This guest article was authored by Prosper Chikomo, an internet entrepreneur and author of Turning Iron into Gold: Golden Opportunities: How to Spot Them, Create Them, Make Money from Them, and How Not to Miss Them (Available on Amazon.com)
A doubtful Zimbabwean-banker asked me the question, “Is Zimbabwe ready for e-commerce? Did you do any market research on this thing?”
I will spare you the other details and why he asked that question, but my answer was a simple but emphatic “Yes”. In fact, online shopping is long overdue! Right now I am only expecting an e-commerce boom in Zimbabwe akin to the dot com boom of the late 1990s. I am convinced beyond repair that Zimbabwe is more than ready because all the signs are there, and here are some of them.
The first point of access to e-commerce is email, with or without electronic payments. Email is used to register and open an account on e-commerce websites, send and receive order notifications as well as for customer support services. One does not need to own a cellphone or computer to use email as he/she can use an internet cafe and there are many websites like Yahoo and Gmail that offer free email accounts.
In Zimbabwe, the use of email is huge. To prove this, it is estimated that Zimbabwe’s Facebook population is over 1 million. For one to have a Facebook account, he needs to register using his/her own email address. So, that definitely tells us that Zimbabwe’s email population is more than 1 million, which means there are 1 million email accounts that can be used to open customer accounts on Zimbabwean or external online stores.
Proof of more than readiness for e-commerce
The greatest, and most undeniable proof that Zimbabweans from all walks of life are ready to transact online, sending and receiving money online, and therefore to shop online, was in 2008 at the height of “burning” money. It was the worst of times, and it was the best of times.
If it wasn’t for the government’s exchange controls and the Reserve Bank printing of more Zimbabwean dollars – minting hyperinflation -, no money “burning” would have happened and we would never have proof of the extent to which Zimbabweans could use internet-based payments systems to transact.
For the sake of those reading this from outside Zimbabwe, I shall just explain briefly what happened, and what money “burning” was.
There was hyperinflation and, the Ministry of Finance and The Reserve Bank, instead of letting the Zimbabwean dollar float freely against all foreign currencies, pegged the Zimbabwean dollar to the US dollar, amidst a shortage of foreign currency.
This created a black market for foreign currency where the exchange rate in the black market was higher. Because of the exchange controls, there was a shortage of foreign currency in the official foreign exchange market, and because of hyperinflation, a shortage of local currency existed too.
So, for example, if the official ZWD/USD exchange rate was ZW $5 = US $1, on the black market the exchange rate would be ZW $1,000 =US $1. This drove all foreign currency to the black market.
So, “burning” was when you took your US $1 to someone who had a internet banking account, who would exchange your US dollars for Zimbabwean dollars, and send these Zimbabwean dollars into your account via internet banking (money transfer).
When this money was transferred to your account, it would be way more than the money you could get selling your US $1 to the government at the fixed exchange rate or the Zimbabwean dollars you would get on the black market.
So, through internet banking money transfer, you would get an exchange rate of, say, ZW $20,000 = $1, which you could then withdraw, or use to “burn” other people’s money by writing them cheques for example instead of doing internet money transfers. It was really up to you to also become a “burner”, burning people’s money via internet banking too. It was just about the most viable business in Zimbabwe at the time, apart from dealing in fuel on the black market.
Well, that’s what happens when the governments wants to manage or regulate what must be free-markets.
After years, the government came up with a brilliant and world-class scheme called “dollarization”, which meant that you could now freely use the US dollar to buy local goods, in addition to the Zimbabwe dollar. Technically, you can now use any major foreign currency to buy anything in Zimbabwe. That scheme, as well as the suspension of RTGS, ended money “burning”. (But it can return, with the comeback of the Zimbabwe dollar so long as Zimbabwe does not have massive foreign currency reserves and a strong export sector.)
“Burning” money made many a common Zimbabwean rich. Some even bought cars and houses this way. I overheard a story of someone who bought fridges from one wholesaler, using Zimbabwean dollars, and exported them to a neighbouring country, earning foreign currency, which he then “burned” and bought more stock from the same wholesaler for export. Payments to the wholesaler were made via RTGS. “Burning” money became a full time career and the most viable business in Zimbabwe.
Anyway, back to e-commerce, “burning” would not have succeeded had there not been internet banking. Internet banking, specifically being able to transfer money to another bank account at any bank via the internet (through RTGS – Real Time Gross Settlement), is what made “burning” possible.
Now, RTGS is a national payments system that connects virtually all banks in Zimbabwe and is managed by the Reserve Bank of Zimbabwe. So we are talking here of a system that is built to be able to handle all transactions within a country, which has to be huge and able to process transactions running into millions if not billions of transactions.
The following year, in 2009, the Reserve Bank of Zimbabwe would report in the National Payments Systems 2008 Annual Report that in 2008, the RTGS system utilization reached 98%.
