Progress on non-cash payment systems has been made, but, as Eman Youssef reports, a lot of work still needs to be done Ever run out of cash just as you were about to buy your dream jacket? If you had a credit card, that wouldn't be a problem. Trouble is, the Middle East -- Egypt included -- is pretty much still a cash-based economy. A study conducted for Visa International indicates that a whopping 90 per cent of the $47 billion worth of personal consumer spending in Egypt in 2003 was made in cash. The remaining balance was divided between 7.5 per cent, or $3.4 billion, in payments made by check, and only 2.5 per cent, or $1.2 billion, made using card-based payments. Moreover, 97 per cent of the working population gets paid in cash. "While the payment systems in more developed countries have evolved, we still stand in the outmoded age of cash-based payments," said Tareq El-Housseini, vice-president and general manager of Visa International's Central Europe, the Middle East and Africa division. Egypt's ratio leaves the country far behind markets in Europe, the US and Asia, where the number and value of card payments are starting to outnumber cash payments. Egypt is also behind regional Arab and African peers like Jordan, the UAE, South Africa, Saudi Arabia, and Morocco, El-Housseini said. In fact, with only 2.5 per cent of payments being made via payment cards, Egypt is dead last amongst the 50 countries evaluated by Global Insight, an independent global economic forecasting agency. This has a lot to do with the low penetration of payment cards in the Egyptian market. There are currently a total of around one million such cards in Egypt, which represents less than two per cent of the total population. According to El-Housseini, the remaining 98 per cent prefers to manage their money outside the banking system. Nonetheless, said El-Housseini, "Egypt has come a long way." The infrastructure and technology needed to develop a modern cashless payment system are already available in the market, but "in order for real change to take place, there are several crucial steps we need to take together as a society, and our success depends greatly on the support of the banking sector and the government." When technologies are applied to business activities, said El-Housseini, they tend to kick-start an economy into high gear. "Any nation that wants to participate in a global economy dominated by developed countries must ensure that its payment system is equal to those of its trading partners in the developed world." In developed economies, payment systems draw cash into bank accounts to support non-cash payment methods. In emerging economies, on the other hand, said El-Housseini, holding a bank account is not common and people either hide their cash in a safe place, subscribe to a community-based saving and lending scheme (like Egypt's gam'iya system), or hoard valuable commodities. One of the problems with this system is that cash- dependent societies encourage shadow economies, "which exist in parallel with formal economies while depriving governments of the tax revenues they need to provide services and develop national infrastructures." In addition to keeping funds outside of an economy's formal banking system, a cash economy also costs a lot to operate, which is a point that is often overlooked. According to Mohamed Mashhour, an adviser to the chairman of Banque du Caire, the fact that there is a great many parties involved in controlling the circulation of cash, and a large number of operations that inevitably have costs associated with them, such as printing, transporting, counting, sorting and distributing, means "it all costs money, and even more -- it costs time." Cairo Barclays Bank Chairman Elie Khouri said, "card-based cashless payments are very effective at reducing the size of a cash economy because they require consumers to pay money into bank accounts," which creates high levels of deposits that help banks perform their role as intermediaries between savers and borrowers. Meanwhile, the more people who join the banking system, the stronger and more stable it becomes, and from there, a whole cycle of benefits accrue. As long as Egypt remains a cash-driven economy with 90 per cent of the general population managing their finances outside of banking institutions, said Khouri, "we will continue to have a slow, low-tech approach to development." Some positive steps are in the works. Banque du Caire's Mashhour told Al-Ahram Weekly that discussions have been taking place with "several key ministries to develop payroll cards to distribute monthly salaries to government employees." A Global Insight survey, meanwhile, revealed that a 10 per cent increase in the share of card payments could amount to a 0.6 per cent increase in GDP -- adding an extra $620 million to the pie.
