What Problems Do They Want to Solve, at What Cost, Whose Expense?

Apr 29 , 2023.

Public frustration and bewilderment were palpable as motorists queued up for hours in Addis Abeba last week. The sudden edict by the transport authorities mandating fuel purchases through mobile payments only had thrown the city into chaos. It was a decision made by officials sheltered from the agonies of self-inflicted pain and their indifference to the plights of citizens.

The hypothesis for the decision seemingly aimed at fostering financial inclusion and recapturing funds outside the banking system. It has, instead, exposed a series of policy and implementation flaws that have left many questioning the wisdom of such an abrupt transition.

The rationale behind the authorities’ decision to enforce cashless transactions at petrol stations is not without merit. Daily public expenditure on fuel could amount to roughly 350 million Br, which makes up about eight percent of the 1.54 trillion Br provided to the economy by the central bank last year. A considerable chunk of Ethiopia’s broad money supply—close to 13pc—remains outside the formal banking system, a testament to the authorities' struggle to achieve widespread financial inclusion.

The federal government has set its sights on an ambitious target: ensuring that 70pc of the adult population uses the financial system in 2025. A coordinated effort between Central Bank Governor Mamo Mehiretu, Transport Minister Alemu Sime, Ethio telecom CEO Firehiwot Tamiru, and CBE President Abie Sanu to digitise the nation’s transactions could be an admirable pursuit. The use of electronic payment systems for sending or receiving money currently hovers around a meagre 15pc, with a similar percentage of the adult population possessing mobile money accounts three years ago.

This pales in the face of the 1.35 billion people worldwide who have registered mobile money accounts, processing over one trillion dollars annually. Two million dollars are transacted digitally almost every minute.

The move towards digital payments may indeed drive progress on financial inclusion. Yet, the authorities’ hasty implementation of this policy and their seeming disregard for its broader implications have sown confusion and discontent among the populace. The long lines of vechiles last week were needless as wasting time waiting was disconcerting.

By forcing a cashless fuel payment system upon a country without adequate groundwork, Prime Minister Abiy Ahmed’s administration appears to have prioritised its policy objectives over the needs and preferences of its citizens.

One glaring oversight in this sudden policy shift is the matter of public safety.

Petroleum companies mandate that gas stations display safety precaution notices warning against mobile phone usage to reduce distractions and maintain public confidence. The authorities’ failure to consult these companies` executives on safety concerns before enforcing the cashless payment policy raises questions about their commitment to public safety and due diligence.

Meanwhile, Addis Ababa’s roads were choked with cars waiting an average of two hours to refuel, a direct consequence of the difficulties and inconveniences associated with using the digital platforms Ethio telecom and CBE provided. Some petrol stations were reportedly unwilling to let motorists use CBE’s apps for payment. The ensuing chaos laid bare the authorities’ naïveté in assuming that every car owner or driver would possess a mobile device and be comfortable navigating the digital ecosystem. The assumption that everyone should be adept at using digital tools appears to be a glaring disconnect from reality.

Although 68pc of Ethiopian households are believed to own mobile phones, data from the International Telecommunications Union (ITU) indicates that less than a quarter of the population has access to the internet. A combination of limited digital infrastructure, inadequate access to digital technologies, and high levels of illiteracy contribute to the country’s low digital literacy levels.

The transport authorities’ apparent disregard for Ethiopia’s monetary laws adds to the trouble. These laws clearly state that Ethiopia’s currency notes are legal tender, and service providers cannot deny consumers the right to use them for services or products. The mandatory use of mobile banking for fuel transactions flouts these laws and could potentially undermine the country’s monetary stability, trade, and economic growth.

Governor Mamo’s seeming indifference to enforcing the federal law passed in August 2008—that “Birr notes lawfully in circulation within Ethiopia shall be unlimited legal tender in [the] settlement of all public or private debts”—only exacerbated the situation. Monetary policy relies on the central bank’s capacity to control the money supply and interest rates. The central bank remains a bystander when its influence wanes when businesses are forced to reject its faith currency, undermining its ability to stabilise the economy or combat inflation and counterfeiting.

A legally enforceable form of currency is essential for governments to implement and control monetary policy through their central banks. By managing the money supply, central banks can influence interest rates and inflation, both vital for maintaining a stable economy. They also collect taxes in their national currencies, requiring businesses to accept them to ensure a consistent and steady revenue stream.

Legal tender laws help governments maintain control over their economies and protect against external shocks or influences from foreign currencies. Pursuing economic policies that serve national interests becomes possible by defining a single and legally enforceable currency. This enables governments to combat counterfeiting and maintain the integrity of the money supply.

However, the failure to enforce a regime in which everyone in society has access to a widely accepted form of payment, regardless of socioeconomic status, can create inequality. Certain segments of society may be excluded from participating in the economy, increasing income inequality and social unrest.

The policy’s unintended consequences also include the potential fragmentation of the payment ecosystem. This could lead to inefficiencies, increased transaction costs, and difficulties for consumers and businesses navigating the market, as evidenced by the chaos that ensued last week.

The authorities would do well to reconsider the policy and consult market forces, including petroleum companies, financial institutions, and the public. This would help to ensure a more inclusive and efficient approach to financial inclusion and digital transactions. Their quest for financial inclusion and digitisation is commendable, but the enforcement of this abrupt policy change has left much to be desired. It is unwise and unnecessary.

Considering all concerns, they can chart a more inclusive and sustainable path towards a cashless future. Achieving the delicate balance between policy objectives and the citizenry's needs is crucial for long-term economic success.

Ultimately, the ongoing episode should serve as a cautionary tale for policymakers. The allure of rapid progress can sometimes overshadow the need for careful planning and measured implementation. As Ethiopia continues its journey towards a digital economy, the lessons learned from this disconcerting disruption should inform future policy decisions, ensuring that progress is made to benefit all segments of society.

PUBLISHED ON Apr 29,2023 [ VOL 24 , NO 1200]

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