2008 was at the height of “burning” money in Zimbabwe,
As I mentioned above, people, ordinary Zimbabweans, many unknown to each other, were “burning” money, transferring money to each other via the internet. Some of course got cheques for their American dollars.
RTGS payments are not done by machines but initiated and completed by people, with software simply reconciling accounts. Banks actually encouraged online banking to avoid long queues in their banking halls since local currency was also scarce due to hyperinflation. That the national RTGS system reached 98% capacity utilization shows the extent to which internet banking and internet-based money transfer was used. The significance of that is that Zimbabweans are more than ready to transact online, which means, even buy online.
It is not possible that the national RTGS capacity utilization would reach 98% capacity through bank staff making RTGS payments on behalf of customers. No, that would not be possible. People, individuals, ordinary Zimbabweans, were making RTGS payments online via their internet banking accounts.
And remember, in 2008 there was no mobile broadband and there were very few internet users in Zimbabwe, with many people using internet cafes to access the internet, yet this was the year when RTGS system capacity utilization reached 98%.
And since the RTGS capacity utilization reached 98%, it shows that those conducting RTGS have previous experience transacting online from the RTGS era.
So clearly, Zimbabweans are more than ready to make online payments and to transact online.
Making payments online and trusting receiving money online
The fact that one transacts/transacted online, even using internet banking, shows that they likely to buy online and are most disposed to buying online. It also shows a trust or confidence that that person has in buying online.
“Burning” ultimately worked on trust. There was no guarantee you would got the money but you would. If there was no trust, it would have failed and not become popular. So, if a website will be trustworthy, it can expect to make some sales, or to at least have some visitors. Trust will be the key in growing Zimbabwean e-commerce.
Rapid adoption and usage of new technologies
In countries that have never really had e-commerce, buying online is exactly the same as adopting a new technology. While at the time of writing there is virtually no Zimbabwean website accepting local payments via a local payment gateway, and there is no local payment gateway processing web-based payments, I expect e-commerce to be adopted very fast in Zimbabwe.
Zimbabweans, generally speaking, rapidly adopt low-cost, sufficiently and properly marketed, useful and relevant technologies. “Burning” was marketed via word of mouth, email, and even SMS but it became known to virtually every Zimbabwean.
I remember researching the phenomenon for my book when I discovered that Zimbabweans in South Africa already knew about burning when many Zimbabweans did not. And they were even aware of prevailing rates by the minute! This was long before the Reserve Bank of Zimbabwe decided to suspend the RTGS system.
“Burning” money was useful and relevant in a country where there was, and still is, massive unemployment (over 80% rate). It also helped many people pay bills and even just survive. If a technology is useful and relevant to the needs of the potential users, it will be adopted en masse, same way many people adopted internet banking and internet money transfer.
Mobile technology adoption is another proof of fast adoption of technology in Zimbabwe. Econet Mobile Broadband alone had 1,8 million customers within a year and that is on the mobile broadband front. This same broadband is used to access the internet, meaning it can also be used to access online stores.
On the mobile money transfer side, Kingdom Bank CellCard, launched in December 2010 reached 200 000 accounts within 7 months.
EcoCash, which entered the mobile money transfer market on 30 September 2011 had 416,000 customers within 3 months. It reached 1,5 million users in 8 months, and in some months registering over 200 000 new users per month. This shows a rapid adoption of technology in Zimbabwe. The speed of adoption of EcoCash in Zimbabwe exceeded that of the much referenced M-PESA in Kenya.
As of July 2012, Econet had 270,000 active EcoCash users on its EcoCash platform. Those 270,000 users of EcoCash indicate repeat usage, which shows a viable and sustainable mobile payments/transfer system usage, which can help Zimbabwean e-commerce should Zimbabwean websites accept mobile payments.
According to the RBZ’s January 2012 Monetary Policy Statement, 2.3 million mobile money transfers were registered in Zimbabwe which was a year-on-year growth of 446%. This shows a significant and rapid adoption of a new technology, as well as its usage. Contrast 2.3m mobile money transactions in under 2 years with 4.2m Point of Sale (card swiping) transactions.
The RBZ also reported a 575% rise in mobile payments transactions, which is faster than the growth of transaction numbers. This shows a mobile payments values growth per transaction, meaning that on average, the value of each mobile money transfer transaction in 2011 was higher than in 2010.
2011, was certainly the year of early adopters, who tried the service for the first time, and repeat users.
This clearly shows that Zimbabweans rapidly adopt new technologies that are relevant, low-cost, readily accessible to them, properly and sufficiently marketed, and that serve a purpose. It also shows that Zimbabweans will regularly use relevant, useful, and convenient technologies.
If e-commerce websites will serve a need, be convenient, useful, and even easy to use and be readily and easily accessible, they will certainly be successful just like Facebook is popular with Zimbabweans, because it serves a relevant purpose.
