Rwanda: Understanding the e-billing initiative

 

23 February 2014

Any business that will not have installed an Electronic Billing Machine (under the Rwanda Revenue Authority e-billing initiative to is ease taxation) by April 1 will be penalised. E-billing, which has become the talk of the town in the City of Kigali and other areas around the country, is benefits to taxpayers and promotes compliance.
 
The government is optimistic that proper use of these electronic gadgets to issue invoices will increase tax revenues, especially the Value Added Tax (VAT) that is paid in by the final consumer. That’s why consumers are also benefiting from the ongoing Consumer Compliance Awards administered by RRA with the aim of promoting the culture of asking for receipts by the Rwandan community.
 
It is also believed that a responsible and patriotic generation of consumers can help the tax body become efficient in the collection of VAT by always demanding an electronically-generated receipt after every purchase. The move is also likely to encourage voluntary billing machine compliance. This is because of the fact that most buyers do not take the initiative of requesting for invoices whenever they buy commodities irrespective of the likely bad effects, especially in circumstances when the goods bought can be easily confiscated, requiring one to present evidence (a receipt) that the items are theirs.
 
The issuance of receipts to clients was not an easy task before the introduction of electronic billing machines because it was thought to ‘time consuming’ by the buyer and seller. However, with this new e-billing machines installed at taxpayers’ premises, it is now easier than ever. This has also made easier for buyers to demand for receipts for items bought (otherwise one risks having their goods confiscated on the way home as stolen or smuggled items).
 
With the use of electronic billing machines, one can easily monitor a multiple of their shop’s operations and manage stock, thus limiting the chances of mismanagement by unscrupulous employees. You can also easily get your books of accounts correct at all times, making it easy to file tax returns than before. For those taxpayers who qualify for VAT refund, it does not take a long time before your money is cashed back into your accounts by the tax body.
 
So, it is important that every business operators starts using electronic billing machines as they will help in monitor of all transactions, facilitate payment of genuine taxes with no penalties imposed after the set deadline of March 31.
 
 
Source: newtimes Rwanda

Kenya: Online Shopping? It Is Here in Africa Already

 

5 March 2014

Over Christmas I was in Scotland, and was amused at the media furore about online shopping. ‘ More people shopped online yesterday (Christmas Day) than will venture onto the High Street for the Boxing Day sales.’ Thundered one tabloid, ‘ It spells the end of a decades-old tradition.
 
But the figures supported the outrage. Scots alone (not a race renowned for parting with its money) logged twelve million Internet hits to spend Sterling Pounds 29 million on Christmas Day. Never mind spending time in Church, or exchanging gifts with family. This was reprogrammed to permit online shopping. Barclaycard conducted a survey which revealed that while a third of people would wait until the evening, a fifth would shop during lulls in the day’s festivities, but 12% intended to shop in the early morning, or immediately after opening their presents.
 
Professor Bamfield of the Centre for Retail research was quoted as saying:’ Shopping on Christmas Day has become a new Christmas tradition.’ While other retail experts predicted that retailers who adapted and pushed online and in store sales at the same time would prosper in future years. Part of the reason I was amused is of course that online shopping is growing apace in Africa. Some of it is very specialized, offering cosmetics or sunglasses (two of the biggest e-commerce sites in Nigeria). But many more are moving rapidly towards the amazon.com model with wide ranges of goods and payment options. In countries like Kenya where mobile money transfer is second nature to everyone, there’s rapid uptake. But even in markets where doubt remains about security of payment, online retailers are offering ‘pay on delivery’ options.
 
Jumia claims to be Africa’s No 1 online store, with coverage of Uganda, Kenya, Nigeria, Morocco, Egypt and Ivory cost. But you can Google hundreds of other offerings right down to individual cake shops. Africans have always been bargain hunters. Witness the huge industry that we in East Africa call ‘mitumba’ – vast nearly new, factory seconds or unwanted fashion markets spawned in the early days by donations of clothes from wealthy western countries. Nowadays millions of these clothes and shoes circulate the globe as part of the second hand clothing trade (SHCT). Although the SHCT accounts for approximately 0.5% of global trade in clothing, more than 30% of those imports went to Sub-Saharan Africa (SSA) as early as 2005. Figures provided by an Oxfam report indicate that used garments, initially collected and sold by western charities, account for nearly 50% of the clothing sector in SSA.
 
