White paper
Africa Payments: Insights into African transaction flows Africa Payments: Insights Contents into African transaction flows
Foreword 3
Executive summary 4
Introduction & economic context 6
Our approach 8
Chapter 1: 2017 trends 9
Chapter 2: What is driving change in cross-border transaction flows? 15
Chapter 3: What will change in African cross-border banking? 20
Conclusion 23
Views from Africa – external contributions Interoperability: the next step for mobile money in Africa Bill & Melinda Gates Foundation 24 Financial Crime Compliance in Africa Ecobank 25 Enabling economic development in Africa – do payment systems matter? BankservAfrica 26 Facilitating inter-regional payment flows South African Reserve Bank 27
Renminbi: Africa’s long-term trading currency? Standard Chartered 28
Appendix: Regional Initiatives in Africa 29
SWIFT in Africa 39
The authors would like to thank the following for their support in producing the paper: Dilwonberish Aberra, Financial Services for the Poor, Bill & Melinda Gates Foundation Idrissa Diop, Head of Group Compliance, Ecobank Chris Hamilton, CEO, BankservAfrica Razia Khan, Chief Economist for Africa, Standard Chartered Bank Tim Masela, Head of payments department, South African Reserve Bank Kamal Mokdad, Director General, Banque Centrale Populaire Moono Mupotola, Director of Regional Integration, African Development Bank John Ndunguru, Financial Services for the Poor, Bill & Melinda Gates Foundation Bleming Nekati, Chief Trade Finance Officer, African Development Bank Philip Panaino, Regional Head, Transaction Banking, Africa & Middle East, Standard Chartered Bank Dr. Amediku Settor, Head of the Payments Systems Department, Bank of Ghana
2 Africa Payments: Insights Foreword: into African transaction flows by Moono Mupotola, Director of Regional Integration, African Development Bank
Africa is still rising. Despite challenging Countries with more advanced manufacturing This is why the African Development Bank global economic conditions over the sectors hold a potential for growth if they has supported similar initiatives across the can access a larger less-fragmented continent, including the East African Payment last five years, African economies African market. The signing of the landmark System and the West African Monetary Zone’s have shown increased resilience. Real continental Free Trade area (CFTA) by 44 project to link payment systems. Likewise, in output is growing steadily and faster countries in Kigali in March 2018 offers hope support of the CFTA, Afreximbank is working than projected. for increased intra-African trade. Similarly, on establishing a Pan-African Payment and the African Union’s Agenda 2063 calls for Settlement Platform (PAPSP), which will The continent’s strong economic growth increased intra-African trade from the current not only lower transaction costs but also over the past two decades was not met by 16% to over 25% by 2025. facilitate informal cross-border trade, currently accelerated industrialisation. On average, estimated at $93 billion. African industry generates $700 of GDP However, while the free flow of goods and per capita, less than a third compared to services is crucial in boosting intra-regional Another interesting trend is the rise of African Latin America ($2,500) and barely a fifth in trade, the movement of financial flows across multinationals investing into other African comparison to East Asia ($3,400). Low-tech borders is equally important. It has been five countries. At the forefront are African financial products and unprocessed natural resources years since SWIFT addressed the issue of institutions. Today, Ecobank has a footprint in make up for more than 80% of Africa’s exports movement of financial flows in Africa and 24 countries while Moroccan banks are now in many of the continent’s largest economies. it is still clear that foreign currency remains present in 16 countries, up from just three in This leaves them vulnerable to external the preferred payment method when trading 2005. This is welcome news. Indeed, banks shocks like fluctuations in commodity prices, across Africa and globally. However, recent support about one-third of total intra- African decreasing external demand and extreme data released by SWIFT indicates a shift trade. weather conditions. towards intra-Africa clearing and trade, and a rise in the use of local currencies. More than ever before, Africa needs to Structural economic transformations and accelerate intra-regional trade and bring down diversification can be truly transformative and While the US dollar still dominates, it is market barriers. Papers such as this SWIFT key drivers of sustained, inclusive economic releasing its hold. 51.1% of transactions from report provide invaluable insight for policy growth. However, diversification remains Africa were denominated in dollars in 2013 makers, banks and other financial institutions. timid in many African countries. Nations like compared to 45.1% in 2017. A significant The study is a compelling guide that will help Mauritius are making progress, shifting from increase can be seen in the use of local stakeholders better understand the movement a sugar-dependent economy to a regional currencies, especially the West African franc of financial flows and goods. It is my hope that financial services hub. Botswana has also and South African rand. Payments in franc the report will assist in developing the right embarked on a bold journey to diversify its increased from 4.4% in 2013 to 7.3% in 2017 policies to connect the continent’s markets, economy by positioning itself as a diamond while transactions in rand increased from deepen regional integration and adopt reforms cutting, polishing and marketing centre. 6.3% to 7.2%. that enhance competitiveness. Rwanda is also winning on the diversification front by slowly transitioning into an innovation The Central Bank of the West African States and technology hub, while Ethiopia is poised and the Southern African Development to become a manufacturing hub. However, the Community’s Integrated Regional Electronic diversification and transformation challenge Settlement System have played a key role remains for many others. in supporting this. The value that regional harmonisation plays in promoting sustainable economic development is undeniable.
