Business Unusual

Real radical economic transformation

The South African Government might be light on detail for radical economic transformation, but in one respect they have actually already delivered.

Providing 16 million recipients with a monthly grant as an electronic payment is an incredible achievement. It provides for a secure and efficient way to ensure those who most need access to critical funds have the means to receive it and moreover spend it using sophisticated payment systems.

I would like to illustrate how some recent developments, if co-ordinated and combined, could amplify the opportunity for the exchange of goods and services across the continent, putting every African resident on par with the best in the world.

Here is what you will need.

ABBA

The Swedish pop band’s founding member Bjorn Ulvaeus wants to see paper money scrapped in favour of digital payments. He runs the ABBA museum and does not allow cash payments for entry.

The point is that paper money was a means to an end, nobody wanted actual money, they wanted what you could do with it.

For some that connection is very real, but as time passes the things you are likely to buy will be better purchased using electronic means rather than coins and paper.

In Africa’s 50 plus countries tracking how much of which currency is required makes travel and trade more complicated. Digital payments allow you to buy anything, anywhere, which is part of the African Union’s goals.

READ: The end of cash

Africa Day

The 25th of May is a reminder of Africa’s commitment to overcome the legacy of colonisation. For Africa to band together and make the most of the collective resources for the benefit of her residents. Border controls, currency differences and differing legal systems make that a challenge.

The African Union has set the goal of visa-free travel for Africans in Africa by 2020. It is an ambitious goal and might only be achieved for certain business type travellers, but it is an important step in the right direction.

The ultimate goal may be a single economic zone with open borders and a single currency. The European Union has shown that it can be done, but also that it is hard to maintain.

Perhaps a version that only seeks to limit constraint for the movement of goods and people and a more effective means to trade in a commonly traded currency would be a better option.

Here's an explanation:

READ: A better passport for Africa

The Mobile Phone

Banks would have been the perfect organisation to manage this is in the past, but they have been overtaken in access and functionality by mobile phone companies.

Widespread adoption throughout the continent suggests a model built using the mobile phone will have the greatest impact and, because it can both serve as a means for identifying you along with your biometric information, it can also be your digital wallet.

India’s move to reduce cash.

In November last year India’s Prime Minister Narendra Modi announced that over 80% of the currency in circulation would be scrapped. All 500 and 1000 Rupee notes would no longer be legal currency.

India is almost completely cash-based and for over a billion people to be given 50 days from the announcement to not only get their money changed, but make provision for opening a bank account and getting devices to accept electronic payments for business was chaotic to say the least.

The plan was to reduce unpaid taxes on income and interrupt corruption. Electronic payments can be tracked and suspicious activity flagged.

It was a very ambitious goal and, although the disruption may have outweighed the benefits, the incredible increase in the adoption of mobile payment options like Paytm suggests that India’s shift away from cash has begun.

The growth of mobile payments with Mpesa in Africa, Paytm in India and the huge Ant Financial Systems in China indicates that this is a significant trend. The three regions account for almost half the global population and many have not had access to payment systems other than cash before.

The joint shareholding between Vodacom and Safaricom in Kenya which runs the very successful Mpesa system could see it rolled out and adopted across other networks all over the continent.

Currently sending money between countries, especially for refugees, is difficult and expensive. It stands to reason that some governments might not want to see refugee funds flow easily back to their homes for fear of it challenging their power, but likewise their very survival is often dependant on it.

There are some significant obstacles to overcome and this type of system will work best in already stable and economically sound regions. But it has the ability to be implemented far faster than any other means when conditions improve in less stable regions.

A possible cryptocurrency

Giving more access to residents to better trade and payment systems is the first goal for improving everyone's access to more economic opportunities. However, cross border trade still has issues with currency transfers and regulation.

It may be that creating a cryptocurrency token for exchange by the network would be better as it allows for an African single currency without the very difficult work of replacing sovereign currencies.

Should that token's fluctuating value be an issue it could be pegged to a stable currency like the US Dollar as is the case with the cryptocurrency Tether.

FICA and RICA type laws would further help governments manage tax and criminal aspects related to the system while the networks themselves have an ever more sophisticated way to verify their users and monitor for suspicious payments via their system.

It does not solve everything; nothing does. However, the greatest opportunity for someone who has been excluded from the formal economy for so long is to at least have access.

The grant system in South Africa still has significant issues to address, but it is still a far better system than expecting recipients to gather each month in order to collect a cash payment in hand.

Ideally recipients would not have to even use ATMs in the future to draw any actual cash, but simply pay for anything electronically with the state potentially even ring fencing some payments for specific items or services.

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