Ecocash Suspension good for the economy.

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...move seen as government's latest effort at formalizing the economy and prop the ZWDL...

By Hosia Mviringi

Saturday, 27 June 2020

Ecocash accounts for the lion's share of the Mobile Money transactions in Zimbabwe and thus its conduct has a very influential impact to the perfomance and general perception of the Zimbabwean financial market.

I mention Ecocash here strictly because of its dominant position in the economic sub sector.

Econet Zimbabwe recently lost a case against the decision by the RBZ to suspend a multitude of Agent lines on the Ecocash platform for violating set out regulations such as withdrawal limits, while further squeezing cap on withdrawals.Econet lost with costs.

The latest government move comes as the Ministry of Finance and the RBZ have just lauched the the formal Foreign Currency trading platform and simultaneously removing the fixed or controlled foreign currency rates.

This move is meant to give confidence to investors as all transactions will be underwritten by the RBZ as a safety net.

But all this would not be possible with Ecocash and other mobile money transfer operators running a virtual parallel underground currency trading platform.

Lest the economy gets dogged again by financial pricing distortion.

Mobile money operators in Zimbabwe had become the prime drivers of inflation as their business is driven by speculation and the need to outdo the conventional banking system.

The result was a visible and disgusting disregard of basic Banking principles such as the KYC guidelines.

Subsequently the mobile money agents had created a virtual parallel banking system outside the scrutiny and regulation of the Central Bank.

The infamous cash shortages in Zimbabwe to a large extent could be attributed to the activities of the mobile money operators, who created an artificial shortage of notes so that they could make a killing selling the cash at a premium.

In a normal economy cash would not be commoditized or sold for profit.But who in their normal senses would send money to the bank when a man or woman sitting in that Ecocash booth can pay an extra 20% for the notes ?

This is what created the vicious cycle whereby traders would prefer selling their cash to these unscrupulous mobile money agents for a premium and double up on profit instead of banking the cash through the formal system.

In some extreme cases some traders realized that it makes more money for them selling cash than stocking up on product.

Now imagine the ripple effects of such arbitrary attitudes.

It stretches backwards to reduced demand for goods, reduced industrial productivity , loss of jobs and loss tax earnings by the government and stunted infrastructural development.

The poor and vulnerable communities who survive on Social Welfare Services always suffer the brunt of low revenue collection.

It removes the government's ability to provide the all important Social Safety nets for protection.

If this is not what is known as economic sabotage I wonder what else it could be.

But more alarming is the potential for these money transfer agencies to finance terrorism due to the lax due dilligence procedures.

The RBZ had thought that reducing withdrawal limits would help stem the financial hemorrhage, but what with the possibility of one owning and operating an unlimited number of Agent lines?

Ecocash proved to be the major driver of inflation due to the large volumes of unchecked transactions which are mostly linked black market foreign currency activities.

Ecocash has been so irresponsible to the effect that they only focused on amassing transactional profit at the expense the economic well being and th security of the nation.

It can almost certainly be predictable that these services will eventually be reopened, but it will be under a new set of strict regulations and enforcement criteria to bring sanity and accountability in the conduct of mobile money transfer agencies.

The Zimbabwean economy needs to formalize in order for it to grow and add value to the fiscus.But with the prevailing inconsistencies on government policies especially on regulation, and the rampant indiscipline in the financial market, there is virtually no incentive for businesses to formalize.

If anything we see the trend whereby large corporations who used to contribute taxes to the fiscus going informal.

Who doesn't want tax free earnings anyway ?

End