3 Africa Payments: Insights Executive into African transaction flows summary
Recent economic and demographic 2017 TRENDS 4. Financial flows do not reflect the data demonstrates how fast Africa magnitude of commercial flows is growing and how much potential In this paper, we consider two types of between Africa and the Asia Pacific transaction flows: region. there is for this vibrant continent. – Commercial flows, which correspond to the While 21.7% of commercial flows are Despite global economic shocks in end-destination for goods and services destined for Asia Pacific, only 5% of recent years, Africa is recovering more – Financial payment flows, which indicate the financial flows are routed through the quickly than expected and growth is route that payments take, i.e. the location of region. Flows to Asia specifically remain largely denominated in US dollars as the predicted to accelerate in 2018. the intermediaries that are clearing/settling the payments dominant reserve currency.
Africa’s trading relationships are evolving. This paper makes seven key observations: 5. There has been a decrease in trade Over the past decade, trade has begun between the United Kingdom and to move away from developed countries 1. Intra-Africa clearing and trade is Africa. Whilst still a major financial and towards other emerging economies increasing in importance hub, the UK is also used less as a including India, Indonesia, Russia and Almost 20% of all cross-border payment route for transactions from 1 Turkey . However, boosting intra-African commercial payments sent by African Africa trade will provide the greatest potential for banks now remain within the continent, up SWIFT data suggests that both the British building sustainable development and is a key from 16.7% in 2013. Intra-African clearing pound and UK clearing banks are losing goal of policymakers across the continent. of payments has increased from 10.2% in share of African imports with commercial Understanding Africa’s trade flows in terms 2013 to 12.3% in 2017. flows dropping to from 10.4% in 2013 of scale and composition, therefore, will be to 9% in 2017 and financial flows from crucial in determining the right policies and 2. North America remains the main 11.7% to 9.3%. processes to support further growth. payment route of financial flows from Africa, however, its dominance is 6. The US dollar remains the dominant In 2013, SWIFT published a report that used declining trade currency, however, we see SWIFT’s data to map trade flows against African financial flows are still dominated increased use of the euro and African financial flows, revealing a unique perspective by payments to North America, however, regional currencies and decreased on Africa’s transaction patterns. In 2018, North American clearing dominance is use of the British pound we are updating this data to reveal how decreasing. Banks in North America Use of the US dollar has decreased transaction banking has changed in Africa (mainly the United States) now receive as a share of payments originating in over the last five years. The report also 39.5% of all payments sent by Africa, Africa from more than 50% in 2013 to identifies potential drivers for change and their down from 41.7% in 2013. 45.1% in 2017. The euro is increasing in impact on banks doing business in Africa. importance, up from 26.5% to 29.4%. Finally, we look at the future of cross-border More than 80% of the transactions sent The British pound, however, has seen banking in Africa. from Africa to the United States have their a decrease in use from 6.2% to 4.6%. final beneficiary in another region. The Meanwhile, the use of local currencies two main regions where the payment will such as the West African franc is eventually be transferred are Asia Pacific increasing. (35%) and Africa (19.5%). 7. There is a reduction in the number 3. Europe’s significance as a clearing and of foreign correspondent banking trading partner for Africa is increasing relationships in most African regions Commercial flows directed to clients based Since 2013, almost all African regions in Europe have increased from 26.4% in have experienced a significant drop in the 2013 to 28.6% in 2017. Financial flows number of foreign correspondent banking with Europe have also increased in very relationships. The Maghreb region has similar proportion to the commercial seen the largest reduction, of 47.25%, flows, indicating that volumes cleared by since 2013, while the East African European banks are closely related to Community is the only region to see an trade activity between Africa and Eurozone increase in relationships. countries.
