EcoCash, its agents and the RBZ are collectively the most topical subject in Zimbabwe right now. Taking a closer look at the saga which culminated in the Reserve Bank of Zimbabwe banning cashing in and out of mobile money platforms reveals the politics of the situation:
First the economics
The summary of the situation in Zimbabwe is that for a long time the government insisted that Zimbabweans were still using US Dollars even though the government had wiped out our bank accounts of real money and replaced it with fictional numbers that we would just pass around as money.
Of course the market is perceptive and the value of money became dependent on what form of payment you were using. If you paid in cash you paid less than if you used electronic means including mobile money. To try to bandage things together, the government introduced Bond Notes which they said were a pseudo currency that represented USD at a 1:1 ratio on the face value.
This merely changed the pricing dynamics to 3 tiers in the market. If one paid in USD they paid the least followed by payment in Bond Notes and then lastly through electronic means. The disparity in the value attributed to cash vs electronic forms of money didn’t go away even after the government abolished the use of USD and other forex. In fact the riff between the value of cash and non cash widened. Some informal businesses would reject non cash payments altogether especially public transport operators.
Desperate individuals who wanted to buy goods cheaper or be able to buy at all were forced to go to street brokers who accepted their electronic money and gave them cash. Of course the said brokers would have a fee for their service. The most dominant payment channel for retail payments is EcoCash and thus most of these transactions involved the mobile money service.
Public outrage
Of course the public was enraged. The problem (in my view) is that the public concentrated on the last mile guy they buy cash from: the EcoCash agent and by extension EcoCash itself. As far as the ordinary person was concerned, the EcoCash agent was a mean person taking advantage of them and EcoCash had to swoop in and stop this villain. I always contended that there is not much EcoCash could do because the problem was at the fundamental core of supply and demand.
On Twitter, the EcoCash CEO, Natalie Jabangwe was attacked for ‘doing nothing’ to solve this. Was it her problem to solve though? In part yes. EcoCash announced they were and had shut down agents they suspected of ‘abusing’ their platform by selling cash.
I think it’s debatable whether we should call this abuse. If I have something you want and are willing to pay for it, am I abusing you when I sell it to you? Pricing is the market’s response to the difficult question of resource allocation. The responsibility for this conundrum has always been on the shoulders of government and the central bank. They are the ones who made the value of cash different from that of bank balances.
Anyway, the public was angry and that anger especially on social media was directed at EcoCash agents and ultimately at EcoCash.
Strive Masiyiwa and his road
As the rage waged on, Strive Masiyiwa weighed in. He argued that it wasn’t his mobile money company that was to blame. he described EcoCash as merely a road and it was senseless to uproot the road just because thieves used it sometimes.
Masiyiwa was not 100% sincere here. No one was asking anyone to uproot the road but people were asking for checkpoints on the road to try to stop the thieves. I am actually quite sympathetic to EcoCash here and I don’t think any checkpoints were gonna work. However, people wanted to see an attempt and they did not feel such an attempt was being made. Masiyiwa evaded this. No one had said the problem had originated with Ecocash, they just wanted the owners of the platform they used and depended on to do more than distribute fliers that said ‘don’t buy cash.’
Public rage gets hijacked
A desperate government does desperate things. The public’s misdirected anger was a gift from Santa to Zimbabwe’s government. They fueled that rage, so that the public would be blinded from the real issues for example the fact that the government is failing to deliver on any of its promises including ‘opening Zimbabwe for business.’
Even the anti corruption commission which has been failing to prosecute blatant and widely known corruption cases saw opportunity in the new villain called EcoCash. They labelled the selling of cash by agents as corruption that reached the top at EcoCash even pointing out Natalie Jabangwe specifically.
Sadly, anger is blinding. The public was gullible and their anger was used against them. The big bad wolf became EcoCash and the real guys who caused all this mess in the first place were not part of the narrative.
Banning of cash in and out
The RBZ issued a directive banning mobile money operators (EcoCash really) from offering cash-in and cash-out services anymore. This was an ill advised move and probably motivated by a desire to be seen to be doing something more than anything else. Weak motivations lead to weak decisions and this one was the weakest stuff.
