Dr Tinashe Nyamunda The Economy Corner
As I continue examining different aspects of Zimbabwe’s emerging post 2000s economy, I am drawn to the concept of “ease [or costs] of doing business in Zimbabwe”.
If any aspired development is to take place or any serious investors are to be attracted, this is one element that requires serious attention. My focus will be on the use of plastic money and mobile transactions in an economy facing a worsening liquidity crisis.
In a space of just two days, I experienced a number of problems using my South African MasterCard to perform transactions when I was in the country this past week. First, I was stopped for a routine vehicle check by a traffic policeman after which I was asked to pay a fine of $20 for only having one triangle, instead of two.
But attempting to swipe to pay the fine at the point of sale machine the officers had with them, it did not register my card. This terribly inconvenienced me as I had neither an Ecocash account nor actual cash. I had experienced difficulties accessing the cash limit of $20 per day after queuing at ATMs for hours at a time because of my foreign MasterCard which worked only at certain cash points.
Then at a certain service station, I swiped for $40 dollars’ worth of fuel and the machine did not produce a receipt and ultimately, the attendant and I failed to establish whether the payment had gone through.
It was only after my getting a statement from my bank upon my return to South Africa when I confirmed that this first payment had gone through, and yet I had been forced pay another $40 for the petrol that had been supplied.
As you can imagine, it will be very difficult to reclaim the excess amount that I was forced to pay. At the Beitbridge Border post, as I was attempting to pay for my gate pass which $9 or R140,
I experienced a similar problem where my Mastercard was not being registered. I lost close to 3 hours as I was waiting for assistance until one kind official from ZINARA offered to make the payment for me.
This occurred, all within just two days, at which I lost so much time just trying to access very little cash or processing simple point of sale transactions that are normally concluded in a matter of seconds in neighbouring South Africa. In my personal experience,
I did not experience any ease in making payments and it was also costly in both monetary terms and time. But the government is serious about improving the ease of doing business and reducing the associated time and transactions costs, then it must acknowledge the problems that citizens face in respect of everyday payments.
But my experiences are nothing compared to those of many other Zimbabweans who have to endure making payments in a cash-strapped environment. This is not to say that I do not agree with efforts by the Reserve Bank of Zimbabwe (RBZ) to address the liquidity problem through using plastic and other forms of electronic money.
To the contrary, I think that this is a necessary adaptation that many should adopt. Even though not everyone has access to debit cards because of the requirements for opening bank accounts in an economy with close to 90 percent informality, mobile payment services such as Ecocash have been very important in financial inclusion.
However, there are still challenges associated with all of these platforms that will be addressed in what follows.
But before turning to the challenges of plastic and mobile money payment services, we must address the elephant in the room. Let me take one example. This year’s tobacco harvest experienced a 30 percent increase in comparison to last year.
But according to a News 24 article titled “Zimbabwe tobacco is booming but farmers growing it are not”, a tobacco farmer who had sold his product for $6000 failed to access his cash due to the cash crisis.
The cash withdrawal limit which was raised from $300 per day by the RBZ to $1000 was still not accessible, with farmers limited to accessing no more than $50 per day according to the same report.
The costs and hardship experienced by this farmer, who had to sleep in an auction house toilet on any empty stomach before he could endure long queues to access his funds is a typical example of the challenges tobacco farmers are facing.
Never mind that the costs of waiting or travelling to access their turnover is very high, the costs associated with accessing the money eat into their low profits thus risking discouraging farmers from producing the leaf of gold if these problems endure. The scale of the challenges just described here mirror the problems that illiquidity is causing across the economy.
Even those content with making mobile payments and using plastic money on daily transactions complain of these very high costs. Admittedly, the RBZ moved in to reduce the crippling bank charges for electronic and point of sale transactions.
Electronic Funds Transfers (EFTs) now cost between 33 cents and $2,10 while Real Time Gross Settlement (RTGS) was reduced to $5 from $10 dollars per transaction and ATM withdrawals were capped at a maximum of $2,50. Point of Sale transactions cost a minimum of 10 cents for figures up to $10 while any figure above this will be 45 cents at the most.
But even these charges are still among the highest in the region. Compare with, for example, the Standard Bank of South Africa who’s charges are not the cheapest but only require a flat fee of R.99 per month (equivalent to $7,66 at today’s official rate) for all transactions for a cheque account. In this context again, the cost of doing business is comparably high.
The mobile payment services also charge crippling rates. Take the example of a person sending $100. That transaction would cost the sender $1,94 if the individual is a registered Ecocash user and $4,94 if not.
Yet the recipient will still be charged an additional $3 dollars to retrieve the money. In total, the costs of sending $100 within Zimbabwe will cost anything between $4,94 (4,94 percent) and $7,94 (7,94 percent) of the money sent. Anyway, if any platforms suffers a lack of liquidity more than the banks, it is mobile payment services.
To get a cash-out of just $20 from shops, if they have any liquid cash at all, a client is required to have purchased goods worth between $50 and $80.
These are the ad hoc premiums associated with accessing cash in Zimbabwe. The charges increase as the figures increase. So you can imagine how businesses that use Ecocash in their transactions have to factor these increasing costs.
Moreover, the Ecocash payments also take at least two and half minutes (depending on the customer’s device and mobile network) after the goods have been scanned before a payment can be confirmed.
It would take just a few seconds to determine POS payments in South Africa, for example. Imagine the queues that form whenever both Zimbabwean POS machines and mobile payment services struggle to access networks.
Apart from other challenges that hinder the smooth flow of business and increase the cost of doing business in Zimbabwe such as corruption, and the economy of capture that I spoke about in my last column, there should be added these daily financial transactions.
Never mind even the premiums charged in the parallel market for exchanging bond notes with foreign currency, another associated cost for traders, costs of doing business continue to increase in Zimbabwe.
Far from being pessimistic about the country’s economic prospects, this article provides an opportunity to reflect on the challenges facing the Zimbabwean economy with specific reference to monetary transactions.
If the government is serious about reducing the cost and improving the ease of doing business in Zimbabwe, as well as investment, then it must not ignore the challenges highlighted here and others that other analysts have and will continue to identify.