Most countries will go out of their way to defend and protect their biggest companies. They support and encourage them as they go out to invest and occupy in foreign countries. They do so not only for sentimental reasons because these companies are national flag carriers but also because such investments yield dividends to the country.
Indeed, bilateral investment promotion and protection agreements are designed to assist and protect businesses from the respective countries. This is how Western economies have successfully benefited from Africa and the rest of the world. China knows this and has been very aggressive in the African market. Only recently, Chinese technology giant Huawei benefited from a tax holiday in Zimbabwe which was backdated from 2009.
You would think that against this background of how successful economies operate and how they support their businesses, countries like Zimbabwe would learn a thing or two and do more to promote companies in its territory. Instead, successful businesses are targeted, haunted and turned into scapegoats for the country’s chronic economic challenges. This is the context in which the current onslaught upon mobile money companies and businesses listed on the Zimbabwe Stock Exchange should be located and analysed.
On 26 June 2020, the government of Zimbabwe banned the operation of mobile money payment systems and trading on the Zimbabwe Stock Exchange. The mobile money payments systems ban was soon amended into a set of loose restrictions when the regulatory authority, the Reserve Bank of Zimbabwe issued a statement. Still, the decree was not issued under any legal instrument. The drastic measures were taken ostensibly to deal with the escalating collapse of the Zimbabwe Dollar, with both the ZSE and mobile money platforms being accused of fuelling the parallel market rates of exchange.
State of mobile money in Zimbabwe
While all mobile money companies are affected by the restrictions, the main target seems to be EcoCash, a member of Econet Wireless family, Zimbabwe’s greatest post-independence corporate success story. A flurry of articles, mostly in the state media, have targeted Econet and in particular, its subsidiary, Ecocash which is by far the most successful and most dominant player in the mobile money sector.
EcoCash had 93.3% of the market share of the mobile money subscriptions according to the Posts and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) Third Quarterly Report of 2019. In second place at just 6% of the market was OneMoney which is run by NetOne and TeleCash, owned by the third mobile network operators, Telecel has a mere 0.8% market share.
The growth of mobile money is attributed to convenience in an environment plagued by severe cash shortages. As POTRAZ pointed out in its 2019 Report, “The adoption of mobile money has been continuously improving as mobile money provides a convenient alternative to making payments given the current cash shortages”. Zimbabwe has been facing a severe cash shortage for the past 6 years and not even the introduction of bond notes in 2016 or the return of the Zimbabwe Dollar in June 2019 has made things any better.
The government was quite happy with the growth of mobile money payment systems because it became an easy alternative which covered the lack of cash. Mobile money providers had a “shock absorber effect” when the government hit a very bumpy road on account of cash shortages. Mobile money also had a fundamental effect of enhancing fincial inclusion - the previously unbanked were brought into the formal financial system. The informal sector became partially formalised in regard to participation in the formal financial system.
In fact, mobile money had a positive effect on public revenue as it enhanced contributions of the informal sector to taxes. Where previously informal traders relied on cash payments which were hard to tax, the government has been able to raise revenue through the 2% tax on mobile money transfers.
There were 5 million active mobile money subscriptions in March 2018 and this had risen to 7,2 million in September 2019. According to POTRAZ, there were 3 million active mobile money subscribers at the end of 2013. The value chain in mobile money businesses includes a vast network of agents recorded at nearly 25,000 at the end of 2017 according to a POTRAZ report.
Apart from the usual Person to Person transactions, mobile money payment systems have become major platforms for payment for goods and services in the so-called Person to Business transactions. Econet is the market leader in value of mobile money transactions accounting for 99.7% of the market share, also according to the 2019 POTRAZ report. OneMoney had only 0.3% of the market while Telecash lags with just 0.03% market share of the value of mobile money transactions.
It is clear from these figures that EcoCash is far ahead of its market peers. Interestingly, OneMoney was the first in the market with a product originally called OneWallet in 2010. EcoCash arrived in 2011 and like its parent company in the mobile network operations, it overtook One Money to become overwhelmingly dominant. Ironically, instead of being celebrated, EcoCash’s success has made it a target of its detractors. This is not to suggest that it should be free of criticism, no. But to attribute the country’s challenges on the currency markets to a single entity which appears to be the case smacks of an exercise in scapegoating.
Exclusivity over agents
For example, some critics accuse EcoCash of being anti-competitive for allegedly monopolising its network of agents. The mobile money business operates through a network of agents across the country and EcoCash has the biggest network of agents. An operator has to invest in these agents, through recruitment, training and branding. It makes business sense for the operator to exercise exclusive rights over its agents in whom it has invested. Permitting another operator to use the same agent, without making any investment, would be free-riding on its competitor’s investment. That would be unfair and anti-competitive behaviour to allow a competitor to reap where they did not sow.
Free-riding also poses a moral hazard. Why should a company invest in agents when others can come on and take a free ride on that investment? Exclusive agency or distribution contracts are common in the business world. An Apple products distributor will not normally provide the same business for a rival like Samsung. A KFC franchise holder will not normally sell Nandos products in the same shop. Therefore, there is nothing wrong with EcoCash demanding exclusive relationships with its agents in whom it would have invested. Other mobile money providers would do the same if they had invested in their network of agents. There is, of course, the alternative of mobile money providers working together and sharing agents as long as they share the costs just as they would do concerning infrastructure.
