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Africa Payments: Insights Into African Transaction Flows SWIFT Africa Payments: Insights white into African transaction fl ows paper FOREWORD By Moono Mupotola, Manager Regional Integration & Trade Division African Development Bank SWIFT: ‘Africa is rising’ is a powerful Africa’s economic integration agenda Today, Africa’s fi nancial markets remain phrase these days. Indeed, Africa is on-going and the majority of the weak and rudimentary, focusing only Thierry Chilosi has a youthful population and continent’s 54 countries belong to on retail; building a strong intermediary one or more of the Regional Regional sector is crucial for stronger fi nancial Damien Dugauquier growing middle class which the AfDB projects will spend more Economic Communities (RECs) that markets. Given the presence of at least Geraldine Lambe than $1 trillion by 2020 – up from is pursuing either a free trade area or 800 commercial fi nancial institutions $680 million in 2008. The rising customs union. At the 2012 African in Africa, the next step will be to assist Michimaru Onizuka middle class will undoubtedly help Union Summit, African heads of state banks, particularly domestic banks, to drive up demand for consumer endorsed the Continental Free Trade to develop the capacity to become Area (CFTA) – expected to be in place confi rming and corresponding banks so goods, creating the business case by 2017 – with the goal of increasing that we can lower costs. The authors would like to thank the following for their support in producing this paper: for African fi rms to upgrade their intra-African trade to 25% of total trade production processes and expand The AfDB, through its trade fi nance Rob Green, Head, Payments Market Infrastructure, FirstRand Bank in the next decade. their businesses. We already see programme, will focus on strengthening Goolam Balim, Chief Economist and Head of Research, Standard Bank glimpses of this occurring: value- However, as Africa pursues deeper the capacity of domestic banks to meet added goods account for an economic integration, facilitation international standards as a way to Vincent Mommaerts, Correspondent Banking, BNP Paribas Fortis increasing share of intra-Africa of payments across borders and provide affordable fi nance for small and integration of fi nancial markets can no medium enterprises. With the improved Moono Mupotola, Manager, Regional Integration & Trade Division, African Development Bank exports, versus primary goods for extra-Africa exports. longer be ignored. Transaction costs legal and regulatory reform, as well as Leina Gabaraane, Managing Director, Stanbic Botswana & Chairman, SADC Banking Association remain high, at least partly because a cross-border payment systems and The AfDB estimates that in 2010, 16% large proportion of settlement processes technological innovation, the trade Nerina Visser, Head of ETFs and Beta, Nedbank Capital of Africa’s exports were directed to other - 48% - within Africa involve banks fi nance programme could have positive African states – higher than the 12% outside of Africa. This impacts the effects both on recipients and levels of Patrick Gutmann, Head of Transaction Banking, Ecobank fi gure most often cited. Moreover, at productive capacity of African fi rms. African imports and exports. Nkosinathi Moyo, Group Manager Cash Management, Ecobank $57 billion, intra-Africa exports are not This report also shows that 39% of Continuing Africa’s structural insignifi cant. What is also encouraging Africa’s fi nancial fl ows go to the United transformation will be crucial in order is that in the period 2000-2010, exports States, even though it accounts for to extend the continent’s growth story leaving Africa grew at only two-thirds the only 9% of commercial fl ows. As and promote inclusive growth. Along rate of intra-African exports. Challenges we put renewed focus on industrial with driving forward integration, focus remain, including continued efforts and value chain development across must also be on deepening the fi nancial to remove non-tariff barriers, such as the continent in order to boost the sector. delays along transit routes and borders; effi ciency and profi tability of African As its cross-border markets expand, reducing transaction costs for cross- trade, it is imperative that we address understanding the movement of goods border payments; reducing high energy the economic costs of settling so many and money remains important. Such costs; and eliminating rent-seeking payments in dollars. Making cross- trade data has the potential to identify activities and restrictive domestic border payments easier, cheaper and key trends and highlight possible drivers policies. Addressing these will improve safer is an important part of the trade for change. This helps to bring clarity the competiveness and productive story and an obvious step towards and understanding to the marketplace. capacity of African fi rms. boosting trade. As such, papers like this one play an important role in promoting debate. SWIFT © 2013 1 Executive summary Economic and demographic data The US dollar prevails as the has increased at the expense of Political will to regionalise, raise International regulatory pressures The SWIFT data in this report demonstrate how fast Africa is growing dominant trade currency and the trade with the US. Part of this may FDI attractiveness and foster more also impact cross-border underscores the importance of trade – and how much further potential EUR is rarely used for transactions be attributed to fl ows with Asia that intra-Africa trade. transactions. corridors between Africa and Asia there is for this vibrant continent. with clients that are not based in are denominated in USD and are The AfDB estimates intra-Africa trade New regulations are making it Pacifi c and reveals higher than expected According to UN Conference on Trade & the Eurozone. intermediated by banks in the accounts for 16% of total trade, increasingly expensive for banks in intra-Africa volumes. It also confi rms a Development (UNCTAD) data, between Almost 50% of commercial payments United States. versus 70% between European the United States and Europe to do disconnect between some commercial 2000 and 2011, Africa’s exports almost sent from Africa are denominated countries. SWIFT fi gures point to business with small and unknown and fi nancial fl ows, and highlights the However, we also see several quadrupled in value, from USD148.6 in USD. At the same time, more intra-African trade accounting for 23% counterparties. Unless banks are continued dominance of the dollar. environmental factors that may drive billion to USD581.8 billion a year. But the than 80% of the dollar transactions of the continent’s total; two possible able to prove their KYC (Know your Regional integration initiatives as they change in cross-border transaction shift in where those exports are going sent from Africa to the US have explanations for this difference could customer) and anti-money laundering mature are likely to contribute and fl ows. This could potentially lead to a is even more startling. UNCTAD fi gures their fi nancial benefi ciary in another be that SWIFT data, based on actual processes comply with the toughest impact those fl ows. These initiatives and reshaping of pan-African banking, shifts reveal two clear trends: the falling share region. Conversely, only 15% of euro payment traffi c, captures a larger requirements, they may lose business the environmental factors identifi ed have in currency usage and the opportunity of Africa’s exports going to the mature payments from Africa are eventually proportion of the “grey” economy or even fi nd they have restricted the potential to shape signifi cant change for multi-currency regional clearing markets of the US and Europe and the transferred outside of the Eurozone. than other measures, and the SWIFT access to the dollar. SWIFT data in banking on this vast continent. This in Africa. rising share of trade going to emerging data that we use for this report are shows that American and European report concludes that there will be no The relative importance of US dollar economies, particularly to Asia and based on volume [and not value]. banks have already shrunk their revolution in the transaction banking clearing banks has increased in the specifi cally to China. Boosting intra-African trade still further African banking network. This opens landscape in Africa but rather an past 10 years. is important, as it has huge potential the way for larger African transaction evolution towards fewer but larger pan- Boosting trade both within and outside Contrary to what may have been to create employment, be a catalyst banks to position themselves as a African banks and a gradual pressure to Africa is a key goal of policy makers expected, the market share of USD for investment and to boost growth gateway to other markets in Africa. adapt to new dynamics in the currency across the continent. Understanding clearing banks has grown rather than in Africa. As a result, political backing environment. The scenarios discussed Africa’s trade fl ows in terms of scale and Financial market infrastructures diminished in the past decade – rising for regional integration projects that will be driven by macro-economic and composition, therefore, will be crucial modernising. from just under 25% to almost 40% – support these aims is likely to impact political forces – yet, commercial banks, in determining the right policies and African countries are investing in even while trade with Asia transaction fl ows. regulators and other actors in the African processes to support further growth. fi nancial markets infrastructures (FMIs), fi nancial industry must watch carefully This report uses SWIFT’s unique data The demand side of the African many at a regional level. Policy makers the evolution of transaction fl ows in to map trade fl ows against fi nancial Key forces driving change market is expanding and evolving. recognise that payment systems and order to anticipate market shifts.
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