Various digital economy stakeholders have implemented initiatives to mitigate the negative effects of the extended COVID-19 Lockdown. Broadly speaking, since digital financial inclusion and increased mobile Internet access play a positive role in an individual’s ability to participate in the digital economy, the efforts made by the government, financial services providers (FSP’s) and mobile network operators (MNO’s) will reduce digital transition hurdles – but only for a few South Africans during these unprecedented times.
Although these efforts are commendable, for the majority of South Africans who cannot access online schooling, online COVID-19 information resources, or use online UIF claims lines, and before the introduction of the USSD (SMS) grant line, were unable to access grants, the interventions are not enough to address South Africa’s digital economy defects. As a result, in the short-term, the interventions only benefit those who are already connected and have smart phones. They do not make a difference to the unconnected, unserved and underbanked for whom the socio-economic vulnerability in society is worsened during times of crises.
Of course, without an empirical study, it is impossible to accurately quantify the impact of COVID-19 interventions in alleviating the digital divide in South Africa. Regardless, we highlight how more can be done to drive digital inclusivity to benefit the most vulnerable in society.
A lot of South Africans do not own a smartphone
RIA’s After Access Study reveals that although 83% of South Africans own a mobile phone, 47% of these own a smart phone and only 54% have access to the Internet, a requirement needed to benefit from most of the abovementioned interventions. This means that for the 53% majority, who are likely to belong to the most vulnerable groups, the reduction in mobile data prices, zero rated online information sites, free interactive mobile apps, the digital education resources and the drive to use app based digital finance, are inadequate to alleviate digital economy access challenges.
The informal economy
According to RIA’s 2019 Report on the demand side view of informality and financial inclusion, 70% of employment in South Africa is in the informal economy. For these workers, the Lockdown worsened their vulnerability to poverty, hunger and disease, as they lack the social protection, work rights and decent working conditions that are inherent in the informal economy.
The majority of informal workers earn a non-taxable wage that is below R79 000 per year (R6583 per month), which according to RIA’s State of ICT in South Africa Report reveals that since they are low income earners, it is likely that only 38% have a smartphone, 37% use the internet and 19% do not have a mobile phone. Due to the nature of the informal economy, these people are also more likely to only make use of cash, use feature phones and are underbanked or financially excluded.
Furthermore, the State’s COVID-19 economic relief for Micro, Small and Medium Enterprises (MSME’s) excludes the informal economy. This lack of State social protection for the informal economy highlights the need for better data on the informal economy in South Africa as the government clearly overlooks the economic potential and social development challenges of the sector during policy formulation.
In contrast, other countries in the Global South announced COVID-19 informal sector social safety nets, for instance, Togo’s three month COVID-19 social protection initiative, Novissi, which is specifically targeted towards those who work in the informal sector, shows how mobile money can be used to create state social protection interventions that make use of accessible USSD mobile payment mechanisms to ensure those who have no choice but to be “survivalists” do not fall deeper into poverty.
Cash is still King
In terms of formal account ownership, a Report by the FinMark Trust reveals that the 17 million social grant recipients have a higher level of financial inclusion, since all of them own a South African Social Security Agency (SASSA) MasterCard that allows them to mobilise their money. However, most grant recipients do not leverage the benefits generated from a bank account, as these accounts are often used as “mailboxes” to withdraw the money as soon as they receive it and opt to use cash instead. This cash preference was highlighted in the initial lockdown social grant payment disaster, where the use of public transport and overcrowding at some stores and ATM’s to withdraw cash created health and safety challenges, which meant social distancing measures could not be applied. Experience from challenges in March prompted SASSA to review better payment strategies and create a digital application process through WhatsApp or USSD (SMS). So far, the digital application system appears to be inefficient.
In 2017, South Africa’s financial inclusion, measured by formal transactional bank account ownership stood at 60% while uptake of mobile money was only 8%, based on the success of mobile money in the rest of Africa, the low uptake suggests that there is untapped potential to enhance financial inclusion for the underserved and financially excluded in South Africa.
People’s preference for cash highlights the importance of flexible, local solutions that simultaneously address the needs of different stakeholders and leverage available resources. Mobile money has the potential to provide informal economy workers, online platform employees, social grant recipients and consumers in disadvantaged communities with a more effective, safe and reliable alternative to cash and simultaneously address the digital divide which is a reality for many South Africans.
Before the pandemic, attempts to encourage cashless transactions in South Africa have failed to change consumer and supplier behaviour of those who need the financial security the most. Amongst other reasons, the low uptake of mobile money in South Africa can also be attributed to high regulatory requirements in the financial sector. There is empirical evidence that suggests that in addition to other factors, enabling regulation for mobile money operations has positive economic spill-over effects on those who are excluded from the formal financial system; namely women, youth, displaced persons, informal sector labourers, the under educated and the poor.
According to the 2018 GSMA Report, the wide adoption of mobile money suggests that in the medium to long-term, creating an enabling environment for widespread adoption of mobile money creates opportunities to address a wider development agenda since it has positive technology innovation diffusion effects in other sectors such as healthcare, education, and employment. Furthermore, since mobile phones are a major Internet access point, the broad adoption of mobile money can also bring more people online than ever before.
Lastly, encouraging the use of mobile money to enhance domestic e-commerce and digital financial inclusion can set the stage to create inclusive digital solutions that also address informal cross border trade within the Southern African Customs Union (SACU), Southern African Development Community (SADC) and the rest of the continent. As the incumbent African Union (AU) chair, this is an opportunity for South Africa to provide continental leadership that ignites the AU’s Digital Transformation Strategy (DTS) (2020-2030) to advance the regional integration efforts of the African Continental Free Trade Agreement (AfCFTA), through a Digital Single Market that is envisaged to include massive participation of formal and informal MSMEs, the youth, and women.
While regulation can act as a catalyst to increase financial inclusion and Internet access, it is crucial that there is a collaborative effort from regulators, MNO’s, the government and FSP’s to create an enabling environment for an alternative, low cost, interoperable system.
Lastly, reliable data is crucial to inform evidence-based policy making, this can be achieved through the use of nationally representative demand side surveys since they provide insight on demand-side market dynamics in a prepaid mobile market and provide insight on the unmet needs as well as actual and perceived barriers that citizens face in using mobile phone’s to gain Internet access and financial inclusion, which is not available in supply side data.
For South Africa to “build back better”, it is crucial that there are flexible, evidence-based local strategies that leverage digital technology, safeguard the privacy of users and ensure that those who are susceptible to being left behind, are included in the global, regional and national digital transition.