The fear of Covid-19 contagion means that cards have become a preferred payment method around the world. But South Africa still has a large community of “unbanked” people – individuals who do not have bank accounts and can therefore not easily participate in the formal economy. What’s more, ATM coverage is not consistent, many people find bank charges too high in relation to the modest incomes that are deposited into accounts and others simply do not trust using bank cards and products. For white Zulu GG Alcock, who has excavated the details of South Africa’s informal economy in his book Kasinomics, the government has an opportunity to de-cash the system and make other changes that can meaningfully improve quality of life for the poor. – Jackie Cameron
Excavating Silence #6: Social grants & inclusive economics & Covid-19
By GG Alcock*
In a TED talk Bill Gross, the founder of IdeaLab identified that the right timing as the single most important element which made a new business or startup successful.
Mike Tyson said, “everyone has a plan until you get hit in the face”.
Both of these are very relevant in this time of Covid-19. I believe the financial payment sector is about to be shaken up, in addition this is the perfect timing for change and success in the informal space, when it comes to non-cash payment offerings and building a more inclusive economy.
Lets start with an excerpt from Kasinomic Revolution, entitled Inclusive Economics, about social grants:
The wheelbarrow’s wheel wobbles back and forth, its bearing squeaking terribly as it weaves and bounces over the stony pathway zigzagging between scrubby acacia bushes and elegant euphorbias that tower over the path. Sweating, puffing and panting Sizwe strains against the lopsided barrow handles. He is only 14 and his skinny knees knock against the back of the barrow, his gnarled and rock hardened feet push against the tough ground. Just behind Sizwe his sister Thembi runs along carrying her granny, Gogo’s bag with her precious ID book and very empty tattered purse. The squeaking wheel is not loud enough to mask the low moans coming from the blanket shrouded figure of an old gogo on the wheelbarrow. ‘Basopa,’ Thembi says. ‘Sizwe, don’t bounce uGogo like that.’ Through his puffing and panting Sizwe manages a ‘Yo Thembi, ngiyazama, ilamatshe! I’m trying, it’s these rocks.’ He puts the barrow down and rests, bent over the bars. ‘Nxese gogo sesiyafika. Sorry, Gogo, we are nearly there,’ he says. He can hear the low murmur of the crowd in the distance and the little pathway emerges from under a giant tamboti tree, onto the road. From then on it’s easy pushing along the gravel road to Khumalo’s Store. The blanket moves, and Gogo pulls the blanket off her head, squinting into the sun at Sizwe, a tear from the sun’s glare trickling down her mightily wrinkled left cheek. Gogo’s dompas says she is almost 90. Until a year ago she walked here but then – yooo – her knees went.
‘Mtanami, kulungile, it’s OK, I’m sorry I am so heavy,’ she chuckles. She’s barely a bag of bones and has never been over five feet her whole life. The little trio and the squeaking wheelbarrow make it out onto the road where Sizwe rests again and then, with a last gritted determination, he pushes on, the going a little easier now, to Khumalo’s trading store. In the style of the trading stores of old, Khumalo’s is much the same, its walls chipped blue square stone, with a faded red corrugated iron roof.
Today the road to the left and right of Khumalo’s Store, the yard in front, the veranda and every available piece of open space is filled with people. They started arriving at 4am staking their claim to a piece of roadside, to bed-sized squares in the store yard. The multitude of marketers set up makeshift stalls of old canvas advertising signage, torn gazebos, old doors on creaky wobbling legs, on cardboard sheets or even cow skin mats.
And while they set up shop the infirm, the bent, the crippled, the insane, the elderly emerge down a matrix of dirt tracks from faraway kraals perched on mountain tops, clustered on ridges and spread across the Tugela and Mhlangaan valleys. With them are their assistants, their families, their grandchildren. Some are carried on blankets, the edges knotted for a good grip, others on wheelbarrows like Sizwe’s, some hobble along on old home-carved walking sticks, clinging for support to a family member.
The air is filled with chatter, with hope, with humour, the wind drifts along with valley gossip, news, stories, loves and hates. Expectation radiates through the crowd. A queue forms at the front of the store. Well, not a queue, a human chain, wheelbarrows carrying people, others squatting, sitting, leaning, lying, each to their infirmity or their strength. The line grows as the sun leaps across the valley and picks up the shadows from the valley floor, the heat slowly building towards the 40s where it will soon peak.
