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Shedding Light on the African Shadow Economy

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Daniel Monehin, Division President for Sub-Saharan Africa at Mastercard discusses the Grey Economy at the Mastercard Prepaid and Government Conference 2017

The Informal Economy, or if you have a penchant for the more colourful descriptor, the “Shadow” or “Grey” Economy, is typically the term used to refer to the portion of a country’s economy that transact exclusively in cash, thus making it infinitely more difficult to include these economic activities in any form of official statistics, oversight, taxation and regulation.

According to the OECD, two-thirds of the world’s workers will be employed in the Grey Economy by 2020. The issue is compounded when you consider the significant contribution the Grey Economy makes to any emerging market’s GDP.

By and large, it’s an issue created by the lack of inclusion, and the lack of access to formal financial infrastructure, especially in economies where wealth and assets are not distributed equitably. Folding the informal sector in with the formal sector is probably one of the most significant policy-making challenges 21st century governments face.

First coined in the 1970s, the Grey Economy was thought to be a temporary phenomenon which would shrink, even disappear, once countries achieved sufficient levels of economic growth, and modern industrial development.

Today, more than 40 years after its characterization, the Grey Economy can no longer be considered a “temporary phenomenon”; if economic growth is not accompanied by equitable income distribution, or an equal rise in employment levels, then we see an increase in the growth of the Grey Economy.

In fact, in Sub-Saharan Africa, informal employment accounts for a significant share of total non-agricultural employment, ranging from 33 percent in South Africa to 82 percent in Mali. Admittedly, by the very virtue of the nature of the Grey Economy, it is impossible to provide anything more than estimates in this regard.

Most citizens in emerging economies don’t join the informal economy by choice – it is very much a byproduct of the citizenry’s need for survival, providing for themselves and their families; it is essential for any human being to be able to have access to basic income generating activities.

Therein lies our opportunity – bringing this informal economy into the fold, by affording previously-excluded individuals access to basic financial services. While we don’t believe that the Grey Economy will ever be completely eliminated, we can certainly reduce the shadow-cash it generates by continuously building the tools that drive financial inclusion in all markets, not just the developing markets.

Mastercard has made tremendous inroads in several African markets, by equipping governments, local entrepreneurs, merchants, traders and the like with the tools to formalize payments through digitization and generate sustainable growth.

Our role at Mastercard is trying to lower, or even eliminate, the barrier to entry to the formal economy, and our spirits are buoyed by some of the successes we’ve had in the last few short months.

Consider a service like 2KUZE, launched in Kenya in January, or eKilimo, launched in Tanzania earlier in March – services that are connecting several thousand farmers, merchants, agents and large buyers in their respective markets to basic services for them to conduct their business, empower themselves and their employees, and providing for their families, transitioning from the informal to formal economy seemingly overnight.

By its very nature, the characteristics of a shadow/grey economy is largely negative – it can easily trap employees and enterprises alike in a spiral of low productivity and poverty. By working with our various governmental partners, Mastercard stands firm in its commitment to empower 100-million Africans to join the formal economy by 2020.

 


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E-Financial

FG Makes u-Turn on Bank Account Re-Registration

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Federal government on Friday apologised for asking all account holders in financial institutions in the country to re-register their personal details.

FG makes u-Turn on Bank Account Re-Registration

Recall that the federal government had on Thursday ‎ordered that all persons holding accounts across financial institutions and insurance firms should complete and submit self-certification forms to their respective financial institutions.

The notice issued by the government to that effect read, ‎“This is to notify the general public that all account holders in Financial Institutions (Banks, Insurance Companies, etc.) are required to obtain, complete, and submit Self – Certification Forms to their respective Financial Institutions.

“Persons holding accounts in different financial institutions are required to complete and submit the form to each one of the institutions. The forms are required by the relevant financial institutions to carry out due diligence procedures, in line with the Income Tax Regulations 2019.‎”

The directive raised eyebrows, as account holders already possessed Bank Verification Numbers.

Following widespread condemnation that trailed the directive, the Federal Government backtracked on Friday, saying the fresh guidelin‎e was not for all Nigerians.

