Why Zimbabwe Prioritizes Remittances |Terence Zimwara
The global pandemic, COVID 19 will count as one of the most consequential events for the coming decade.
Not only has it brought grief but it spawned global chaos on a scale perhaps last seen during World War 2.
Economies were voluntarily shut down as clueless leaders grappled with just how to contain the growing infections. The need to preserve lives superseded everything else and rightly so.
However, this exclusive focus on containing the spread of the disease meant other goals had to be ignored or sacrificed.
For instance, long term objectives like reducing poverty levels, protecting vulnerable groups or the fight to bring financial inclusion to the unbanked seem peripheral for now.
Pandemic affects remittances
At the start of the mandatory economy shutdowns, the World Bank released a report warning of the dire effects of economy closures on global remittances.
The global financial institution anticipates that those relying on remittances for survival will be hit hard.
A reduction of remittances not only affects the vulnerable groups but national economies as well. For examples, in countries like Zimbabwe, remittances bring in more foreign currency than some top exports.
Although reliable data on this is hard to find, many people agree that remittances are a vital resource for poor countries like Zimbabwe.
In Zimbabwe, where authorities maintain strict control over who receives or keeps foreign currency, remittances are not subject to such.
In fact, financial regulators have consistently made it a point not to antagonize those receiving funds formally.
Formal institutions like registered money transfer agencies or banks have standing instructions to remit the so-called ‘free funds’ in the form in which they were sent. Those receiving in South Africa Rands will get Rands and those getting USD will be paid in that currency.
Regulators are not worried that such funds will find their way to the much-maligned foreign currency parallel market.
In the regulator’s calculations, it seems the positive economic impact of the small remittances outweighs any benefits of controlling movement of such funds.
Besides, it would be an administrative nightmare to attempt policing remittances. However, it certainly makes sense doing this to a few large exporters.
Indeed, large exporters and other big foreign currency earners like tobacco farmers face different rules when it concerns their foreign currency holdings.
Exporters are expected or are forced to convert their revenues into local currency within a stipulated period and at the ‘ruling’ exchange rate.
The message here is clear, remittances are a very vital source of foreign currency, especially now when the economy is struggling. All efforts must be made to encourage migrants abroad to send.
So it was a little surprise when the government initially announced that MTOs would be shut down along with other businesses when the country started the lockdown in late March 2020. However, this decision would be revoked also immediately.
Money transfers agencies were deemed an essential service, and as such, they are exempt from some of the restrictive lockdown measures.
In fact, it was the Reserve Bank of Zimbabwe (RBZ) governor who rushed to make this clarification. This was after large and swelling crowds were seen at many MTOs just before the lockdown went into effect.
There is a general consensus, public safety remains paramount but so are the food security needs of the same public. So there was not much debate when banks and MTOs were allowed to operate almost normally in an economy that had is essentially closed.
Restrictions hit informal remittance channels
However, this decision prompts another question: What about those that receive their remittances via informal channels. How are they supposed to receive this at a time when internal and external movement is restricted?
These questions need to be answered because this remittances channel is as important as the formal one.
Globally, it is a widely accepted fact that remittances sent via informal channels are larger than funds coming through formal means. That the lockdowns have made things worse for informal remittances is not in dispute.
Zimbabwe which has an estimated quarter of its working population living outside the country is similarly affected by lockdown restrictions. A majority of Zimbabwean migrant workers are undocumented and thus can only send money via informal means.
The common methods used when sending money informally include cross border bus and haulage trucks. In other instances, it is the regularly travelling friends and relatives who act as couriers.
Trust is the bedrock of these informal channels.
A sender gets no concrete assurances that the funds will reach the intended beneficiary on time. They simply trust the sender will honour the obligation.
Unfortunately, trust can be always be breached and funds will be lost forever. Also, there is no legal recourse in case something like that happens.
This is why informal sending channels cannot grow. Failure to scale means the remitting fees will remain high. At the moment, informal channels levy the same fee as MTOs despite carrying higher risks.
But because migrants lack better options they will pay the exorbitant sending fee but now Covid-19 has trashed this channel.
It will be sometime before the world realizes just how devastating the pandemic will be on economies but preliminary indications point to a serious devastation.
It is in these times that authorities must end regulations that stop innovators from bringing solutions. In a follow up next article we will examine how technology helps to ease the pain of lockdowns.
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