Zimbabwe's largest mobile money transfer service operator, EcoCash is being accused of perpetuating rent-seeking and economic sabotage by exploiting cash-strapped citizens through cash out premiums, but is this accusation justified?
The service, which carters for 90% of the total adult population of Zimbabwe, handles the highest number of financial transactions per day than any other payment platform in Zimbabwe, including banks. The service is, in fact, linked to all except a negligible number among the 17 commercial banks.
It is so central to Zimbabwe's economic activity to the extent that business literally stands still when the service is down, as was the case not so many weeks ago.
For a more holistic view of the scenario, since the emergence of the cash crisis in Zimbabwe three years ago, the economy has moved to cash-lite, tending to high utilisation of digital payment platforms, particularly mobile money, which is attributed to a large extent to EcoCash's innovation through investment in hitech.
Although banks have improved their digital offerings significantly over the last four years, EcoCash, being a mobile money service, catalysed the process through offering end-to-end convenience and a wider reach through the agency network.
It is reported, against this background, that Zimbabwe now ranks among the world's highly digitised economies financially.
The emerging accusation is that the service, through its agents, is now charging a steep premium for cash.
This premium charged on top of the service charge is for receiving or withdrawing money sent by a third party or stored on a subscriber's wallet, more of conversion of electronic balances to hard cash.
The premiums ranged in the region of 20% at the end of 2018, but have since widened to 60% as at September 2019, heightening the outcry.
Government and the Zimbabwe Anti-Corruption Commission (Zacc) have taken interest on the matter. A confused and misinformed populace has been carried away by the wave and swayed into believing EcoCash is the culprit.
But here is how it works. EcoCash has an established agents network totalling 5 000 across Zimbabwe, built over the last six years. These agents are independent operators facilitating transactions on the platform for a fee or commission. They, therefore, have rights on EcoCash's infrastructure to complete transactions as solicited by users.
The payments to agents for facilitating transactions are predetermined at a certain rate, depending on the transaction volume and transaction value, commonly known as commission.
Now this system was free-flowing and only service fee based and without premium up until mid-2016. Premiums began to emerge at this point and it imperative to understand why.
I vividly remember a year later at the end of 2017, while sitting with the Reserve Bank of Zimbabwe governor John Mangudya at his offices and discussing the currency issue when he said: "If the bond note has failed, why are people not also saying EcoCash (implying the mode of payment) has failed because both are being discounted against the United States dollar?"
He highlighted that EcoCash was both a platform and a mode of payment, and as a mode of payment its financing stems from Real Time Gross Settlement (RTGS) balances, similar to bond notes which are withdrawn from the same RTGS balances. He argued that the bond note had not failed, but it was pressure emanating from the growing RTGS balances chasing scarce US dollars.
Should he be elated today now that the bond note is firming against EcoCash money? No, I don't think so!
My guess is that he remains a worried man, because the root cause of the crisis remains unabated and that is broad money supply relative to forex receipts. But what we are experiencing today between EcoCash and bond note is a reverse order with exactly the same impact.
EcoCash, as a mode of payment, has its own supply and demand function, which is not congruent to bond notes. The rate of demand and supply of both as a mode of payment is different and the difference stems mostly from the supply factors.
While all forms of local money have lost value against the US dollar, the bond note has been more resilient and this is because it is more scarce compared to RTGS money. EcoCash's supply, on the other hand, is limited only to the extent of RTGS balances in the economy and this aggregate has been growing, implying supply to EcoCash has spontaneously risen as it is highly permeable and synchronised to RTGS. This variance has created an own rate between the bond note and EcoCash, based on exclusive fundamentals.
The fluidity and convenience of cash coupled with supply scarcity relative to demand naturally attracts a premium to other forms of money and if I'm to quote the governor again, a hard cash ratio of below 10% is unsustainable.
There is about $600 million in bond notes total against a total of $15 billion in money supply (RTGS), which results in huge demand for cash.
It is also common knowledge that in an inflationary environment, one would choose to hold physical forms of cash. The expectation of further loss in value of local currency would discourage circulation of notes, which economic agents already know are in low supply and likely to preserve value better than bare RTGS.
This is the crux of the matter, simple! Faulting the operator of an infrastructure who does not benefit from the premiums is a lack of appreciation of how money moves on the network.
Even to blame the rent-seeking agent for taking advantage of the cash crisis is to disregard the very essence of capitalism, which exists not for benevolence, but for profit maximisation.
It is not a secret that a hyper-inflationary environment breeds speculation and such speculation hurts the innocent hard-working citizen.
EcoCash has done more good to this economy than most companies through its robust investment leveraging on an already established Econet infrastructure and this cannot be over-emphasised.
The solution to the unwanted premiums is simple: Fix the economy.
Authorities have to increase the levels of hard cash in circulation, but it is not all that simple. We all know government desperately wanted a new currency as soon as yesterday, but there is jittery lately given the carnage in forex markets, where the Zimdollar has just been on a freefall since its second coming.
The strategy at the moment is to keep filtering bond notes into the market at a lower rate, but the gap is just too wide and the expectation of inflation so alive such that one would prefer to hold on to hard cash than electronic, which has had high tolerance to devaluation.
So to effectively solve this, government has to resolve the currency crisis and the arbitrage will disappear in a flash.
---- Respect Gwenzi is the lead researcher and managing director of Equity Axis