to money outside the bank.
Thanks for the compliment
I second that! Good article
Thanks much Obnub
Excellent article, Tinashe!
Thank you Chenayi
education is what we need and assurance that we can get the money we need when need arises. Adalandoida good response