In most major African cities, these huge markets are carefully and intelligently segmented. So the young bank teller knows that by visiting market x she may well turn up a pair of Jimmy Choo shoes. While students preparing to leave for colder climes like Canada know that market Y will equip them with Timberlands, fleeces and fur-lined parkas.
 
Imagine the business that online shopping is going to generate in Africa in the next ten years.
 
 
Source: The Star, Kenya.

Croatia’s Hrvatski Telekom deploys Ingenico payment terminal

 

12 March 2014

Ingenico, a leading provider of payment solutions, announced the deployment of an innovative fiscal solution, along with its local partner Etranet Group.  This solution has been implemented for Hrvatski Telekom, the leading provider of telecommunication services in Croatia.

Further to the implementation of a fiscal law in Croatia, Ingenico in partnership with Etranet group (Croatian specialist in electronic payment transaction systems) and Hrvatski Telekom developed an innovative all-in-one cash register solution combining Ingenico latest generation of payment terminals with fiscal application developed by Etranet Group to equip Hrvatski Telekom customers.

The solution is based on Ingenico’s range of wireless and countertop terminals (IWL220 GSM & GPRS and ICT220 GPRS). Thanks to Ingenico’s secure software application, tax information is easily transmitted to Croatian tax administration.

“We are delighted to collaborate with Etranet Group to implement this all-in-one cash register solution in Croatia” says Jacques Behr, EVP EMEA Ingenico. “As a global leader in the payment industry, Ingenico is at the forefront of industry’s evolutions such as fiscal law enforcement. We believe that our innovative solutions are fully adapted to answer the needs of governments who are looking to avoid tax evasion in an secure and efficient manner”

 

Damir Lesničar, General Manager, Etranet Group commented : “We are very proud of this achievement; this Mini Fiscal Cash Register shows that POS devices can be used with great success for purposes other than card payments. Hrvatski Telekom’s involvment in the devolopement of this fiscal solution has been one of the keys to the success of this project.”

“We are extremely oriented towards innovation development and latest service design. It is with great pleasure that I can say that our customers have embraced this service, making the Mini Fiscal Cash Register one of our most popular ICT services. This recognition makes us so proud of the great efforts made in cooperation with Etranet Group in the creation of this solution based on the powerful Ingenico payment range of terminals”, said Mirela Šešerko, Operating Director of the Information and Communication Technologies Business Solutions Sector at Hrvatski Telekom
 

 

Source: finextra

Kenya govt to automate payments to stop revenue leaks

 

17 March 2014

Kenya will adopt a paperless payment system to stop revenue leakages in its system.
 
According to ICT Cabinet Secretary, Fred Matiang’i, the process shall be complete by April 2, 2014 and is aimed at improving accountability, efficiency and transparency in Government transactions and prevent revenue leaks,
 
He said electronic payments have been proven to boost economic growth, while advancing financial inclusion.

“The National Treasury will publish regulations to operationalise the Public Payment Act before the electronic payment system starts operating…the Government have done so much in terms of digitising its payment system. What we want to do now is to ensure that this process is institutionalized,” said the Cabinet Secretary.

 

The move comes as Kenya’s economy comes under threat of a crunch due to too much revenue waste and overspending in public wages. According to Kenya’s Auditor General, Government ministries and departments failed to account for over Sh338 billion of the total Government spending for the 2011-2012 fiscal year. The Auditor General said only six per cent (Sh55.2 billion) of the Sh920 billion that the Government spent during the financial year was fully accounted for.
 
An additional expenditure of Sh561 billion was not supported by adequate documents, thus the move to automate the payment system to seal loopholes for corruption. The auditor said a third of the 252 financial statements of institutions audited were either deliberately misstated or revealed fraudulent expenditure, according to the Auditor General.
 
The new payments system would therefore help track Government transactions electronically hence eliminate fraud.
 
 
Source: Biztech Africa

Canada: OECD Releases Discussion Draft On Tax Challenges Of The Digital Economy

 

26 March 2014

On March 24, 2014, the OECD released a discussion draft identifying the major tax challenges raised by the rapidly developing digital economy and summarizing several possible options to address these challenges. Comments on the discussion draft are being accepted by the OECD until April 14, 2014. A final report is expected in September 2014.

