THE Reserve Bank of Zimbabwe (RBZ) issued a Mid-Term Monetary Policy Statement on August 21 themed “Fostering Price Stability”.
By David Phiri
It provided a broad overview of the pressing matters at the heart of monetary policy. In the main, the statement consisted of mundane stuff unlikely to tickle the fancy of the average citizen. The monetary policy statement would have largely gone unnoticed — but the government’s hostile stance against mobile money operators was too important to ignore and has once again taken centre stage.
The RBZ announced it was adopting measures “to address deficiencies in mobile banking”. This revelation would have come as a surprise to mobile money operators who have not received formal communication of the central bank’s investigation into their operations. In the spirit of natural justice, fairness and consultative governance, the RBZ was expected to communicate the findings of the probe to the mobile money operators before taking arbitrary and potentially ruinous action.
Dropping a bombshell on a financial sector that is highly sensitive to capricious measures, the RBZ announced: “The forensic audit to assess the integrity, compliance and efficacy of mobile money platforms and transactions in Zimbabwe has revealed significant weaknesses in the systems of the mobile payment operators, namely EcoCash, OneMoney, TeleCash and MyCash.”
But how do you conduct a “forensic audit” and go on to communicate the findings via a media statement? The Central Bank outlined seven malpractices it accused the mobile operators of masterminding.
“The critical weaknesses that cut across the four mobile payment platforms are: i. Non-adherence to KYC (Know Your Customer) principles, characterised by, among other issues, creation of mobile money accounts using fictitious and unverified identification particulars; ii. Creation of money on platforms (overdrafts/fictitious credits) which is not backed by balances in the Mobile Money Trust Accounts; iii. System infrastructure inadequacies and weak anti-Money Laundering controls; iv. Failure to comply with, including wilful disregard for, regulatory directives; v. Connivance between mobile money operator employees and customers to delay or illegally bypass account freeze orders; vi. Failure to deduct or remit statutory taxes; and vii. Rampant abuse of agent, super-agent and bulk payment wallets for purposes of trading on the foreign exchange parallel market.”
The immediate measures taken by the RBZ include:
All agent wallets are abolished; Transactions by individuals shall be pegged at ZW$5 000 per day; Closure of all multiple wallets, to allow only 1 wallet per individual; Merchants are disallowed from making payments from their mobile wallets; Automatic liquidation of merchant wallets into merchant bank accounts; Bulk payment wallets will be strictly monitored.
What’s the real motive?
Although the RBZ has sought to cleverly package its arbitrary actions as “measures to address deficiencies in mobile banking”, it is plain to see that they are nothing but an over-reaching attempt to paralyse and destroy the EcoCash business.
These measures, as outlined by the central bank, are not tailored to address the fundamental frailties at the heart of Zimbabwe’s economic malaise. It is wishful thinking to assume that these so-called measures can halt the slide of the Zimbabwe dollar.
Since the detailed findings of the Central Bank’s so-called investigation into the “illicit” activities of EcoCash and other players have not been formally communicated in full to the mobile money operators, we have to rely on the public utterances of well-placed individuals for a sense of official direction.
One of them is Eddie Cross, an economist and member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee, who issued a startling statement on July 12 accusing EcoCash of destabilising the economy.
He claims a category of clients called “bulk payers” — who are essentially high net worth individuals and corporates — were transferring billions of Zimdollars to EcoCash and asking the mobile money operator to buy real US dollars for them, mainly to protect value.
“It was the activity of tens of thousands of (Ecocash) agents on the streets, competing to buy what limited USD was available that was one of the main drivers of the exchange rate,” alleged Cross.
In one fell swoop, EcoCash has become a convenient scapegoat for Zimbabwe’s intractable economic problems. The authorities will not tell us about the near-zero confidence in the money system — and how that has wreaked havoc on the economic fundamentals. The Reserve Bank knows about an intricate web of illicit gold dealers that has been pushing up demand for forex. Perhaps the gold mafia is too close to home, which explains why the Central Bank officials would dare not tackle that particular elephant in the room.