1 IMF Direction of Trade Statistics, 2017
4 Executive summary Africa Payments: Insights into African transaction flows
ENVIRONMENTAL FACTORS 2. Evolving & expanding DRIVING CHANGE demand in Africa
We have also identified several environmental factors that are driving change in cross-border transaction flows. These are re-shaping cross- border banking in Africa and leading to more intra-African trade. Bigger Move to African regional 1. Political will players currencies 3. Development of 1. Political will for regional integration for regional financial and harmonisation integration and infrastructure Regional harmonisation is and will harmonisation continue to be a significant driver of Interlinkage Multi- economic transformation in Africa. This of regional currency will impact all types of industrial and payment clearing commercial activity across the continent, systems and consequently payment flows. Policy makers have recognised the need to build sound financial marketplaces with the appropriate legal framework and technological infrastructure. Regional harmonisation projects are a major 4. Increasing regulatory catalyst for the evolution of cross-border pressure trade and banking in Africa and are driving the increased use of local currencies across the region.
2. The demand side of the African 4. Regulatory pressure in financial CONCLUSION market is expanding and evolving markets The political will to achieve harmonisation Transaction patterns are being shaped SWIFT data in this report underscores the across the continent is driving agreements by international regulations that impose importance of intra-regional trade corridors, that enable free trade, such as the African strong prudential controls and operate both for financial and commercial flows. The Union’s Continental Free Trade Area a close to zero-tolerance to exposure to data also clearly indicates that the dominance (CFTA). This is facilitating corporate growth potential money-laundering and terrorist of the US dollar is declining and there is a shift across Africa, which, in turn, is leading to financing. It is becoming increasingly towards the use of the euro and Africa’s local change in cross-border transactions. difficult for global transaction banks to do currencies. business with smaller African banks that 3. The development of Africa’s financial cannot easily demonstrate strong Know As regional initiatives across Africa continue infrastructure Your Customer, anti-money laundering and to mature, they are likely to contribute to African countries are investing in financial counter-terrorist financing processes. This and impact these flows and promote the market infrastructures (FMIs), many at a has led many global transaction banks to use of local currencies. However, since most regional level. Policy makers recognise review and rationalise their correspondent commodities are denominated in dollars, the that payments systems and other banking relationships, which in turn has US dollar will continue to be used for a large infrastructures are an enabler for economic led to a reduction in the number of foreign proportion of payments in the future. growth and quickly repay their investment. correspondent banking relationships in The development of strong and secure Africa. Macro-economic and political forces have FMIs has also been important in helping to been shaping Africa’s banking sector over drive more cross-border trade within Africa the last five years and will continue to do so. and with the rest of the world. Digitisation and technological innovation will also play an increasingly important role in defining Africa’s financial landscape. To be successful, pan-African players will need to seize the opportunities offered by these shifts and use them to their advantage.
5 Africa Payments: Insights Introduction & into African transaction flows economic context
Figure 2: African commercial payments evolution Millions The sustained growth of African 90 economies is clearly reflected in Growth: 2017 vs 2007 SWIFT payments volumes, which 75 212% have been increasing year-on-year, ahead of global growth patterns 60 across SWIFT (see Fig. 2).
45 Analysis of transaction flows originating from different African economic regions shows the growing importance of intra-Africa trade, and 30 the decreasing dominance of North American banks as intermediaries for cross-border payments. While the US dollar and euro 15 remain the predominant base currencies for settling cross-border trade, increasing and 0 renewed pressure from political and economic 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 drivers are challenging the status quo. So what does this mean for cross-border banking Live and delivered MT 103, traffic sent and received in Africa, FY 2007 – FY 2017 Source: SWIFT BI Watch in Africa?