The government attributed the development to misinformation.

The clarification issued by the government on Friday read, ‎“We apologise for the misleading tweets (now deleted) that went up yesterday, regarding the completion of self-certification forms by Reportable Persons. The message contained in the notice does not apply to everybody. ‎FIRS will clarify Nigerians on the objectives of the directive.”

Also on Friday, FIRS, in a statement posted on Twitter, explained that the guidelines were only for non-residents, as well as people paying tax in more than one country.

Parts of the FIRS statement read, “The Self Certification Form is basically to be administered on Reportable Persons, holding accounts in Financial institutions, that are regarded as “Reportable Financial Institutions” under the CRS.

“Reportable persons are often non-residents and other persons, who have residence for tax purposes in more than one jurisdiction or country.”

“The information that indicates an account holder is a resident for tax purposes in more than one jurisdiction, is expected to be available to Financial Institutions during account opening processes, for the KYC and AML purpose.”


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Stanbic IBTC Bank Disowns Lagos ATM Fraudster

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Stanbic IBTC Bank PLC has disowned Tope Olajide, 22-year-old fraudster arraigned for theft of customers deposits.

Stanbic IBTC Bank Disowns Lagos ATM Fraudster

The Bank said this in a statement on Wednesday.

The statement said: “The attention of the management of Stanbic IBTC Bank PLC has been drawn to news currently circulating in the media, about the alleged arraignment of staff of the Bank on charges bordering on the theft of customers deposits.

“The Bank would like to clarify that the defendant, a 22-year-old Tope Olajide, IS NOT, and was at no point in time an employee of Stanbic IBTC Bank PLC.

“The alleged culprit was apprehended around 7:30 am, on Thursday, 27 August 2020, by security operatives after he was exposed by CCTV footage using ATM cards he had allegedly stolen and converted, to make withdrawals from the accounts tied to the stolen ATMs.

“The CCTV footage also showed the alleged culprit pretending to assist customers at ATMs whilst also attempting to fraudulently dispossess the customers of their ATMs.

“He was subsequently arraigned before an Ikeja Magistrate Court on Monday, 14 September, for stealing the debit cards of two customers and using them to unlawfully withdraw the sum of N427,000.

“The Bank would also like to implore members of the public to be security conscious when conducting transactions at ATMs. Customers are advised to report any suspicious actions around them to security operatives who are usually stationed around the Bank’s ATMs, when carrying out transactions at any of our ATM locations.

“As an organisation, we hold dear the values of integrity, and we will continue to prioritise the safety of our customers effectively.”


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Buhari Okays Establishment of CBN-Led Infraco

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President Muhammadu  Buhari has approved the establishment of an   Infrastructure Company (Infraco) to be driven by the Central Bank of Nigeria (CBN) in partnership with the African Finance Corporation (AFC) and the Nigerian Sovereign Investment Authority (NSIA).

Buhari Okays Establishment of CBN-Led Infraco

Mr. Godwin Emefiele, CBN governor

This is coming  on the heels of the foreign reserves’ slump to $36 billion following a cocktail of monetary policy interventions by the apex bank to cushion the scathing effects of the COVID-19 pandemic on the economy.

Mr Godwin Emefiele, CBN governor, made these disclosures in Abuja at the annual conference of the Chartered Institute of Bankers of Nigeria (CIBN) with the theme: Facilitating a Sustainable Future: The role of Banking and Finance.

According to him, Infraco would enable the use of private and public capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors.

“This entity would also be able to raise funds from the capital markets and mobilise long term finance to address some of our infrastructure needs, while providing reasonable returns to investors. “We believe this well-structured fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.

“A well-built infrastructure system, comprising hard infrastructure such as roads and ports, and soft infrastructure such as broadband penetration, can have a multiplier effect on growth by enabling the expansion of business activities in the country”, he explained.

On foreign reserves, Emefiele attributed its crash to the decline in foreign exchange earnings and subsequent adjustments in the value of the naira to the dollar.


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