 

Background

The OECD recognized in the BEPS Action Plan that rapid developments in information and communication technology (ICT) are creating new ways of doing business, leading governments to consider whether new rules of taxation may be required or whether the old rules need to be modernized to better address evolving business models. The BEPS Action Plan noted that the digital economy is characterized by a high degree of reliance on intangible assets, the use of personal and other data, the development of new business models to create value from “free” information and content, and the difficulty of determining the jurisdictions in which value is created.
 
The OECD notes that these characteristics threaten conventional thinking on how digital businesses add value and make profits, how digitally derived income should be characterized for tax purposes, and how the concepts of source and residence taxation should be understood in the context of virtual businesses. Action 1 of the BEPS Action Plan is aimed at addressing some of these challenges by examining how and where the value created from the sale and use of digital products and services should be taxed and how new rules should be enforced to ensure such taxes are collected.
 
The OECD established a Task Force on the Digital Economy in September 2013 and charged it with identifying issues raised by the digital economy and possible actions to address them. The discussion draft released on March 24, 2014 reflects the work of the Task Force as well as input from stakeholders.
 

The Information and Communication Economy 

The discussion draft contains an overview of the way ICT has evolved and also identifies emerging and future developments in the digital sector. Technological advances and falling prices for hardware and many digital services, combined with pressure for constant innovation, have contributed to the growth of the digital economy. Emerging developments in mobile computing, cloud-based processes, virtual currencies, 3D printing and decentralized data collection through the “Internet of Things” are also indications that digital commodities and sources of value will continue to expand.
 
New business models identified by the discussion draft include the explosion of e-commerce and digital advertising, the development of app stores for digital distribution of software and content and the expansion of cloud-based services. Diverse business models in the digital economy have created a number of revenue models, such as subscriptions for digital delivery of news, music and video-streaming; sales of user data and customized market research; and sales of digitally delivered services such as e-trading, payment processing and content hosting. These new business models and sources of revenue challenge conventional tax models and policy.
 

Tax Challenges in the Digital Economy

Key features of the digital economy identified by the discussion draft include volatility as a result of rapidly evolving technology, reliance on “big data” and the increasing mobility of suppliers, business functions and consumers. The discussion draft notes some of the key characteristics of the digital economy that may exacerbate the risks of base erosion and profit-shifting in both direct and indirect taxation:

• Taxation in the “market” country (where customers are located) may be minimized by avoiding a taxable presence or by shifting profits through structures that, for example, maximize deductions in higher-tax jurisdictions;
• Withholding tax at source may be minimized or reduced;
• Using exempt businesses (i.e., in jurisdictions that do not require the recipient of a service acquired from abroad to self-assess value-added tax [VAT] on the service) to purchase and then re-sell digital supplies to minimize VAT.

 
Additional challenges for international tax measures arise from the importance of intangibles and mobility to the digital economy. Intangibles themselves are increasingly mobile, making direct taxation difficult, while the mobility of users and customers creates substantial challenges and risks for VAT. These circumstances expand opportunities for base erosion, which the BEPS Action Plan is expected to address.
 
In general terms, the discussion draft identifies four main categories of tax policy challenges raised by the digital economy:
 
Nexus: Are the current rules appropriate, given the reduced need for an enterprise to have a physical presence in order to carry on business?

1. Data:
   How should value created from creating, collecting or manipulating data be characterized and attributed for tax purposes?
2. Characterization:
   How should payments for new services such as cloud-computing or software-as-a service be taxed? Do these payments represent sales income or royalties or something else?
3. VAT:
   How should VAT be reported and collected when goods and services are acquired from suppliers in distant jurisdictions, particularly when the value of each transaction (such as a download of a music track) is minimal or the supplier is a small enterprise?

 
In addition to these policy challenges, administrative issues may also arise from the borderless nature of the digital economy. Tax administrations may have difficulty identifying the suppliers who are providing digital goods and services in their own jurisdictions as well as the extent and nature of the activities conducted by offshore sellers. Requiring customers or payment intermediaries to provide this information to tax authorities may also engage privacy and financial regulation laws. Similarly, the tax administration in the supplier’s jurisdiction may have difficulty identifying the residence of customers in different jurisdictions, which may differ from the place in which consumption occurs.
 