Izinikuku, izinikuku, a call rises and falls from the old Hilux loaded with live chickens. Kabish kabish kabish, woza kumakabish is the rhythmic call from the lady sitting next to the huge pile of giant cabbages. Inyama nyama nyama calls the bare-chested man, his hands bloodstained, casually chopping pieces off cow and goat carcasses hanging from the branches of a wiry mgagane tree.
Amacanci, izidwaba, izicolo, amabhayi, imishayelo, imbadada, udabuluzwane, imiqelo woza uzobona. Grass mats, pleated leather marital skirts, red ochre regal headdresses, violet and royal blue flannel cloaks, wild asparagus brooms, car tyre sandals, leather dancing shoes. The calls rise and fall around each marketer, the crowds taking their time, walking along, stopping to admire, enquire, negotiate, and acquire.
Shortly after 9am, when the sun is starting to make its heat felt, the shadows shorten and the crowd is at its largest, swirling, shifting and shouting, a cavalcade of white vehicles roars through the parting crowd. Police cars in front beep their sirens, white armoured bakkies follow and the cavalcade stops in front of the store. Machine gun toting police and private guards leap out of the vehicles strong-arming the crowd out of the way, glaring suspiciously left and right and clearing a circle in front of the store. They take up their positions and the armoured cars open their doors, clerks take their workstations inside and pension payout starts.
This is pension day 1980-style when, once a month, government pensions are paid out to the elderly and the handicapped. Until recently, the queues at Khumalo’s Store also included child grants to mothers, joining the old and handicapped. In a country of black poverty, and most certainly in Msinga, the poorest district in South Africa, this is the lifeblood of the valley. As rain gives life, and brings renewed hope and belief in tomorrow, so does pension day. If you are lucky to have a father, a brother, an uncle with a job you can expect money. Migrant workers in faraway Kimberley and eGoli clawing gold and diamonds from the rock, or raising skyscrapers to the sky, send money home, but few have the luxury of these jobs. For the rest, both the pensioners and importantly the marketers who travel from pension day to pension day within each district, the pension payout is a festival, an income stream and a great event.
The scene is repeated throughout the rural and urban parts of South Africa. As corrupt and inefficient as it is, the pensions and the pension days are the only income and commercial opportunities for local traders, craftspeople, small farmers, livestock owners and grocery sellers. Money makes its way into the rural and township bloodstream, it circulates locally supporting and nourishing local economies.
And then it all ended, pension days changed. Pension days were replaced by payouts at formal retailers via a PIN and fingerprint system and later a debit card used to withdraw at formal retailers, ATM’s & today drawn at post offices.
The reality of social child grants and pensions is that they are a wonderful and essential support to the poor, BUT they have increasingly been administered in such a way as to benefit the formal corporate economy. The money does nothing to support informal retailers, informal markets or to circulate within local communities. In the old days pension days were huge market days where scores of small businesses and subsistence farmers in townships and rural areas survived on sales of food and goods. Today social grant recipients take a taxi to the mall, or in rural areas to the local town. There they draw their money and purchase at the mall or formal retailers in these towns … so much for inclusivity, empowerment and economic redress! (end of Kasinomic Revolution excerpt)
Only when money circulates within these communities and into these communities as well as out, does the pattern change. Only then do we create wealth and reduce inequality. Sadly, even when poverty alleviating government programmes like child welfare social grants are paid, they are done in such a way that, in the long term, the wealthy remain the beneficiaries.
The problem with the current system is that we compensate the poor in a manner which encourages economic exclusion, and we should compensate the poor in a manner which encourages economic inclusion.
Month end March – we saw on the news, queues, the old, the infirm, the poor, the mothers, the most vulnerable to Corona infection, queued up cheek by jowl at ATM’s and formal retailers, waiting to draw their money or stockup with recently drawn cash.
The same crowds rode taxis from home to the malls, packed in taxis where a double whammy impacts them, the lack of social distancing plus the cost of transport. The cost of transport can be up to 10% of shopper’s monthly budget. In rural Msinga the women must travel to the post office and formal retailers in Escourt, a round trip costing R60, packed in the back of a single cab bakkie. A hefty fee considering that an old age pension is around R1860 and a social grant is R445 per child, with an average of 2 kids per recipient.
