Earlier this week, Addis Ababa’s Skylight Hotel hosted the second Ethiopia Digital Payment Conference, where officials from the Ministry of Finance, central bank regulators, and experts from the UN launched the country’s second Digital Payment Strategy covering the coming five years.
The conference reviewed the first strategy, which participants praised for its success and exemplary implementation.
Among those in attendance was OswellKahonde, who heads the Africa division for the Better Cash Alliance—a UN body tasked with supporting developing countries in transitioning from a cash-based economy to a digital financial system.
The Reporter caught up with Kahonde to get his thoughts on Ethiopia’s growing affinity for digital transactions, the Better Cash Alliance’s work in the country, and the dangers of digitalization without infrastructure. EXCERPTS:
The Reporter: Tell us about the Better Cash Alliance.
OswellKahonde: The Better Than Cash Alliance is a partnership of governments, corporates, and international organizations that have come together to accelerate the transition from cash to digital payments. We call it responsible digital payment.
Ethiopia is one of the members of the alliance. We are the secretariat of the alliance, which provides support to our members. We provide advisory, advocacy, and research support. The goal is digitizing the financial sector. Ethiopia joined the Better Than Cash Alliance in 2016. We partnered with NBE, the Ministry of Finance, and the Ministry of Innovation and Technology.
We helped Ethiopia to develop the first National Payment Strategy, which was launched in 2021 and finalized this year. We also supported its implementation. We are behind digital payment transitions across many countries. When we heard the NBE report on Ethiopia’s progress in digital payment, we were proud. For instance, during the implementation of the first strategy, we provided our experts who are seconded and working at NBE. We also continued to provide technical support.
We supported the design and implementation of regulatory and licensing frameworks for digital financial services and provided strategic advisory support to relevant stakeholders.
Reforming the financial sector is a national vision for the country. And the country is a member of the alliance. So we are employees of the UN, and governments have formed the UN. So we are employed by the governments.
Ethiopia just launched its second National Digital Payment Strategy. How do you evaluate Ethiopia’s progress and the challenges outstanding?
The Homegrown Economic Reform stipulates harnessing digital to accelerate economic reforms and realize development. For instance, the digital Ethiopia strategy talks about ecommerce. Then the digital payment strategy comes up with how we do it. So these strategies support the overall HGER agenda.
Digital is not just about technology. It is about everything. What Ethiopia demonstrated in the past years, is the importance of policy leadership. If you make the right policies, bring in the right regulations, innovative systems, and forge partnerships, that definitely leads to realizing your targets.
There were 32 actions stipulated in the first digital payment strategy. For the independent evaluation done, over 80 percent of the action targets are achieved. Some of them are at different stages but by and large, they are completed. So our task is to identify the gaps, and support the government to fill those gaps and bridge human capital needs. We also identify sectors that would drive change.
How do you assess the progress and contributions of digital payments on the economy as well as the downsides of digital transactions?
We have developed the UN principles to support digital payments. Member countries have to follow those principles to digitize their financial sectors. Once these principles are embedded in the digital journey, which is what Ethiopia is doing now, then solutions are developed, whether it is merchants, traders, or consumers. We design them in a way it benefits different brackets, but overall it aims to drive the overall economy.
Without digital payments, even if you roll out fancy policies, you cannot see progress. It has huge economic benefits. For example Africa’s youth population is estimated to be around 60 percent. The youth wants tech, so you need to deploy digital systems. So the youth can easily use the tech and digital systems to do business. For instance if you go to Rwanda, a lot of youth think out of the box and leverage digital systems. Efficiency, cost minimization, time-saving and productivity are just a few benefits of digital.
In 2018, people in Addis were lining up in queues to pay water bills. They try at the Lehulu centers. Today, the queues are gone. These are some of the conveniences digital payment is bringing in. People are now using the queue time for other business.
What are the potential downsides of digitization?
If it is not done with responsibility, digitization might have downsides. If it is not inclusive, it also divides. If you don’t have a phone, you cannot transact. If digital is made 100 percent mandatory, that would be irresponsible.
The digitization process in urban areas is on an uptick. But in rural areas, it is still at a nascent stage. So we need to invest more on the rural infrastructure so that we don’t leave the rural population behind. It also widens the gender gap, if digitization is implemented irresponsibly.
During the presentation today, the NBE governor mentioned women own phones less than men. The numbers are quite worrying. The financial inclusion says the gender gap in Ethiopia is widening; it is over 25pct and that is huge. If you compare it to countries like Ghana, it is around three or four percent.
We need to focus on those areas. We need to work on how to include the traditional banking system. How can informal economy operators be included in digitization? They are now out of the formal channels but they can be formalized through digital platforms, if we could put the right tools in place. Digitization is the perfect tool to formalize Ethiopia’s informal actors.
Africa has a large educated work force. Internet infrastructure has also been expanding. India built its economy capitalizing on its youth and digital entrepreneurship. They have a lot of fintechs and digital economy operators, with digital-oriented education and economic systems. Can African countries replicate this?
It is happening. Even here in Ethiopia, it is happening. Ethiopia has already started the journey. The journey started in 2020/1. Only a few years down the road, the progress in Ethiopia is really amazing. You do not see such fast progress in any other economy.
The digital payment transition that is happening in Ethiopia is so fast that is surprising every time for everyone. That is the evolution of the digital financial system. It is not instant, but it evolves.
Now there are over 50 million accounts for mobile money. That is huge. Ethiopia’s digital innovation also needs to target where there is large cash circulation on a daily basis. Digital payment infrastructures are crucial. If digital payment is not better than the cash-based system, nobody should be forced to use digital payment. For instance, if somebody has a mobile account but there is no connection, then cash is better for that context.
