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South Africa’s Cash Infrastructure in Times of Social Unrest

Categories : Cash and Crises, Cash is a contingency and fall-back solution, Cash is available to all users
August 2, 2021
Tags : Access to cash, Africa, ATMs, Cash and Crises, South Africa
Riots resulted in the destruction of bank branches and ATMs and the suspension of banking and cash management operations in South Africa. However, industry stakeholders secured business continuity in the provision and circulation of cash.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

A Perfect Storm: Unrest in South Africa

In South Africa, the imprisonment of former president Jacob Zuma for contempt of the country’s highest court related to a corruption inquiry, high unemployment, and the economic disruption of the Covid-19 pandemic caused riots in KwaZulu-Natal (Zuma’s power base) and Gauteng (the nation’s economic powerhouse, and the province where Johannesburg is located). This perfect storm created the worst social unrest in South Africa since its transition from apartheid.

Starting on July 12, protesters destroyed and ransacked businesses. More than 330 people died during the riots, which only ended after the Ramaphosa government deployed 25,000 troops on the streets. Analysts estimate the losses to stock, property damages, and lost exports at ZAR20 billion (US$1.4 billion). The targeted destruction of supermarkets, warehouses, and food packaging facilities disrupted supply chains and caused widespread food and fuel shortages.

Cash Infrastructure Affected

“We don’t think when we go to the ATM to draw cash − the banknotes are there. When we take out our cards to make payments and when we make EFT payments, we don’t stop to think about the payments process, unless of course, there are system glitches.” – Fundi Tshazibana, Deputy Governor of the South African Reserve Bank (July 28, 2021).

Rioters also vandalized and looted bank branches and hundreds of automatic teller machines (ATMs). Per a July 26 count by the Banking Association of South Africa (BASA), protesters destroyed 1,223 ATMs and 269 bank branches in the unrest.

As a precaution, South African banks shut down operations in “over 1,300 branches between 12 and 14 July.” Nedbank closed 224 of its branches and 59 boxer outlets. Absa and FNB also closed their branches.

Cash Points and Cash-in-Transit Operations Impacted

Looters also destroyed many retail outlets that serve as cash points, further stressing the country’s cash infrastructure. Protesters started fires or looted nearly 120 Shop Rite supermarkets (about 1 in 10) during the unrest.

Fidelity Services Group suspended its cash-in-transit operations in the affected areas. “We are aware of the pressure being felt by many of our commercial customers, particularly our retail customers, who are at high risk of ‘mass looting’ […] We are trying to support everywhere we can but the situation is very violent and a number of our staff have been injured,” said Wahl Bartmann, CEO of Fidelity Services Group, said.

“The destruction of bank branches and automatic ATMs in KwaZulu-Natal and Gauteng, and threats to the safety of bank employees, directly imperils the safety, social security, economic activity, and jobs of many thousands of South Africans,” said the Banking Association of South Africa (BASA).

South Africans Warned Not to Use Dye-Stained Banknotes from Looted ATMs

ATMs store banknotes in safe containers that, if broken open, stain the notes with a green dye, as part of an intelligent banknote neutralisation system (IBNS). Cash holders attempting to use green-dyed letters make themselves suspects of having stolen the ATM containers.

The South African Banking Risk Information Centre (SABRIC), a non-profit company formed by South African banks to combat financial crime, detected an increase in the attempted circulation of dye-stained notes in KwaZulu-Natal and Gauteng. SABRIC then warned customers against accepting dye-stained banknotes in retail payments.

“You may find yourself out of pocket after releasing goods or performing services because you will not be able to utilize the currency you were paid with. In addition, you run the risk of being investigated, arrested, and prosecuted for the destruction of these ATMs,” according to Nischal Mewalall, CEO of SABRIC.

The Resiliency of Cash Infrastructure in Troubled Times

Industry incumbents estimated that repairing and replacing the affected cash infrastructure would take weeks to months. According to Francois Viviers, a marketing and communications executive with Capitec Bank, “ATMs in affected areas [would] not be supplied with cash or accept deposits until it safe to do so.”

Nonetheless, bank emergency response teams were able to restore the provision of cash and ensure business continuity, thus preventing cash shortages in the affected areas, of the utmost importance in a country where cash is the most critical payments instrument. According to South African Reserve Bank (SARB) datacash in circulation grew 8.23% in value between March 2020 and March 2021, as it rose from ZAR155.544 billion (US$10.567 billion) to ZAR168.339 billion (US$11.44 billion).

According to BASA, South African banks agreed to waive their fees so that welfare beneficiaries could use any ATM without incurring any additional charges from August 1 to September 30, 2021. The country has 11.5 million South African Social Security Agency (SASSA) recipients, including child support grantees, pensioners, and other welfare beneficiaries.

The Monetary Policy Committee of the SARB expected that “the recent unrest in parts of the country [was] likely to slow our ongoing recovery,” adding to lagging vaccination and the country’s third wave of the Covid-19 pandemic. The “unrest and economic damage could have lasting effects on investor confidence and job creation […] The direct and indirect costs of recent events will likely further slow South Africa’s economic recovery,” the Committee added.

This post is also available in: Spanish