Will informal money disappear?


WHEN one considers the stages of development that mobile money services have undergone in countries such as Kenya, one could ask why Zimbabwe has lagged behind when its literacy rate is more than 90%!

Business Talk with Ian Ndlovu

There are many reasons that explain the somewhat slow pace until last year in the uptake of mobile banking services.

An immediate explanation is that between 2003 and 2008, Zimbabweans were engaged in a serious war of survival due to the economic downturn which climaxed in some of the worst levels of inflation ever known to human beings on planet earth.

Stomach politics and economics meant that during the troubled years creativity and innovation had to be temporarily sacrificed even by the most innovative of companies, in favour of survival.

After the official introduction of the multi-currency phase of Zimbabwe’s history, a semblance of normalcy returned to industry and commerce. Gone were the days during which “boys” and “girls” could make a fortune by “burning money” in the streets using cheque books. From 2009 onwards, the US dollar-dominated economy meant that people had to wake up, wash themselves, clothe themselves and go to work.

The so-called “world bank” which used to operate at (or still operates) near a certain venerable place of law, used to literally dictate the heartbeat of the city of Bulawayo. The City of Kings and Queens had gained notoriety for illicit foreign currency trading. Osiphatheleni who came to be synonymous with eating of chicken and other goodies near Tredgold building along Leopold Takawira Avenue were often heard time and again making jokes about civil servants payslips.

It is amazing how life can change within a short space of time. Nowadays, some die-hard osiphatheleni can be seen calling out “cross-rate!” at the same place where their parallel economy foreign exchange dealings used to flourish.

Whoever/whatever “cross rate” is, he or she responds from time to time in the form of a man or woman desiring to benefit from a higher exchange rate normally offered by the dealers roaming Bulawayo’s streets.

Bulawayo is a microcosm of what Zimbabwe has experienced over the past decade. The informal commercial dealings thrive in Bulawayo in a manner not parallelled by other city’ experiences in Zimbabwe.

Not only does the informal economy in the form of selling foodstuffs, electrical gadgets, phones and so on exist, Bulawayo also presents an interesting case study to a business student in that it has three types of foreign exchange markets.

The first one is obviously one consisting of banks and institutions of their sort. The second is the above dissected “world bank” of osiphatheleni.
The third one surfaced in 2009 when Zimbabwe embraced foreign currencies to conduct day-to-day business transactions.

In Bulawayo, this third foreign currency market thrives at Egodini where the cross-rate caters for those who desire to change a dollar to rands for umtshova (emergency taxi or kombi).

Nowadays, $1 fetches R10 which translates to no gain for every dollar transacted.

The “Egodini foreign exchange market” is a truly mobile money market in that the dealers move from one end of the Igodi to another.

Its advantage to the commuting public is that it transacts the US dollar upwards while the commuter omnibus crews trade the greenback downwards.

When the deep roots of the informal sector into the soil of Zimbabwe’s economy are considered, one is compelled to ask whether the informal sector will ever cede its rein to the formal business sectors of the economy. According to fundis, Zimbabwe has potentially one of the most explosive unemployment rates in the region pegged at around 85% of the total labour force.

Nevertheless, when moving from 15th Avenue in Bulawayo to First Avenue, one quickly realises that the 85% unemployment figure is a bit of an overstatement because many an unemployed Zimbabwean has sought refuge from the flourishing informal sector whose tentacles and reach stretches from the Zimbabwean polity to countries in the region such as Zambia, South Africa, Botswana and Mozambique through cross-border trading initiatives.

The informal money market caused by dollarisation does not only exist in Bulawayo, it may be found in Harare as well.

It is common knowledge that since 2009, $1 in Harare has been theoretically pegged at R10. Nevertheless, I got a rude awakening last year at a big supermarket when I thought my change would be converted to rands since they had rands.

I was instead given a change coupon which I never used since I was returning to the beautiful City of Kings and Queens the following day.

I asked a few of my friends in the banking industry in Harare whether they had different US-rand rate from say Bulawayo. I was told that the rates quoted by commercial banks all over the country apply at any given trading day. This makes me conclude that the cross-rate differences between the Matabeleland regions and the northen regions of the country are more apparent than real.

The differences are only true for the informal and small-scale sectors of Zimbabwe’s economy. Of course, one has to give credit where it is due.

The advent of Ecocash and the convenience that it has brought, especially in Harare where the commuting public may pay $0,50, has gone a long way in ensuring that in Harare people benefit from foreign currency trading price differences.

Whoever said human beings do not usually watch hunger come to swallow them up without doing one or two tricks probably had a point.

This is the case because from the look of things, Zimbabweans, just like their brothers, cousins and sisters in other countries will continue to hatch up informal trading tricks in a bid to survive the harsh realities of a world which is globalising everything including communication, hunger, money and employment.

Ian Ndlovu is a lecturer of economics and national income accounting courses at the National University of Science and Technology. He is a s researcher on issues of electronic commerce and development economics issues. He writes in his personal capacity.