Business Times Africa Magazine 2017 /vol 9/ No2 BT2Edition2017_web | Page 65

AFRICA
Why Africa should go cashless
By Carl Manlan
CARL MANLAN
Economist and Chief Operating Officer
of the Ecobank Foundation. He is a 2016
Aspen New Voices Fellow. – Project Syn-
dicate
D
espite early missteps and
frustrations, it will turn out to be
a change for the better for the
country’s 1.31 billion people. Africa should
set a similar goal – and take the first step
by establishing a monetary union.
Of course, achieving a cashless society
is not an end in itself. Rather, it is a means
to help advance financial inclusion,
security, and prosperity.
Today, an estimated 326 million
Africans – 80% of the continent’s adult
population – use no formal or informal
financial services. But stashing banknotes
under the mattress is no way to safeguard
families’ savings, much less enable
households to accumulate enough capital
to escape chronic poverty.
Similarly, millions of Africans are
scratching out a living in the informal
economy, which represents about 41%
of GDP in most parts of the continent.
This leaves them unprotected, and
without pathways to financial stability
and wealth creation. Moving toward a
cashless society would force citizens,
companies, and policymakers to devise
mechanisms to bring all Africans into the
financial sector, drastically improving the
lives of the millions who are now under-
and unbanked. And it would bring many
livelihoods into the formal economy – a
major economic opportunity for African
countries.
The goal should be to achieve
prosperity through financial inclusion
linked to economic activity. What small
businesses and micro-enterprises need
is fresh capital to create employment
and expand the economic pie, and bank
accounts connected to economic activity
ensure that even those selling goods by
the roadside can secure a piece of that pie.
But financial inclusion is not a natural
by-product of the shift away from cash.
On the contrary, as Harvard economist
Kenneth Rogoff argues, successful
demonetization requires a comprehensive
and implementable plan to increase
financial inclusion and use of banks.
Such a plan should focus on building
the right ecosystem for economic activity.
In Africa, that means not just delivering
financial services, but also advancing
financial literacy. Newly established bank
accounts have few positive effects if they
lie dormant. To ensure that financial
inclusion actually enables economic
transformation, Africans must gain the
knowledge and tools to make the most of
financial services.
Of course, none of this will be easy – a
point made clear by India’s challenging
experience implementing its radical
demonetization process. Success will
require, among other things, a gradual
approach. Africa must not allow cash
scarcity to cripple the informal economy,
as it has in India.
But if Africa succeeds in this
transition, the benefits will be profound.
Demonetization would probably even
save countries money. MasterCard
estimates that countries worldwide spend
as much as 1% of their GDP each year to
mint, process, and distribute banknotes.
That is money that could be better spent on
meeting the United Nations Sustainable
Development Goals, further improving
the lives of Africa’s poor.
There is reason to believe that Africa
can succeed in going cashless. Already, a
large share of Africans uses digital payment
systems like M-Pesa and EcoCash –
precisely the types of innovative platforms
that can play a pivotal role in the shift away
from cash.
While hyperinflation is far from the
ideal catalyst for such a shift, Zimbabwe’s
experience proves that citizens can and
will adapt to challenging circumstances.
For example, some stores in the country
will give credit to mobile money accounts
in lieu of change.
But, to achieve a broader shift
to a cashless Africa, progress toward
monetary union will be essential for
deepening economic integration across
the continent. That, in turn, would foster
a continent-wide digital financial services
ecosystem capable of underwriting a
massive expansion of intra-African trade
– the quickest route to lifting people out of
poverty.
Already, 14 countries in West and
Central Africa share the CFA franc, which
is pegged to the euro. An