Economy of the future
Raghav Prasad is the Division President for Sub-Saharan Africa with Mastercard Corporation. Mastercard is set to help Ethiopia achieve its digital economy by 2025, by helping millions have access to Digital Payment and creating sustainable employment and have them be part of the future of digital economy. In addition, it is planning on helping small businesses and entrepreneurs achieve a payment digitization system within a continent where up to 90 percent of the population is still transaction in cash. Here, he reflects on issue of job creation and cashless societies in developing countries including Ethiopia with The Reporter’s Samuel Getachew. Excerpts:
The Reporter: The foundation is having a growing partnership and interest in areas of knowledge transfer, education, and financial inclusion in Africa. Share with me the highlights of its work in Ethiopia?
Raghav Prasad: Mastercard is committed to partnering with the Ethiopian government and key players in the ecosystem to drive the charge towards a broad-based digital economy in the country. Over the past few months, we have worked closely with key government players to create the framework for us to work together, which has resulted in this MoU that will deliver a significant impact across several aspects of the economy.
Over the next few months, we hope to work not only with the Ministry of Innovation & technology but with other departments as well, to lay out plans for driving digitization that delivers greater efficiencies in public service delivery, improve agricultural productivity, supports the expansion of youth employment and deliver better tax collection/compliance.
Some of the vision of Mastercard is bold, to say the least. Such as helping “bring 1 billion people and 50 million micro and small business into the digital economy by 2025.” Tell me about that?
Five years ago, we made a commitment to bring 500 million financially excluded individuals into the digital economy. Through 350 programs in over 80 countries from 2015 to 2020, we have already achieved that goal. This has emboldened us to dream even bigger! We’re now focused on extending our commitment to taking this number to 1 billion individuals by 2025.
These goals reflect our philosophy and mission of “doing well by doing good,” of harnessing our insights, technology, and expertise to advance inclusive growth and make a substantive and enduring social impact. In fact, we have extended this commitment beyond just the big goal of 1 billion individuals – we have also committed separately to supporting 50 Million MSME/SMEs and 25 Million women entrepreneurs in becoming financially included.
This will be achieved through a broad range of efforts including ongoing work on government disbursement solutions, digitizing pay for private-sector workers, expanding partnerships with mobile network operators, providing money management and payment solutions for gig workers, scaling-up efforts with fintech, digital platforms, and digital wallets/apps as well as addressing needs of the financially vulnerable.
The new MoU that was signed by the Ethiopian Ministry of Innovation & Technology and Mastercard is to help in areas of digitalization. Tell me about that?
A few weeks ago, we announced a partnership with the Ministry of Innovation and Technology to develop and implement strategic solutions and policies geared towards achieving a digitized economy in support of the Ethiopian Government’s Digital Ethiopia 2025 strategy.
Under the MoU agreement, Mastercard will bring to bear its global technology platforms and apply its insights and experience from working with governments around the world in supporting Ethiopia, to achieve its digital transformation objectives. These activities will directly support efforts towards driving financial inclusion, creating safe and accessible digitized payment solutions for small businesses, and implement digital identity projects.
We owe this partnership largely to the meeting between President Sahle-Work Zewde and our Executive Vice Chairman, Anne Cairns, last year. We are very excited about the progress we have made in our engagements with the Government of Ethiopia and believe that this is just the beginning as we will be working very closely with MINT to extend this partnership across several sectors of the economy.
The idea is to help small businesses mostly hit by COVID-19 and lack of financial inclusion which is a widespread concern among entrepreneurs. How will the new partnership help in terms of changing that narrative?
The small and micro business segments are the life-blood of the economies of Africa. In fact, the World Bank estimates that SMEs are responsible for 77 percent of all jobs in Africa and as much as half of the GDP in some countries. Their success drives ripple effects that impact countless lives and local communities in long-lasting ways. This is especially pronounced in today’s pandemic-hit world, since high youth unemployment in the region, often means starting a small business is the only way to earn a living.