In 2013, SWIFT published the white paper 2017 and growth is expected to accelerate 2 “Africa Payments: Insights into African further this year. Advanced economies: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Transaction Flows”, which attempted to frame Finland, France, Germany, Greece, Hong Kong SAR, the cross-border banking context in the midst While recovery has been faster than many Iceland, Ireland, Israel, Italy, Japan, Korea, Republic of regional initiatives, international regulatory economists expected, natural resources of, Latvia, Lithuania, Luxembourg, Macao SAR, pressures and the reconfiguration of trade remain the biggest contributor to African Malta, Netherlands, New Zealand, Norway, Portugal, corridors. Supported by some unique market growth, which leaves commodity-dependent Puerto Rico, San Marina, Singapore, Slovak Republic, data on payment routes, we identified various Slovenia, Spain, Sweden, Switzerland, Taiwan, markets vulnerable to shocks – as illustrated Province of China, United Kingdom, United States trends that summarised transaction flows in in 2015/2016 when the price of oil collapsed. Africa at this time and explored the drivers for change. However, the African Development Bank (AfDB) believes that many African countries Figure 3: GDP in 2018 based on PPP In 2018, we are updating and reviewing this are now more resilient and better placed to data to explore how transaction banking has cope with volatile market conditions than (Billions of current international dollars) changed in Africa over the last five years, what ever before. AfDB figures from 2015 showed external conditions are driving these changes, that the five fastest growing African countries Advanced economies 55,004 and look at possible evolution scenarios that were non-resource rich, led by Ethiopia, Ivory will impact banking in Africa in the years to Coast and Rwanda. come. China 25,239 That said, policymakers across the continent ECONOMIC CONTEXT recognise the need to diversify, scale up infrastructure and human capital, and to India 10,385 The African economy is almost ten times industrialise in order to create sustainable 2 growth and generate employment for a smaller than advanced economies and four Africa (Region) 6748 times smaller than China. Compared to the growing labour force. Africa will be the BRIC countries, Africa’s total GDP would rank youngest and most populous continent in third, between India and Russia (see Fig. 3). the next few decades, with its labour force Russian Federation 4169 expected to reach nearly two billion by 20633. Global and domestic shocks in 2016 slowed foreign direct investment (FDI) will remain Africa’s pace of growth, which had previously fundamental in supporting the development Brazil 3389 been outperforming total global growth for of Africa’s critical infrastructure. According more than a decade (see Fig. 4). However, to EY’s Attractiveness Programme Africa, Source: IMF signs of recovery were already evident in heightened geopolitical uncertainty and
6 Introduction & economic context
Figure 4: GDP Growth 8
6
4 Figure 5. The reach of the Continental Free Trade Area 2 Still, the focus for most African policy makers remains boosting intra-regional trade within 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 the continent, which has yet to reach its full potential and lags behind other regions such as Europe or Asia. In 2016, intra-African -2 exports made up 18% of total exports, compared to 59% and 69% for intra-Asia -4 and intra-Europe exports, respectively7. Africa Source: IMF The figures for imports are similar. Advanced Economies World Africa’s policymakers believe that increased intra-African trade could drive significant economic transformation across Africa. “multispeed” growth across Africa presents Trade between Africa and other regions is still Several regionalisation projects have been a mixed FDI picture for the continent. The dominated by ‘primary’ goods6. More than launched that aim to boost intra-African trade number of FDI projects decreased in 2016 50% of this trade is made up of the products by removing the obstacles to doing business by 12.3%. However, in terms of capital and goods available from cultivating raw and by harmonising rules and regulations investments, the flow of FDI increased in materials without a manufacturing process, between African countries. 2016 and the continent’s global share of FDI in industries including mining, agriculture, capital flows grew to 11.4%, making it the fishing and forestry. Additionally, the recent signing of the second fastest growing destination measured Continental Free Trade Area (CTFA), the by FDI capital. New projects launched While China has emerged as an important largest trade agreement since the launch of included real estate, hospitality, contrition, trading partner for Africa, there is a divergence the World Trade Organisation in 1995, is a transport and logistics4. between the routes and currencies used major step towards building a ‘borderless for payments and the end destination of Africa’. It currently brings together 44 African the goods. For the moment, the use of the AFRICA’S TRADING PARTNERS countries. If all 55 African states were to sign renminbi is negligible. This may change the deal, it would cover a market of more than if African central banks move to use the Africa’s relationship with the world is 1.2 billion people, including a growing middle renminbi as a reserve currency. In May 2018, changing. Over the past decade, trade has class, and a combined GDP of more than the MEFMI hosted a Forum for Eastern and begun to move away from OECD countries $3,400 billion and has the potential to boost 5 Southern African permanent secretaries of the and towards emerging economies . At the intra-Africa trade by more than 52% through Ministries of Finance and deputy governors same time, there is growing evidence that the elimination of import duties; economists of central banks in Harare. Seventeen African countries are increasingly trading with argue this increased trade could be doubled if representatives from 14 nations discussed the their near neighbours. non-tariff barriers are also reduced. possibility of adopting the renminbi as part of a reserve currency management initiative According to the African Economic Outlook This paper takes an in-depth look at the by central banks in the region. It is hoped 2017, intra-African trade has increased impact of these trends on the financial the introduction of the Chinese currency will fourfold over the last two decades, industry and explores the insights that enhance currency and debt management, and suggesting that such African trade is less Africa’s transaction flows can offer about the unlock greater trade value. vulnerable to economic downturns than nature of future growth and development. exchanges with other parts of the world. This is because intra-regional trade comprises mainly manufactured goods 3 African Economic Outlook 2018 4 which are less susceptible to price shocks Attractiveness Programme Africa, 2017, EY 5 IMF Direction of Trade Statistics, 2017 than commodities, for example. 6 African Economic Outlook 2017 7 Brookings Institute
7 Africa Payments: Insights Our approach into African transaction flows
Figure 6: Transaction flows
This paper considers transaction flows EXAMPLE 1 based on cross-border commercial payments, because these mirror actual trade flows and generate the Financial flow associated financial flows. Bank of Client A
Two types of transaction flows can be Goods / services differentiated: commercial flows and financial Bank of Client B flows. Commercial flows refer to the payment instruction sent by the bank of a client A, typically a corporate, to the bank of a client Commercial B for the import of goods or services. These flow flows are measured based on the commercial payments sent by banks from Africa to the country in which the end-beneficiary is situated.
