Cassava Smartech, the parent company of EcoCash, has made an urgent chamber application seeking a temporary interdict seeking to reverse government’s decision to bar cash-ins and cash-outs under mobile money platforms.
Government on Monday ordered the shutdown of the cash-in and cash-out facilities citing Section 10 of the National Payment Systems Act as it moves to stem illegal foreign currency trades which has seen the US$:ZWL$ rate hitting 25 two weeks ago.
EcoCash became operational in 2011 and has helped to drive financial inclusion by reaching to the remotest parts of the country where banks found it untenable to open branches.
According to court papers filed by the company’s lawyers Mtetwa and Nyambirai, cash-ins worth US$10 billion plus ZW$7.5 billion have been transacted under this platform. On the other hand cash-out transactions worth US$8.6 billion and ZW$4.1 billion have been transacted under this facility.
“This application is intended to temporarily stop the continued implementation of the Respondent’s directive pending the determination of the legality or otherwise of the directive on the return day on the grounds that the applicant meets all the requirements for the grant of temporary interdict,” the lawyers averred.
The Reserve Bank of Zimbabwe yesterday issued a directive barring EcoCash agents from cashing in or cashing out money as authorities make frantic efforts to manage the current exchange regime. The decision to suspend operations of the mobile money platforms, that have been in the past been credited for promoting financial inclusion in the country generated a lot of debate.
Before this, the country’s mobile phone operator, Econet Wireless, had closed nearly 3000 agents for selling local bank notes and coins at a premium as high as 60 percent. The depreciation and crash of the Zimbabwe dollar three months after the banning of the multi-currency regime for a mono-currency system has resulted in market distortions. As the trend continued, pressure was mounting on authorities to re-dollarise—that would have been a PR disaster for President Emmerson Mnangagwa’s administration.
As we have consistently pointed out since June, when the mono-currency system was reintroduced, Zimbabwe’s decision to outlaw the multicurrency was not only ill-timed but also not anchored on key fundamentals. Judging by the reemergence of long fuel queues, price distortions and state of the manufacturing sector, Zimbabwe has less than two weeks import cover and that is not sustainable.
Movements of foreign currency on the parallel market cannot be addressed by piecemeal measures. Before this decision to move in on EcoCash agents, the central bank had increased interest rates to stop borrowings for those seeking arbitrage opportunities.
Appetite for foreign currency will remain high during this time of the year and addressing the symptoms will not achieve the desired results. Soon after Monday’s Cabinet meeting, Finance minister Mthuli Ncube said government would increase money supply to meet the cash needs of the economy. The question that he did not address is how much he will pump into the economy and obviously the impact of this move. Government has over the past year issued a lot of Treasury Bills which were mainly used to finance agriculture—the Command Agriculture programme. Such quasi fiscal activities have been inflationary and have not aided government’s fiscal consolidation efforts.
As demand for cash surges during the last quarter of the year, we anticipate that the local unit will further depreciate as inflation heads northwards. To manage inflation in the short to medium term, authorities should stop printing money until a stable equilibrium is established in the market. But given the growing appetite for cash transactions in the economy and as the current administration approaches its half way mark since last year’s election, the central bank will soon be forced to print more to finance government projects mainly for political expedience.
In the meantime, an alternative market will soon reemerge with higher premiums as well as higher risks. Zimbabwe economy requires a huge financial package and reforms that contain government expenditure and support private sector-led growth.