Unfortunately, when small businesses suffer, everyone suffers – in a post-pandemic world especially; supporting this community is the single most important task right now. These unprecedented times call for unparalleled innovation that puts citizens and customers first. We must deliver the right tools and the most valuable insights to navigate the adversities of today and prepare for the challenges of tomorrow. Our decades of technology investment and expertise in forging transformative partnerships make us a network for small businesses that are secure, resilient, and reliable in uncertain times.
We believe that SMEs/MSMEs need to be supported with the right tools to navigate challenging times, sustain themselves in crisis, scale, and ultimately succeed. Mastercard is committed to powering small businesses through our resilient network, insights, technology, products and services, and philanthropic support – including a USD 250 million pledge to support SME/MSMEs globally.
By joining forces with different stakeholders – like the Government of Ethiopia and various stakeholders like banks & fintechs, – we believe we can make the world a lot better for our communities and societies. For example, for micro and small businesses, the biggest hurdle to growth is not having access to working capital loans. Mastercard’s technology makes it possible for them to digitize their transactions – both sales & purchases – which provide financial institutions the means to evaluate them for credit and allow them to be resilient during tough times and grow and prosper during good times.
We have a full suite of solutions that can significantly reduce the cost of accepting payments digitally. This means reinventing the infrastructure that small shops need to accept digital payments. For example, our new ‘Tap on Phone’ solutions allow an MSME to turn their mobile phone into a contactless payment acceptance device, reducing the cost of such infrastructure by orders of magnitude. Our other technologies like Mastercard QR enable consumers even at the bottom of the pyramid to pay digitally via their mobile devices, and, MSMEs to accept these payments in a similar way. This eliminates losses through theft and the costs associated with holding and storing cash safely, while producing digital transaction records for multiple uses.
What are some of the strategic solutions that the partnership will be looking at?
Like I mentioned earlier, Mastercard is committed to Ethiopia and with the Ministry of Innovation and Technology we intend to: Help define the frameworks and plans to drive the digitization of the payment ecosystem and enable micro and small merchants to gain access to digital payment products, so they can make and receive payments digitally, allowing them to reduce costs. More importantly, digital transaction records allow banks to evaluate small and micro businesses for credit, offering working capital loans that help them grow. This growth generates employment and incremental tax revenues, support the Government of Ethiopia in reducing the “cost of cash” and the leakage of revenue into the shadow economy, and, support Ethiopia in driving digital transformation by strengthening the existing infrastructure, developing and enabling systems (Digital ID) and facilitating digital interactions between government, private sector, and citizens (Digital Payment).
Ethiopia is still a cash-based economy and has had an ambition of introducing digital payment within the nation and as a way for local entrepreneurs to be connected to the rest of the world.
How important is a digital payment option in your opinion to a nation that still uses an old method that most nations, even neighboring Kenya has moved on from.
Digitization – and payment digitization in particular – can be a solution to reinvigorate the economy going forward. According to a study by Moody’s Analytics, each 1 percent increase in the use of digital payments across the world produces an average annual increase of USD104 billion in the consumption of goods and services. This represents a 0.04percent increase in GDP in developed markets and a 0.02 percent increase in developing countries.
Even before this pandemic, forward looking governments in emerging markets like Ethiopia, have recognized the need to digitize their economies and reduce cash dependency in order to drive financial inclusion and citizen wellbeing. In this context, I believe payment digitization not only alleviates many of the downsides of cash but also create avenues of growth and innovation for people and businesses to thrive.
In Africa, cash still represents 85 to 90 percent of all transactions and this comes with significant direct and indirect costs for Governments. Direct costs include lost tax revenues, the cost of cash production, handling, transportation and storage. A recent study shows that the cost of excessive cash usage is around 1.5 percent of the global GDP.
Migrating payments to digital formats allows even the unbanked, to become financially included and the economy to thrive. Take for instance small farmers. Today they are dependent of agents to help them sell their crops and receive all their payments in cash, which means it is impossible for them to get loans. Digitization of transactions through “marketplace” apps allows their payments and receivables to be recorded digitally, thus enabling them to access credit facilities. This in turn helps them buy more seeds or land, growing their produce and business in the process.