Financial flows represent the payment route used for the settlement of the transaction. EXAMPLE 2 Clearing Bank They are measured using the number of commercial payments sent by banks from Africa to the country of the counterparty bank.
Commercial and financial flows can mirror each other – see example 1 with an African Financial flow Financial flow import from Europe where the payment is directly routed to a European bank, or show a disconnect – see example 2 with an African import from Asia intermediated by a clearing Bank of Client A Bank of Client B bank in the United States. Goods / services
Transaction flows are measured based on customer credit transfers (called MT 103 SWIFT messages) executed on the SWIFT Commercial network. flow
SWIFT connects more than 11,500 financial institutions and corporations in more than 200 countries and territories providing the proprietary communications platform, SWIFT’s presence in the African region is products and services that allow its growing rapidly, as shown with the number customers to connect and exchange financial of high-value payment (HVP) and low- information securely and reliably. SWIFT is value payment (LVP) systems using SWIFT. widely recognised as the trusted financial In addition, there are several countries telecommunication service provider for the and regional initiatives currently under payments clearing market, and provides implementation that are expected to go into messaging services for more than 115 production in the coming months and years. domestic and international payments clearing systems worldwide in 130 countries. This paper discusses the current situation in Africa, and takes a closer look at the different regional initiatives. We will explain the drivers for the continued evolution of transaction flows in Africa and we highlight new trends in the continent’s payments environment.
8 Africa Payments: Insights Chapter 1 into African transaction flows
2017 TRENDS
9 Chapter 1: 2017 trends Africa Payments: Insights into African transaction flows
Figure 7: Evolution of GDP compared to SWIFT payment volumes (MT 103)
SWIFT forecasts 4% GDP growth in 2018 based on the evolution of SWIFT payments volumes
2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Africa payments on SWIFT Source: IMF and SWIFT BI Watch GDP
Economic growth in Africa is 1. Intra-Africa clearing and trade is indicates that this remains the main represented by transaction flows increasing in importance (see Fig. 8) clearing route. However, North American SWIFT data shows a significant increase clearing dominance is decreasing. Banks on the SWIFT network. With the in commercial payments within Africa. in North America (mainly the United States) exception of 2009, transactions flows Commercial payment flows correspond now process 39.5% of all payments sent sent by banks in Africa have shown a with the end-destination for goods and by Africa, down from 41.7% in 2013. year-on-year growth of around 10%. services. Almost 20% of all commercial payments sent by African banks now More than 80% of the transactions sent remain within the continent, up from from Africa to the United States have their Transaction flows in Africa today 16.7% in 2013. final beneficiary in another region (see can be summarised in seven Fig. 9). The two main regions where the observations: Clearing of payments within Africa is payment will eventually be transferred are also increasing. Financial payment flows Asia Pacific (35%) and Africa (19.5%). indicate the route that payments take, i.e. the location of the intermediaries that are settling the payments. Intra-African 3. Europe’s significance as a clearing and clearing of payments increased from trading partner for Africa is increasing 10.2% in 2013 to 12.3% in 2017. (see Fig. 8) Historically, Europe has been the largest While this indicates that intra-African trade trading partner for the African region. In and payments clearing are increasing, 2015, 30% of African trade was carried out African banks and companies are still with the EU8. The strong Africa-EU trade using foreign financial intermediaries to relationship is also reflected in SWIFT’s facilitate trade, notably in North America data. Commercial flows directed to clients and Europe. based in Europe have increased from 26.4% in 2013 to 28.6% in 2017. 2. North America remains the main Financial flows with Europe have also payment route of financial flows from increased in very similar proportion to Africa, however, its dominance is the commercial flows. This indicates that declining (see Fig. 8) volumes cleared by European banks are 8 African Economic Outlook 2017 African financial flows are still dominated closely related to trade activity between by payments to North America, which Africa and Eurozone countries.