Potential Options

The final report in September 2014 is expected to analyze a number of possible options to address some of the tax challenges of the digital economy, including the five options set out in the discussion draft (discussed below) and those proposed by stakeholders in response to the discussion draft.
 
Potential options will be evaluated with reference to the fundamental principles of electronic commerce taxation first formulated by the OECD in 1998. The discussion draft emphasizes that equity between the taxation of electronic and conventional forms of commerce is an important governing principle, as is the need to minimize the administrative burden on taxpayers and tax administrations. Flexibility will also be needed to ensure that new tax systems are able to keep pace with ever-advancing new technologies.
 
The Task Force seeks input from the public on the following five preliminary options to address the tax challenges outlined above:

1. Modify the exemptions from permanent establishment (PE) status: 
   Paragraph 4 of Article 5 of the OECD Model Tax Convention currently provides a series of exemptions that may cause an enterprise’s facilities or a fixed place of business in a jurisdiction not to be a PE under certain circumstances. The exemptions listed cover preparatory or auxiliary activities, such as maintaining a fixed place of business solely for the purpose of collecting information for the enterprise. The discussion draft proposes to eliminate the listed exemptions or make them subject to the overall condition that the character of the activity conducted be preparatory or auxiliary in nature rather than one of the enterprise’s core business activities.
2. Establish a new nexus rule for digital business: 
   An enterprise engaged in “fully dematerialized digital activities” could be considered have a PE in another jurisdiction if it maintains a significant digital presence there. Factors indicating a significant digital presence would include sales of digital goods and services that are widely used or consumed in that jurisdiction or the presence of a branch offering marketing, consulting or other secondary services. The discussion draft recognizes that a new nexus rule would also require parallel consideration of the manner in which profits may appropriately be attributed to such PEs and whether profit attribution provisions in existing treaties should be modified.
3. Create a new rule for “virtual PEs”: 
   A virtual PE might be established where an enterprise maintains a website on the server of another business located in that jurisdiction and carries on business through that website. Alternatively, the existing dependent agent PE concept could be extended to apply when contracts are habitually completed through technological means in another jurisdiction, rather than through a person.
4. Create a withholding tax on digital transactions: 
   Payments made by a resident of one country for digital goods or services provided by a foreign e-commerce provider could be subject to withholding tax. This measure might be enforced by requiring the purchaser’s financial institution to withhold tax on credit card payments or electronic transfers.
5. Require non-resident vendors to collect VAT: 
   Technological advancements could also assist tax administrations to simplify the registration and compliance mechanisms for VAT collection, making it more feasible to require a non-resident supplier of low-value goods or other cross-border transaction to charge, collect and remit VAT. Enforcing compliance from non-resident suppliers will be challenging for tax administrations, but may be improved through expanded mutual assistance and exchange of information agreements between taxing jurisdictions.

 

Conclusion

The discussion draft provides an overview of the way BEPS strategies will relate to the digital economy and summarizes the potential options initially discussed by the Task Force to address some of the broader tax challenges raised by the digital economy. It also provides an overview of the many concerns raised by member states and tax authorities with respect to capturing cross-border e-commerce and cloud-based service transactions that presently go untaxed.
 
Although its work is at a preliminary stage, the Task Force is proceeding quickly toward its final report in September 2014 and it appears that it intends its recommendations to be sufficiently flexible and adaptable to the ever-evolving flow of new digital goods and services between businesses and users in different jurisdictions. While flexibility is desirable, however, care will need to be taken to ensure that new measures or treaty revisions do not widen the tax net excessively or create disincentives for innovation or uncertainty with respect to reporting and collection mechanisms. Given the ubiquity of electronic commerce, the OECD’s ultimate proposals will have a serious impact on enterprises across a wide range of sectors. In addition, it will ultimately be up to each country individually to decide whether and to what extent the OECD’s recommendations may be adopted into its domestic law and bilateral tax treaties.
 
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Zimbabwe: Zimra to review fiscalisation system

 

2 May 2014

The Zimbabwe Revenue Authority (Zimra) is reviewing the fiscalisation system after some challenges were encountered since its introduction a few years ago. 

Business Reporter
 
Fiscalisation is a computerised systemisation of cash register devices to enable them to record in, real-time, sales and other tax information for use by the tax authorities in Value Added Tax (VAT) administration. Speaking on the sidelines of a Zimra Business Forum recently, Zimra commissioner-general Gershem Pasi said the review would result in the introduction of more user-friendly equipment. He said when the system was introduced in 2010, Zimra did not have the capacity to take data from fiscalised machines.