The result of this is that the cost of cash on the streets has more than doubled now. Now the public can see that they were angry at the wrong fella. The real problem is that there is a distortion in the market and that distortion has more to do with people’s lack of confidence in the government and by extension the banking system. This makes the perceived value of money held in bank accounts and mobile money wallets less than that of cash.
As I argued before, the rush moves the government continues to make like the banning of cash-in and cash-out itself only deepen the distrust and thus the gap in value people ascribe to physical cash and electronic balances.
The problem will not even go away even if they do mass arrests of people selling cash in the streets. If they do that it will get worse. The higher risk that will then exist when selling cash will make the enterprising street people charge more for their service. Cash will still be sold and bought but at a higher price like is happening today.
This should tell all who have been asking EcoCash to ‘do something’ that if EcoCash had ‘done something’ the price of cash would have increased. Mangudya ‘did something’ on Monday and the premium on cash is at 100% now and it may get even worse than this.
9 comments
Loved reading this breakdown of the problem. I doubt the government doesn’t understand it – desperation indeed
Unfortunately very few people understand how these things work and the politician will always take advantage of that. These guys are not taking us anywhere.
Thanks Benhilda. Glad you liked it
Very interesting piece. I still do put some blame on Econet. They should have been monitoring the situation. They can see who has ridiculous balances that are not explainable. They were in their right to take action against these guys if they had done some homework. They are a telecoms company. Their IT department HAS to be strong. I can’t believe that this is a knee jerk reaction from them. In fact, it can even be argued that as much as Ecocash came and assisted when there was no physical cash, they were also the reason why physical cash STOPPED circulating. How can someone on Ecocash get physical cash from an agent but can’t get from a traditional bank?
For an organization their size, I find it hard to believe that Ecocash was in the dark. If the top management didn’t know, then it is a sign of the caliber of people they have employed and makes me even suspect that they may have been involved.
I agree that EcoCash has some complicity. The problem I see though is whether we really want what we have been asking them to do: a private company that can shut down whoever they choose. The laws around money are not at all clear in Zimbabwe. I wonder what legal instrument they could stand on that would empower them to act.
As for the source of cash. Sadly most of it comes from the banks and probably the RBZ directly. EcoCash has a bank in the family, perhaps it comes from there too. However this is a much bigger problem and the RBZ knows fully well what they need to do to solve it but they won’t. They would rather create a sensation around EcoCash agents.
The problem is the company turned a blind eye as the company used to control and monitor agents. Ask the agents.
What was happening now is kuti the one with the agent was leasing or lending their line to someone. so pakazovharwa malines munhu ane shop aingoti no deal obva atsvaga umwe next agent. The shop owners were the ones trading cash and currencies with lines not in their names because of legal implications and it is well written when you apply for the line.
Why dont you see merchants do the same, because they transact uge amounts and being found on the wrong side will cost them dearly because ecocash regulates and monitors.
The issue is govt just had to interfere for ecocash to start what they used to do long ago when agents used to have 2 or 3 lines since they had limits.
The EcoCash balance size does not tell whether one is selling cash or not. One does not need huge balance to sell cash at 50% or even more. The matter zeros in to market forces of supply and demand. People who are buying cash are mainly those who want to pay kombi and so on and they do not buy much at a time.
@Nyahasha, can you do a well informed article that highlights why cash is more valuable than e-money in Zim. I see you mention that people do not trust the government and thus the banking system but the cash that they hold onto comes from and is regulated by the very same government. In my opinion, what we have is a perception problem, nothing more and nothing less particularly regarding the disparity between cash and e-money. Why do public transport operators demand cash? Keep asking why 5 times to each answer you give and you’ll come back to perception… I’d be interested in sitting down with people who can clearly articulate the issues around this and provide tangible concrete information that is not based on intuition etc.
An interesting study definitely. Don’t know if I am best qualified for it though.
I do agree that when you ask why five times in a row you get closer to the truth.
I also think you are right about perception and I think people perceive the government policy inconsistency risk to be higher for bank held money than money they hold in their hands. Kombis probably insist on cash for speculative purposes because of that differential in perceived value