10 Chapter 1: 2017 trends Africa Payments: Insights into African transaction flows
Figure 8 Where are commercial payments from Africa going to? (Commercial flow)
28.6 Europe – Euro Zone 26.4 19.9 Africa 16.7 11.6 Asia-Pacific without CN/HK 11.7 10.3 North America 13.2 10.1 CN/HK 11.3 9.0 United Kingdom 10.4
Europe – Non Euro Zone without UK 5.6 5.2
Middle East 4.2 4.4
Central & Latin America 0.7 0.6
FY 2017 FY 2013 %
Live and delivered MT 103 sent from Africa, cross-border
Which payments routes are being used? (Financial flow)
39.5 North America 41.7 31.7 Europe – Euro Zone 29.1 12.3 Africa 10.2 9.3 United Kingdom 11.7 3.5 Asia-Pacific without CN/HK 3.6 1.5 CN/HK 1.4
Europe – Non Euro Zone without UK 1.3 1.2
Middle East 0.8 1.0
Central & Latin America 0.1
FY 2017 FY 2013 %
Live and delivered MT 103 sent from Africa, cross-border Source: SWIFT BI Watch
11 Chapter 1: 2017 trends Africa Payments: Insights into African transaction flows
Figure 9. Final destination of payments from Africa routed through US clearing banks
4. Financial flows do not reflect the magnitude of commercial flows between Africa and the Asia Pacific Asia-Pacific 35.0 region (see Fig. 8) In our 2013 report, SWIFT data showed that while 21.6% of African commercial Sending bank Finance Africa flows were directed to customers in Asia Africa counterparty 19.5 Pacific, only 5% of financial flows were USA routed through the region. The same trend North America is reflected in this year’s data. While 21.7% 15.3 of commercial flows are destined for Asia Europe – Euro Zone Pacific, only 5% of financial flows are 10.7 Commercial counterparties routed through the region. Middle East 7.9
This divergence is explained by the use Other regions 11.6 of the US dollar by African banks and % companies (more than 45% of cross- border flows) and intermediation of financial Source: SWIFT BI Watch flows by US dollar clearing banks in the United States. Flows to Asia specifically remain largely denominated in US dollars. 6. The USD remains the dominant trade Figure 10. Africa’s currency usage for As trade with China and investment from currency, however, we see increased cross-border commercial payments China has increased, many expected an use of the euro and African regional OVERALL CURRENCY USAGE – 2013 increase in the use of the Chinese renminbi currencies and decreased use of the (RMB), however this has not materialised. British pound (see Fig. 10) Others 5.5 XOF 4.4 The US dollar accounted for more than 5. There has been a drop in trade 50% of payments from Africa in 2013 and GBP 6.2 between the UK and Africa. The UK is this has decreased to 45.1% in 2017. also used less as a payment route for The euro is increasing in importance, up transactions from Africa (see Fig. 8) from 26.5% to 29.4%. The British pound, ZAR 6.3 In 2013, the UK was the end beneficiary however, has seen a decrease in use from USD 51.1 % for 10.4% of all payments being sent 6.2% to 4.6%. from Africa, while 11.7% of payments EUR 26.5 were routed through the UK. SWIFT data The use of local currencies, including the suggests that both the British pound and West African franc and South African rand, UK clearing banks are seeing a reduction is increasing. Use of the franc for cross- in their share of African imports with border payments has overtaken the rand commercial flows dropping to 9% and and the pound, accounting for 7.3% of financial flows to 9.3% in 2017. payments in 2017, up from 4.4% in 2013. OVERALL CURRENCY USAGE – 2017 The rand has seen a smaller increase The data shows that Africa’s share of in cross-border payments from 6.3% to Others 6.4 payments to the UK has dropped and 7.2%. GBP 4.6 that the payment flows are now almost exclusively related to goods and services Despite more than 10% of payments from the UK, and not to the clearing ending up in China, the use of the renminbi ZAR 7.2 of payments for goods and services is negligible, only 0.1% of all payments are USD 45.1 originating from elsewhere. denominated in RMB. XOF 7.3 % If we break down the use of currency by African region, the data shows EUR 29.4 some obvious patterns in cross-border payments.
