Rise in MoMo transactions: Driver of economic prosperity
By Prof. Samuel Lartey
Introduction
The significant growth of mobile money transactions in Ghana presents both opportunities and challenges for the country’s financial sector and broader economic ecosystem. Recent data from the Bank of Ghana reveals that the total value of mobile money transactions in the first eight months of 2024 hit an astonishing GH¢1.775 trillion. This marks a substantial increase from the GH¢1.031 trillion recorded during the same period in 2023, reflecting a 72% growth year-on-year.
However, despite this exponential growth in mobile money transactions, concerns are being raised about the corresponding rise in productivity, or lack thereof, within Ghana’s financial sector and the broader economic environment. The question of whether this increased spending is translating into tangible economic gains looms large.
The Surge in Mobile Money Usage
Mobile money has become a cornerstone of financial inclusion in Ghana. The convenience, security, and accessibility it offers, particularly to those in rural and underserved areas, have led to widespread adoption. The growth in mobile money usage aligns with global trends, as countries move toward cashless economies. Mobile money services like MTN MoMo, Vodafone Cash, and AirtelTigo Money have seen an unprecedented uptake.
The fact that mobile money transactions now exceed GH¢1 trillion annually is a testament to how deeply integrated these services have become in the everyday financial lives of Ghanaians. From paying utility bills to transferring money and making purchases, mobile money has revolutionized financial interactions in the country. Yet, this remarkable growth is not mirrored by equivalent advancements in the productivity of the financial sector or the overall economy.
Fintech Advancements and Consumer Behavior
Fintech has further amplified this trend. Enhanced mobile money services, digital wallets, and online payment systems have expanded the financial technology ecosystem in Ghana. Fintech companies, supported by the proliferation of smartphones and increasing internet penetration, are enabling more sophisticated digital financial services. However, these advancements have also driven increased consumer spending.
Recent reports suggest that Ghanaians are spending more on digital platforms. The ease of mobile money transactions and fintech innovations has contributed to a consumer behavior shift, where spending is increasingly digital. Yet, this rise in digital spending does not seem to be yielding a proportional increase in economic productivity. The financial sector, while processing more transactions, has not necessarily seen efficiency improvements, and the broader economy continues to face challenges.
The Disconnect Between Spending and Productivity
While mobile money transactions have soared, the rise in productivity within the financial sector and the broader economy has not kept pace. This discrepancy raises concerns about the sustainability of this growth trajectory. Several key factors contribute to this disconnect:
- Electronic Transaction Levy (E-Levy):
One of the most contentious policies introduced to capitalize on the booming mobile money ecosystem is the E-Levy, aimed at increasing government revenue. However, despite the significant increase in mobile money transactions, the E-Levy has underperformed, not generating the expected revenue. The GH¢2.54 billion targeted by the government in 2022 was revised down to GH¢611 million, indicating lower-than-expected compliance or usage shift to non-taxable methods.
- Inflation and Economic Pressures:
The rising cost of living, fueled by high inflation (which stood at 38% as of September 2024), has influenced how people spend. Consumers may be engaging in more mobile money transactions, but much of this is going toward basic consumption rather than productive investment. This suggests that while spending has increased, it is not necessarily contributing to economic expansion or productivity growth.
- Sectoral Contribution to GDP:
The financial sector’s contribution to Ghana’s Gross Domestic Product (GDP) remains stagnant. Although fintech and mobile money services are driving more transactions, the sector’s productivity, as measured by its contribution to GDP, has not seen significant improvement. In 2023, the financial and insurance sector contributed just 6.2% to GDP, and early indications for 2024 suggest similar figures, pointing to a disconnect between transaction volumes and actual economic output.
- Lack of Investment in Productive Ventures:
Mobile money transactions are often used for consumption rather than investment in productive ventures such as businesses, infrastructure, or technology. The financial ecosystem has yet to fully harness the potential of mobile money and fintech for driving innovation, entrepreneurship, and economic growth.
Implications for Ghana’s Economic Ecosystem
The current trend of rising digital transactions without a corresponding increase in productivity poses risks for the broader economy. It reflects a system where consumption is outpacing production, a situation that could strain resources and create imbalances in the economy. For Ghana to fully benefit from the mobile money revolution, there must be a strategic shift toward channeling digital financial flows into more productive areas of the economy.
Investments in technology infrastructure, small and medium-sized enterprises (SMEs), and entrepreneurial ventures are critical. The financial sector needs to evolve from merely facilitating transactions to becoming a driver of innovation and economic growth. Policymakers must also address the structural issues that prevent the financial sector from realizing its full potential, such as gaps in financial literacy, the high cost of credit, and the limited access to capital for startups and small businesses.
The Way Forward: Enhancing Productivity Through Fintech
To bridge the gap between increased spending and economic productivity, Ghana must focus on a few key areas:
- Financial Literacy and Inclusion:
While mobile money has enhanced financial inclusion, there is still a need for better financial literacy to ensure that Ghanaians can make informed decisions about saving, investing, and growing their wealth. Digital financial literacy programs should be expanded to ensure that the increased use of mobile money translates into economic empowerment.
- SME Support and Financing:
The fintech revolution can play a vital role in supporting SMEs by offering them access to credit, digital payment systems, and markets. However, to truly boost productivity, there must be a greater focus on using these technologies to enhance business operations and efficiency.
- Policy and Regulation:
Policymakers need to create a regulatory environment that encourages innovation while ensuring that fintech services are used to drive economic growth. This includes reassessing the E-Levy to make it more equitable and ensuring that it does not stifle digital financial inclusion.
Conclusion The rise in mobile money transactions and fintech in Ghana presents a unique opportunity for economic transformation. However, the current focus on consumption over productivity is unsustainable. Ghana must pivot towards harnessing fintech for economic growth, investing in productive sectors, and ensuring that digital financial inclusion leads to tangible improvements in the economy. With the right policies and strategic investments, the country can turn the mobile money revolution into a driver of long-term economic prosperity.
Prof. Samuel Lartey
sammylaatey@yahoo.com