This in a world of digital and electronic finances, where in South Africa, smart phone penetration is around 75% if not more plus an average of 2 debit / credit cards per adult member of the population. Yet outside of a mall, most consumers cannot pay by card at 90% + of traders, nor can they draw smaller amounts of money at a withdrawal point in their street, or rural village.
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This is why people draw all their money once off at an ATM at month end. The lack of withdrawal points in walking distance, the cost per withdrawal plus the cost of transport outside of walking distance means they draw all their money, once a month…in a queue.
Banks like Tyme Bank offer free bank accounts, and most offer micro credit, but few if no financial institutions are providing means or points to use these accounts or cards to draw cash locally, or to pay for things like a loaf of bread, a taxi fare, a plate of food, a bag of groceries etc etc where the consumer lives and trades. Or to deposit for example stokvel savings or cash wages close to home. In the absence of the ability to pay or draw to pay for daily and weekly items bank accounts will and do continue to be post boxes, with all the money drawn once a month.
People do not prefer cash, the rubbish notion that black people prefer cash is an urban legend. They have no alternatives!
The state is desperate to distribute social grants deeper into the community at a cheaper rate and saving consumers cost and inconvenience of transport. Added to this today and exacerbating the issue is the Covid-19 social distancing need, which will continue into late 2020. The state will pursue more and more options to decentralise payments. Already the dates for payments have been changed from month end to spread the rush.
Today marks the greatest opportunity in the recent history of our country to fast track financial transactional solutions which resolve peoples real financial issues and pain points plus offer lower infection risks.
- Cash withdrawal
Right now, we need cash withdrawal options at spazarettes and other smaller less formal kasi outlets, resolving social grant and pension withdrawal issues. These withdrawal points should incentivise smaller more regular withdrawals at reasonable rates per withdrawal. If I can draw small amounts of cash weekly close to home, at a concomitant low cost per withdrawal, I will only draw for the week. Imagine if people could draw small amounts of cash daily or weekly at a great rate at the spaza or local kota outlet, hair salon or tavern! No transport cost, cost effective small amounts, less crime risk, no queue, no brainer!
- De-cash the system
The handling of cash is an issue, touching of notes an infection risk. What a great opportunity to de-cash the system, when the entire informal eco system is thinking differently about cash! If consumers could pay using cards at a multitude of points and traders could accept low amount payments at a low or nominal cost per transaction, then consumers would not even draw money, a situation we see with M-Pesa in East Africa. Today any card payment costs the trader between a 2.6 – 3% fee (in China I believe it’s less than 1%), not counting the cost to the trader of data to operate the card device or cost of paper. Depositing cash is cheaper than accepting card payments. A spazarettes typical net margin is 10%. Considering these elements, no wonder traders don’t want to accept card payments.
So what opportunity exists to offer the ability to both withdraw small amounts of cash at your local informal outlet, plus on the same platform accept card payments at a rate which incentivises a trader to encourage card payment.
Read also: Fixing SA economy after Covid-19: Here’s how Govt must change tack – Wits expert
But you will say there are many options and devices in the trade. Not true I say, currently the vast proportion of innovations if one can call them that is in devices which let traders buy and sell airtime, electricity, bus tickets, send money and so on. Plus they allow traders to pay certain suppliers electronically. But to pay electronically using the device the trader must still load money onto the device at an ATM or similar as he has received payments in cash. This is ridiculous, and inefficient. None of the offerings today let the consumer withdraw cash let alone withdraw small amounts of cash at a reasonable rate. The balance of products are wallets or money transfer offerings.
No low cost, low fee options exist where a consumer can use their card to buy as little as a loaf of bread at a point in walking distance to their home, or draw small amounts of cash from the same point cost effectively.
We can resolve pain points, save consumers costs, drive deeper economic inclusion and build a great business. And the further benefit is to drive money deeper into the community, driving spend, turnover and economic inclusion at community level. It can be done, especially if we take a long term low profit view investing in our economy and our low income kasi populations.
Ke nako, manje manje. We have been hit in the face, the timing is right, let’s not waste this crisis.
- GG Alcock has been at times a shebeen owner, political activist, community worker and African adventurer, and more recently the founder of Minanawe Marketing, a leading marketing agency in the mass market.