“The technology that we had identified was not appropriate,” Pasi said. “It was costing more to convert to be compliant. We are reviewing that (system) and will be coming up with a more friendly system.”

 

The Finance ministry and Zimra launched electronic fiscalised cash registers and fiscal memory devices in 2010 to plug leakages in value-added tax (VAT).
The system was for companies that had annual turnover of $240 000 and above to have the devices. Failure to comply meant the companies had to pay a $400 fine or face imprisonment for a period not exceeding 12 months.
 
Companies have been arguing they were not in a position to install the devices as the exercise required a lot of capital and would worsen their already dire financial position. Fiscalised devices are electronic gadgets which contain a “fiscal memory” which is permanently built into them to store tax information at the time of the sale. The government deadline for the fiscal devices to be installed was moved three times as the suppliers were failing to meet the demand.
 
Only two companies were licenced to sell the devices.
 
 
Source: News Day (Zimbabwe)

Botswana post introduces smart card 

 

2 May 2014

Monthend long queus at post offices across the country, especially during facilitation of social benefit payments, are expected to be a thing of the past following the introduction of the admirable ‘PosoCard’ by BotswanaPost.
 
Services that are expected to be improved include payments of Old Age Pensions, World War Veterans and Destitute allowances. The new system named ‘PosoCard’ means that the existing beneficiaries will be migrated from the old system of using coupons, into the new one. Botswana Post Chief Executive, Pele Moleta, said at the launch that PosoCard is an electronic smart card that will replace the current voucher system used to pay social beneficiary money.

“We found it necessary to switch from the voucher system to the card payments as the production, reconciliation and distribution of the vouchers is lengthy and therefore costly. As opposed to the voucher system which only had one purpose, the card has more uses,” he said Beneficiaries, according to Moleta, can use their PosoCard to access their social benefit anywhere in the country and at anytime using multiple payment channels, such as Post Offices, cash pay-points, and selected merchant stores.

The card may also be used to purchase goods at a participating payment vendor having a point-of-sale (POS) device, purchase airtime, pay water and electricity accounts and other services.
 
 
Source: The Voice

EU calls for common position on tax for digital economy

 

28 May 2014

Commission report says corporation tax rules may have to be adapted to respond to digitalisation

European Union member states should adopt a common position on corporation tax in the current debate on changing global tax rules, according to a high level European Commission report on the digital economy.
 
The report says that the OECD’s Base Erosion and Profit Shifting project (Beps), which is examining how to combat aggressive tax avoidance by multinationals, will be fundamental to addressing the issue of levying corporation tax in the digital economy.
 
The digital economy does not require a separate tax regime, but current rules may have to be adapted to respond to the digitalisation of the general economy, according to the Report of the Commission Expert Group on Taxation of the Digital Economy, released today.
 
The report comes a day after the Department of Finance announced that it is holding a public consultation process on Beps, aimed at seeking ideas on how Ireland can enhance its competitiveness and protect its reputation in a post-Beps environment. The Beps project aims to ensure taxation rights are better aligned with real economic activity, an objective which “presents potential opportunities for Ireland as a hub for the centralisation of international business operations,” according to the department. 

The consultation process runs to July 22nd, and tax policy issues that arise will feed into Minister for Finance Michael Noonan’s considerations for Budget 2015.
 
Yesterday senior tax adviser Feargal O’Rourke, of PwC, suggested that Ireland would have to change its rules on corporate residency and that it would be best if it did so in a pro-active way rather than waiting until “realpolitik” made it impossible to resist.
 
Ireland’s corporate residency rules have come in for significant criticism because of the role they play in the global tax structures of digital corporations such as Google, Microsoft, Apple and Facebook.
 
The commission report said digitalisation greatly facilitates cross-border business and that removing barriers to the single market, including tax barriers, was more important than ever.

“Tax barriers for small and medium-sized enterprises operating in the single market should be removed,” it said.

It commended the upcoming move to a “destination-based VAT system” for digital services and recommends that this be extended to all goods and services, in business to consumer transactions, in the future.