Source: SWIFT BI Watch
12 Chapter 1: 2017 trends Africa Payments: Insights into African transaction flows
Figure 11. Africa’s currency usage for cross-borderCurrency commercial usage of payments integration by regionsregion
0 10 20 30 40 50 60 70 80 90 100 %
2017 More EUR and ZAR
SADC 2013
2017 More USD and others
EAC 2013
2017 More USD 2013 WAMZ ECOWAS
2017 More XOF 2013 WAEMU UEMOA/ (BCEAO) ECOWAS–
2017
2013 More EUR BEAC
2017 Stable 2013 Maghreb
2017 More EUR and others 2013 COMESA
2017 More EUR
ECCAS 2013
Live and delivered MT 103 sent from Africa, cross-border, FY 2013 vs FY 2017 USD EUR
ZAR XOF In the Southern African Development West and east Africa are the only regions in GBP Others Community (SADC) there has been which the use of the dollar has increased. a significant drop in the use of the COMEA, ECCAS and BEAC all see an Source: SWIFT BI Watch dollar while the euro and the rand have increase in the use of the euro, which also increased. Currency usage should be dominates in the Maghreb region. revisited when the dollar becomes a settlement currency on SIRESS (SADC’s intra-regional payments system), which is planned for late 2018.
The increase in the use of the West African franc in Africa is linked to the Central Bank of West African States, since is it the common currency for eight countries in the region. Over the last five years there has been a significant increase in the use of the franc, while use of the euro has reduced in the region.
13 Chapter 1: 2017 trends Africa Payments: Insights into African transaction flows
Figure 12. Number of unique foreign correspondents in Africa per region
2,500
FY 2013 FY 2017
2,000
-16.08%
1,500
1,000 -20.11% Number of correspondents
+7.11% 500 -47.25%
-17.63% -5.99% -4.35% -4.72% 0 SADC COMESA Magreb EAC ECOWAS-WAMZ ECOWAS-UEMOA ECCAS BEAC (BCEAO) Live and delivered MT 103, cross-border payments Source: SWIFT BI Watch Number of unique foreign parties sending commercial payments
7. There is a reduction in the number of foreign correspondent banking relationships in most African regions (see Fig. 12) The data shows that since 2013, almost all African regions have experienced a drop in the number of foreign correspondent banking relationships. The Maghreb region has seen the largest fall, of 47.25%, since 2013.
SADC and ECOWAS/WAMZ have seen a similar drop in the number of relationships (16-17%); however, SADC has a larger number of relationships than ECOWAS/ WAMZ, more than 2000, compared to fewer than 300 in ECOWAS/WAMZ.
In contrast, EAC is the only region to increase the number of foreign correspondent banking relationships, by 7.11% between 2013 and 2017.
14 Africa Payments: Insights Chapter 2 into African transaction flows
WHAT IS DRIVING CHANGE IN CROSS-BORDER TRANSACTION FLOWS?
15 Chapter 2: What is driving change Africa Payments: Insights in cross-border transaction flows? into African transaction flows
Cross-border payments, both intra- initiatives taking place across the continent African foreign direct investment – money Africa and between Africa and the rest (see Fig. 13). Such regional harmonisation that African companies invested in African projects are a major catalyst for the countries – nearly tripled11. of the world, are still skewed towards evolution of cross-border trade and US dollar usage and dollar clearing via banking in Africa. This growth is supported by SWIFT data, North American banks. However, this which reveals that commercial payment pattern is changing, with SWIFT data The impact of regional initiatives can flows – showing the end recipient of the showing a move away from the US be seen in SWIFT’s data. Intra-African payment and therefore the destination of financial flows – the route taken by the goods and services – have risen from dollar towards greater use of African payments – have increased from 10.2% 16.7% to 19.9% between 2013 and end currencies and the euro. in 2013 to 12.3 in 2017. There is also an of 2017. increased use of local currencies in regions Below we look at some of the regional that have strong regional integration. The The signing of the CFTA agreement by 44 countries in March 2018 is a major step forces that have been re-shaping West African franc, for example, used by all members of the West African Economic towards building a “borderless Africa” that African cross-border payment flows and Monetary Union, has increased in use will further boost Intra-African trade. Under and leading to more intra-Africa trade from 4.4% in 2013 to 7.3% in 2017. The the continent-wide agreement, nations use of the South African rand, which is commit to cut tariffs on 90% of goods. It 1. Political will for regional integration the settlement currency of SIRESS (see is the largest free trade zone established and harmonisation Fig. 13), has also increased from 6.3% to since the creation of the World Trade Regional harmonisation is and will 7.2%. Organisation in 1995. continue to be a significant driver of economic transformation in Africa. This 2. The demand side of the African The African Development Bank expects will impact all types of industrial and market is expanding and evolving that the CFTA will stimulate intra-African commercial activity across the continent, Regional harmonisation is and will trade by up to $35 billion per year, and consequently payment flows. continue to be a significant