Is Zimbabwe losing the opportunity to become Africa’s first cashless economy?

There have been great arguments in favour of a cashless society and very good ones against, but regardless of the side you lean towards, what would you advise a country struggling to get cash?

The Robert Mugabe-led government in Zimbabwe is struggling to cover the costs of running the public sector. The ruling party, ZANU-PF finds it hard to meet its $200 million monthly wage bill. Banks have imposed withdrawal limits and government has had to pay civil servants almost every week and in order of priority to manage the fiscal pressures if faces. The Finance Minister Patrick Chinamasa recently admitted that Zimbabwe’s formal sector is dead, leading to revenue challenges for Treasury compounding the economic challenges in Harare. Hundreds of workers are being sacked as an increasing number of companies collapse or downsize. Zimbabwe’s economy is now highly informalised and fears are rising that the government could shut down. While going cashless is not the solution to Zimbabwe’s economic crisis, it can reduce the current fiscal pressures and allow some room to tackle the current crisis.

The government may be very open to a cashless Zimbabwe. Already, it has directed all its departments and State-owned enterprises, as well as local authorities, to introduce electronic Point of Sale terminals by the 1st of July 2016.  The Reserve Bank of Zimbabwe recently announced the reduction of bank charges that have lowered the cost of POS transactions to between 10 cents and 45 cents per transaction.

Our good friend, Nigel Gambanga is a tech analyst in Zimbabwe. He agrees that the cash crisis in Zimbabwe is an opportunity in disguise.

The current cash crisis in Zimbabwe an opportunity for the country to become Africa’s first cashless economy.

In the absence of a familiar cash alternative , the electronic payment options which are now readily available can emerge as the leading channels for all transactions. However, this will need a lot of support from the government in the form of infrastructure extension and more specific legislation that makes it affordable for the ordinary person to move all their financial activity to a card or phone. It’s not just consumers that need this support – even service providers need that hand, especially with a large quotient of them operating as informal services that might not afford a migration to a new system.

What if we made it cheaper to use electronic money and more expensive to use cash, charging a premium for the inconvenience of handling, storing and banking cash, as well as the risk exposure by having it about?

Mobile money has worked very well in Zimbabwe. Before the current crisis got this bad, Zimbabwe’s economy was largely informal. Now that the formal economy is dead, it is only wise to support the services, used for most transactions (88 percent) .

Mobile Money in Zim

It’s been hands down the most effective tool in enabling financial inclusion for the broader Zimbabwean populace. There are over 7 million subscribers using mobile money, a figure that represents over half the national population. No other financial service has cultivated such an impressive following.

Zimbabweans have always been wary of formal bank accounts (the percentage of banked adults stood at 30 percent in the last survey), owing to a sector riddled with institutional collapse and the strict account registration requirements that are best suited for formally employed individuals – something that goes against the country’s largely informal economy.

Mobile money has, however, offered some of the same banking service features from a basic feature phone that is in the hands of the majority.

Zimbabwe can build on the success of mobile money 

Any push for Fintech service adoption that has any hopes for having a massive adoption across the country while being accessible to a ubiquitous support network should consider mobile money which relies on over 33,000 agents nationwide. There is also the familiarity that has been created by the reliable nature of mobile money services which cuts through the challenges associated with financial service risk and the stigma associated with “complicated and unsafe” electronic payment channels.

Mobile Money riding on huge mobile penetration

Zimbabwe’s mobile penetration stood at 95.4 percent as at December 2015. Our estimates are that it still hovers around that figure.

Fancy going cashless, Robert? Zimbabwe can start with making policies in favour of the ubiquitous mobile money and building infrastructure to help improve the adoption of other forms of cashless transactions. People go cashless and life becomes significantly easier for everyone; payments become seamless, businesses make more revenue, spending can be tracked easily by the spender and the government — the tax man ensures you pay him and the police ensure your money is clean. Everyone is happy.

The RBZ had also targeted the end of 2020 to integrate almost everyone into the financial system. An opportunity to achieve this has presented itself.