In relation to the Beps process, it recommends that priority should be given to three areas: countering harmful tax practices; reviewing transfer pricing rules; and restoring taxable nexus connections. The latter has to do with how it is decided that a particular business has a “taxable presence” in a particular economy.
 
The report said the digitalisation of the economy may have changed the distinction between auxiliary activities and core activities. It also said it support the Beps work looking at whether and under what circumstances sales of goods or services of a company in a multinational group should be treated as effectively concluded by dependent agents.
 
This is an issue that arose in debates in the UK where politicians queried sales by Google in the UK being booked in Dublin when the company had signficant support services operating in the UK.
 
The report said that the EU member states should adopt the simplest and most effective solutions arrived at by Beps to these types of problems, bearing in mind that the project might agree a number of options.
 
The OECD Beps project is being conducted at the request of the G20 and is to produce a number of recommendations later this year, for the consideration of G20 finances ministers, to be followed by a second set of additional recommendations late next year.
 
The European Commission’s seven-member expert group was headed by Vitor Gaspar, a former finance minister of Portugal, and included Irish tax specialist, Mary Walsh.
 
 
Source: The Irish Times

Zimbabwe: Ecocash and Mastercard to Give Three Million Mastercard Debit Cards Ecocash Customers in the Next Five Years

 

1 August 2014

Zimbabwe’s Econet’s Mobile Money service, EcoCash and MasterCard are set to give over 3 million MasterCard debit cards to EcoCash customers in the next five years after EcoCash announced a landmark agreement with MasterCard that will significantly assist in reducing cash dependence and increase financial inclusion through the provision of electronic payments in Zimbabwe.
 
This is the first time that physical MasterCard debit cards are available to people using mobile money services in Africa, and is the largest roll-out of secure EMV Chip and PIN payment cards in Zimbabwe to date.

“The adoption of electronic payments is critical to Zimbabwe’s economic development. Reducing dependency on cash while increasing financial inclusion benefits the whole country including the government, industry sectors like tourism and retail, merchants and citizens,” says Douglas Mboweni, CEO of Econet.

 

Today, 40% of Zimbabweans are financially excluded and another 22% rely on informal financial products or services. Through its mobile money products, EcoCash has successfully provided a means for unbanked and under-banked citizens to participate in the formal economy and has reduced the demand placed on banks for scarce and costly currency.
 
For the first time, EcoCash customers will be able make use of their EcoCash funds in ways previously closed to them. By obtaining an EcoCash MasterCard debit card, EcoCash customers will be able to withdraw money from MasterCard-licensed ATMs and pay for goods and services at millions of merchants that accept MasterCard payment cards, both in Zimbabwe and internationally.

“The integration of these products and services are particularly exciting for EcoCash customers,” says EcoCash CEO Cuthbert Tembedza. “We look forward to offering Zimbabweans even more ways to benefit from the security and convenience of electronic payments as they engage with, and contribute to, the formal economy.”

 

Today, over 85% of retail payments globally are still carried out using cash or cheque, with the percentage being much higher in Africa. As a payment option, cash takes time to get at, is riskier to carry, and cash costs society as much as 1.5% of GDP, depending on the country. It is for these reasons that governments are rapidly driving the conversion from cash to electronic payments as they realise the benefits of a cashless society, namely increased transparency, cost effectiveness, financial inclusion, foreign investment and economic growth.

“The EcoCash MasterCard debit card is a milestone towards realising MasterCard’s vision of a cashless society,” says Charlton Goredema, Vice President and Area Business Head, Southern Africa, MasterCard.“Demonstrating the value of close collaboration in the financial services and payments technology industries, EcoCash and MasterCard have devised an innovative payment product that addresses Zimbabwe’s market realities, particularly by acknowledging the impact mobile money has on the country’s economy.”

“As EcoCash enables its customers to benefit from MasterCard’s global payments network, we are assisting Zimbabwe to integrate its economy with those elsewhere in the world. Importantly, we are also contributing to the financial freedom of individuals,” says Goredema.

 

Source: CIO East Africa (Nairobi)

Zimbabwe: Could Zim become Africa’s first cashless economy?

 

10 July 2014

Strive Masiyiwa, founder and chairman of Econet Wireless, wants to turn the company’s mobile wallet technology, known as EcoCash, into Zimbabwe’s primary method of payment.
 