Finally, in August 2011, Opera, the web browser, reported in it’s The State of Mobile Report that in the period between June 2010 and June 2011, Zimbabwe’s page view growth was 4964.8%, while data transferred grew 4483.3%. One of the most important statistics from the Opera report was the average 713 page views per user per month. This clearly hints at the time spent online, which is good for e-commerce. The growth of page views and consumption of internet content has not stopped. In fact, many ISPs in Zimbabweans have reduced their prices for internet access, with some offering unlimited internet, since the Opera report was published.
Estimating the potential and size of the Zimbabwean e-commerce market
It is generally accepted that online retail shopping starts to rise exponentially once it has reached 1% of total retail sales.
In Zimbabwe, even in the absence of a local web-based payment gateway that can be integrated to websites, in 2011 internet banking transactions (banking transactions done via the internet) alone accounted for 30% of total retail values, which is far above the 1% of total retail sales value required for retail e-commerce to rise exponentially. Internet banking transactions values were US$532 million in 2011, valuing the total retail market at US$1,7 billion.
In the US, e-commerce accounts for 4% of total retail revenues. In Zimbabwe 4% of total retail revenues amount to US$68 million dollars at 2011 figures. So we could use that as the size of the total potential market.
In South Africa, a developing country, e-commerce represents just 0.4% of total retail sales. 0.4% of total retail sales in Zimbabwe equal US$6,8 million using 2011 figures. So we could use US$6,8 million as the achievable market.
We can therefore safely put Zimbabwean retail e-commerce potential at between US$6,8 million and US$68 million in the short-to-medium term since the Zimbabwean economy is still recovering.
The US and South Africa have unique characteristics that are uncommon with Zimbabwe. Just as an example, EcoCash was rapidly adopted in Zimbabwe while the adoption of the iconic M-Pesa in South Africa was dismal. EcoCash, which relies on an agent network of sorts would not succeed in the US where credit cards and Paypal are readily available and infrastructure is different.
South Africa and USA also have reasonably higher card densities, whereas Zimbabwe does not. In Africa, mobile is the most promising payment method. So, in my view, if mobile wallets should be enabled for online payments, e-commerce in Africa will really take off to achieve the same levels as the developed world. However, a popular digital wallet or electronic payments system or gateway could also fill the payments means gap. We saw above how RTGS payments were successful beyond disbelief.
Zimbabwe, unlike South Africa and USA also has a strong Diaspora market. Some remittances can be turned into online purchases, while some Zimbabweans in the Diaspora can also buy from Zimbabwean websites. Econet earlier this year estimated Zimbabweans in South Africa alone send ZAR5 billion (US$625 million) to Zimbabwe.
And on top of that, Amazon makes 80% of its revenues outside the US. So we are looking at a situation where Zimbabwean e-commerce sites can make money from the international market as well.
Zimbabwe also has a shortage of cash, which could work in the favour of e-commerce.
Surely all the above hints at a society that is more than ready for e-commerce and online shopping.
On the backdrop of all the above, and a youthful population that is familiar with internet technologies like email and Facebook, and a vibrant diaspora that wants to stay in touch with Zimbabweans back home leading Zimbabweans in Zimbabwe to use the internet, I expect a boom in e-commerce in Zimbabwe should APIs, plugins, and extensions to local payments gateways and payment systems be made accessible to all website developers for free.
The RBZ put the value on total retail transactions in Zimbabwe at US$1,7 billion, while total electronic transactions reached US$34 billion in 2011.
That said, I believe Zimbabwe is more than ready for e-commerce, subject to certain conditions.
Conditions for success
Conditions for e-commerce success include a heavy awareness campaign to teach users how to buy safely online. This way, potential online customers will not lose their money to fraudulent ecommerce sites. It will also help Zimbabweans e-commerce in that fewer fraudulent transactions will be registered with international payment systems, which in turn will avoid the blacklisting of Zimbabwe by major global payments systems, which in itself will affect the long-term viability of ecommerce in Zimbabwe as a higher country-level fraud risk would deter global payments systems from serving Zimbabwe. Nigeria is not served by PayPal for that reason, and many payments systems attach a higher fraud risk to it, not because of perception, but from actual transactions experiences.
Of all conditions, the non-return of the Zimbabwe dollar is a critical factor. If the Zimbabwean dollar is returned, it will result in exchange controls, DEFINITE EXCHANGE CONTROLS LIKE BEFORE. Plus it will make it harder to transact even with foreign countries as currencies will always have to be exchanged and the last time I checked, no country on the planet exchanges Zimbabwean dollars except Zimbabwe itself, let alone global payments systems. Exchange controls and dealing with the exchange rate are the primary reason why PayPal has not taken off in South African e-commerce.
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