The same accusation concerning anti-competitive behaviour has been used against EcoCash’s parent company, Econet in its relationship with its peers, NetOne and Telecel, both of which are older. According to the POTRAZ Report (2019), Econet has a share of 68,1% share of the mobile subscriber market compared to 23,7% for NetOne and 8,2% for Telecel. In 2013, when the licence fee was due to be paid, only one of these 3 MNOs paid its fee. Econet paid US$137 million whereas NetOne and Telecel weren’t required to pay at the same time. It was owed interconnection fees from the state-owned operators amounting to US$60 million which were offset against the renewal fee in 2013.
If anyone should be complaining of anti-competitive conduct, which is sanctioned by the government, it is the regulated company, Econet which pays its licence fee while its competitors are allowed relaxed terms. Besides, state-owned companies enjoy other benefits which are not extended to the private entity. When NetOne got infrastructure loans from the Export and Import Bank of China, the Chinese company which carried out the contracts, Huawei was granted a tax exemption backdated for 10 years.
Not a level playing field
It is arguably true that the playing ground is not level when it comes to the regulatory environment in Zimbabwe’s telecommunications and mobile money market. Ecocash is a bigger company not because it has gone out of its way to keep its competitors down but because it has invested in its business since its launch in 2011 and there is no political interference from government ministers who think being a minister confers business wisdom. Likewise, Econet is a bigger operator not because it did anything to stifle its peers but because it invested in sound business decisions and infrastructure since its launch in 1998, following a long-running legal battle against the state.
Zimbabwe does not gain anything by pulling down its most successful homegrown multinational corporation. This is not to say that the company is perfect. No company can claim perfection. All companies across the country are suffering the weight of a sick economy. Naturally, these challenges have impacted businesses and their ability to deliver.
The problem of cash shortages
The reasoning is that mobile money providers are driving a rise in the parallel foreign currency exchange rates. However, ever since the restrictions nearly two weeks ago the parallel market exchange rates have remained high. They are not coming down because the mobile money payments platforms were closed. The reasons for the high parallel market exchange rates are more complex than a narrative which places the blame on mobile money providers. For a start, many of the current problems started when Zimbabwe began to face cash shortages and when the decision to introduce the ill-fated bond notes was made in 2016. Indeed, even the regulator has stated that growth in the use of mobile money was spurred by cash shortages. If the government had ensured that there was enough cash in the economy, these problems might not have arisen.
The problems that the government is raising did not exist during the US dollar era. This means, as long as there are cash shortages, the problems will remain, with or without mobile money providers. Mobile money systems are a convenient alternative to cash transactions but if that is not in the picture, the market will find alternative ways of transacting. This leads us to the next point: the government is doing the same thing hoping for a different result.
We have been here before
Banning or restricting channels of payment is not the solution to a complex and deeper problem. Before the advent of mobile money payment systems in 2010, the parallel foreign currency market flourished during the era of hyperinflation in 2008. At that time, transactions were processed through bank transfers. Even then, the Reserve Bank of Zimbabwe tried to solve the problem by banning bank transfers and payments via the Real Time Gross Settlement (RTGS) system. It did not work because the horses had already bolted. They also banned the Zimbabwe Stock Exchange in November 2008, just like they have done now. It was pointless for the same reason.
The lesson from that period is that it is not the payment system that is the problem. It is simply a road that is being used to process transactions that are satisfying a market-driven demand. The key is to understand the drivers of that demand; why people are using the payment systems. We have already observed that the growth in the use of mobile payment systems was because they offered an easy alternative to cash which was and remains in short supply. But cash shortages are also a symptom of a bigger problem. Printing cash will not cure the problem because there is a shortage of foreign currency which is in high demand. The shortage of foreign currency accompanied by high demand raises the value of the foreign currency. So the challenge is to generate more foreign currency.
This means Zimbabwe must increase its exports. Increasing exports requires an increase in productivity. This is the nub of the matter. It should also be pointed out that even with the foreign currency receipts from current exports, the problem lies in its misallocation. This misallocation of foreign currency is fuelled by corruption. Even now with the contrived foreign currency auction system, some are still getting foreign currency at concessional rates. For years, the corrupt allocation of foreign currency has meant that a few importers and corrupt elites have been the chief beneficiaries. Everyone else has had to seek forex on the parallel market.
Overall, blaming mobile money providers is an easy but cheap excuse for the country’s economic troubles. Mobile money companies are just the latest in a long list of scapegoats. But even if there were problems on the mobile money payment systems, the impact is not as the authorities are making it out to be. After all, while mobile money transactions account for more than 80% of the volume of daily transactions in the market, they account for only 30 -35% of the value of all daily transactions. As renowned economist Professor Tony Hawkins has put it in his latest article, "Managing the Exchange Rate in Zimbabwe", "the problem [in Zimbabwe] is long-term and structural, but throughout the period, policy-makers have focused on "saving" foreign exchange and eliminating "leakages" rather than boosting foreign exchange earnings".