EcoCash is not the enemy
Some economic commentators have claimed that there has been relative stabilisation of the Zimdollar’s US dollar rate since the government took arbitrary action against mobile money service platforms. They have justified this conclusion by pointing at what they describe as subdued activity on the parallel market. According to this logic — if we may call it that — EcoCash was a major catalyst of illegal and speculative transactions on the parallel market.
The problem with logical fallacies is that they have an uncanny tendency for propagating false and insidious information which, through mindless repetition, may begin to sound sensible.
The US dollar rate may have somewhat stabilised, yes, but the reason for this is not the government’s arbitrary action against EcoCash. Far from it. The rate has marginally stabilised on account of two primary factors.
Firstly, members of the public are now able to transact in US dollars in broad terms. Secondly, the national economy is under Covid-19 lockdown, meaning the volume of business transactions is generally suppressed. In an economy that has become 70% informal, the demand for forex is driven largely by the activity of informal traders who import goods and raw materials from South Africa. Cross-border trade has almost come to a standstill during the lockdown. We should also keep in mind that average consumer spending has drastically declined during the Covid-19 lockdown. With fewer informal traders and consumers spending money, aggregate demand is bound to be subdued — hence the simplistic “rate has stabilised” argument.
In any case, what empirical evidence have the authorities placed before the nation to show a clear-cut trend in the correlation between EcoCash transaction patterns and the exchange rate in the period stretching back to the end of June when the government took arbitrary action against mobile money service operators?
The movement of the parallel market rate is largely a function of supply and demand. EcoCash is not the enemy. It has never been. Attempts to crudely portray EcoCash as a scary nocturnal monster that sneaks into the economy in the dead of night to devour the nation’s economic bliss are disingenuous.
EcoCash rescued this economy from implosion
Such malicious anti-business propaganda does not serve a useful purpose beyond setting the groundwork for unwarranted attacks on a mobile money platform that actually rescued this economy from total implosion at the height of cash shortages. It helps to remember that Zimbabwe’s economic crisis is multi-layered and cannot be solved through intellectual laziness by conveniently depicting EcoCash as a rampaging bogeyman. Economic challenges will only be resolved through the implementation of genuine far-reaching reforms in fulfilment of a shared national vision.
At the height of Zimbabwe’s hyperinflation in 2008 – long before EcoCash or any mobile money service came into being in this country – the central bank repeatedly accused financial institutions of weakening the beleaguered Zimbabwean dollar. But in the fullness of time, the real causes of instability were laid bare and everyone knows for a fact that gross economic mismanagement was at the heart of the imbroglio which decimated savings, eroded pensions and devastated the entire economy. We have come full circle.
The truth shall set us free
Zimbabwe’s multi-faceted economic crisis is the logical outcome of failed governance. When deception becomes the pre-occupation of public officials, business confidence is sacrificed on the altar of self-aggrandisement and power retention.
Mobile money agents were suspended but this did not halt the catastrophic slide of the Zimdollar. Now that the agents have been banned, let us wait and see whether the Zimdollar will strengthen on account of that arbitrary action. Do not hold your breath though.
A commandist approach to economic management in the 21st century is ill-advised, risky and costly in the long run. Despite seeing how destructive the practice of “economics by coercion” has been in the past 40 years, our leaders blindly continue on that path. Modern economies are built on a foundation of investor confidence, market stability and policy consistency.
Persecuting large enterprises like Econet and Old Mutual is not the answer to Zimbabwe’s economic problems. If anything, it will only worsen the capital flight, poor international ratings and low competitiveness ranking of this troubled economy.
RBZ Governor John Mangudya should seek genuine solutions instead of tinkering with monetary policy in this manner and resorting to a thoughtless onslaught on mobile money operators.
Unless the nation begins properly diagnosing the economic malaise and prescribing the correct remedies, the collateral damage in the form of lost business confidence, further socio-economic decline, social dislocation and missed opportunities will be incalculable.
Source: www.thestandard.co.zw