Masiyiwa claims that it will no small task; however, he essentially wants to replace the current printed currency with a digital alternative. If successful, Zimbabwe will indeed become the first paperless economy in Africa.
 
While this may seem like something seen it futuristic films, the idea may not be as far fetched as one may think.
 
In an article by Fortune Magazine, it is said that Zimbabwe is need of an alternative to cash, more so than any other country in Africa.
 
According to the article, in late 2000, the country suffered from such mind-boggling hyperinflation — at its height in 2008, a can of Coca-Cola that cost ZIM$50 billion in the morning would cost ZIM$150 billion at the close of business on the same day — that the government abandoned its own currency in 2009 in favour of currency from other, more stable countries. Today, Zimbabwe’s economy relies almost exclusively on the U.S. dollar.
 
But the “dollarisation” of the economy has created a new set of problems. The limited number of bills in circulation are old and tatty, and shopkeepers are unable to make change due to a shortage of coins. That means shoppers are forced to accept change in the form of chewing gum, cigarettes, and other small items.
 
Enter EcoCash.

“EcoCash has been able to take advantage of this situation by providing an alternative medium of exchange from physical dollars,” says Laurence Chandy, a development specialist at the Brookings Institution in Washington. “When payments are made at stores, change can be provided in the form of an airtime top-up or mobile money.”

 

There’s no question that EcoCash is filling a basic consumer need in one of Africa’s economically troubled countries, where a great deal of the population has been excluded from the formal banking system.
 
In a little over two years, the service has registered 31% of Zimbabwe’s adult population, a group responsible for more than $200 million in transactions per month — that’s about 22% of the country’s GDP — using their mobile phones.
 
For Econet, the service is a way for it to diversify its portfolio away from its core voice and data business, where revenue growth has been weak.
 
With an early success on its hands, Econet is staking much of its future growth in Zimbabwe — and other African countries in which it does business including Nigeria, South Africa, and Botswana — on non-voice revenues that come from programs like EcoCash.
 
Driving EcoCash growth… Darlington Mandivenga, CEO of Econet Services

“EcoCash is a strategic response to a strategic challenge,” says Darlington Mandivenga, CEO of Econet Services, a subsidiary tasked with expanding the company’s non-traditional revenue streams, including microinsurance and microfinance. “What is happening in the telecoms industry is that revenues are stagnant, if not on the decline, with [average revenue per user] under pressure for various reasons such as competition and market saturation.”

 

To help EcoCash become Zimbabwe’s dominant payment system for retail transactions, Econet has embarked on an aggressive merchant acquisition campaign. It is sacrificing short-term profitability by paying out 80% of revenue in agent commissions to build a strong and dedicated network.
 
At the same time, the company is using bank-grade technology to fast-track interoperability with Zimbabwe’s major financial institutions and make it easier to deploy new mobile services.
 
One of those services is EcoSave, which allows otherwise “unbanked” people to safely put away money for emergencies. In two weeks, the tool prompted an influx of 500,000 new account openings, turning Econet subsidiary Steward Bank into the country’s largest bank by number of accounts.

“The vast majority of the population is unbanked and trapped in cash,” says Kathleen McGowan, senior policy advisor with the Washington-based U.S. Agency for International Development. “Businesses and service providers were without the critical market infrastructure required to create fee-for-service business models and develop financial products designed to help the poor withstand potentially ruinous financial shocks such as crop destruction.”

 

If successful, could Zimbabwe’s EcoCash overtake Kenya’s M-Pesa — which, with a four-year head start has signed up two-thirds of the adult population in that country – as the world’s gold standard for wireless financial services? It’s unclear.

“Rather than a universal model, EcoCash is specific to Zimbabwe,” says Michael Fuchs, a finance and development specialist who spent years in Africa working for the World Bank. “It represents a market solution to managing demand for cash balances due to dollarisation.”

USAID’s McGowan was also unconvinced. “Fully replacing cash is highly aspirational,”she says, “and hasn’t been achieved even by countries like Singapore and Malaysia, which have pursued national strategies for several years.”

 

Nonetheless, EcoCash must continue to build confidence in its digital payment system.

“Customers need to be assured that money stored on their phones electronically is truly liquid and will retain its value,” says Brookings’ Chandy. “If customers get spooked, they may intuitively run back to physical cash.”

 

Source: IT News Africa