driver of generating a 52% increase in trade by economic transformation in Africa. This 2022 and a $10 billion decrease in imports 12 Many African countries believe that will impact all types of industrial and from outside Africa . These efforts will regional collaboration will contribute to commercial activity across the continent, continue to push up intra-Africa payment achieving their political, economic and and consequently payment flows. flows. social goals. Africa comprises 54 countries with disparate economies. Smaller The political will to achieve harmonisation The move towards more intra-African markets can be constrained in their is driving agreements that enable free trade is also reflected in change in the growth prospects and have less leverage trade, such as the Continental Free Trade use of currency. SWIFT data shows that at international level. Forging regional ties Area (CFTA). This is facilitating corporate the use of the US dollar has dropped as through integration and cooperation can growth across Africa, which, in turn, a share of payments from Africa from eliminate obstacles to trade and make is leading to change in cross-border 50% in 2013 to 45.1% in 2017. There is regions more competitive in the global transactions. a significant increase in the use of several marketplace. This brings greater economic regional currencies. Use of the West stability and resiliency. A growing number of companies are pan- African franc has increased in use from African in their operations, with successful 4.4% in 2013 to 7.3% in 2017, and the Because trade between African countries companies emerging in retail, financial South African rand from 6.3% to 7.2%. has the greatest potential for sustainable services and transportation. Africa has economic development, regional 700 companies with revenues of more harmonisation is also seen as a way to than $500m10. According to a report by foster intra-Africa trade flows and attract Boston Consulting Group, there are 150 foreign direct investment from within leading companies investing in Africa, 75 and beyond the continent. To that end, of which are Africa-based, coming from 10 policy makers have recognised the need 18 countries across the continent: 32 Lions on the Move II: Realising the potential of from South Africa, 10 from Morocco and Africa’s economies, McKinsey, 2016 to build sound financial marketplaces 11 Pioneering One Africa, The Companies Blazing a with the appropriate legal framework and 6 from both Nigeria and Kenya. The report Trail Across the Continent, Boston Consultancy technological infrastructure. also found that, between 2006/2007 and Group, 2018 2015/2016, the average annual amount of 12 https://www.afdb.org/en/news-and-events/african- This is illustrated by the numerous regional development-bank-pledges-full-support-towards- success-of-continental-free-trade-area-17968/
16 Chapter 2: What is driving change Africa Payments: Insights in cross-border transaction flows? into African transaction flows
BCEAO In the West African Economic and Monetary Union, countries share a common currency (the West African EAPS The East African Regional Payment System (EAPS) was franc, XOF) and clearing and settlement infrastructure for launched in November 2013 with Kenya, Tanzania and payments (the Central Bank of the West African States Uganda. Rwanda successfully joined the EAPS in December BCEAO). By the end of 2016, there were 118 participants 2014 and Burundi is expected to connect this year. The on the regional RTGS, settling 758,995 transactions at a regional payment platform facilitates intra-regional trade by value of 457,831 billion francs in 2016 alone13. The impact allowing easier, faster, cheaper and secure transfer of funds of this project is clear in SWIFT’s data. Almost 30% of by both importers and exporters. Clearing takes place in local cross-border payments in this region are denominated in currencies. The success of the system is yet to be confirmed. the West African franc, and this figure is increasing. There is limited data available on current transaction volumes. What is clear, however, is that the US dollar continues to be the dominant currency within this region.
Figure 13. Spotlight on some of Africa’s regional payment systems WAMZ The West African Monetary Zone (WAMZ) is currently working on a project to interlink real time gross settlement (RTGS) systems in the region, which could make payment flows easier and cheaper since banks will no longer need to open subsidiaries across the region. Currently, the US dollar dominates payments flows from this region, which is likely linked to oil exports from countries like Nigeria. With an integrated payments system in place, it remains to be seen whether there will be a shift to the use of regional SIRESS currencies. In July, 2013, the Southern Africa Development Community (SADC) launched the SADC Integrated Regional Electronic Settlement System (SIRESS). SIRESS settles payments between participating banks in South African rand. From its inception to 31 March 2017, 83 participants carried out 712,099 transactions with a value of 3,100 billion rand on the system. The system delivers faster settlement time, a reduction of settlement risk and lower cost of transacting. Coupled with increased FDI into African countries by mainly South African corporates, the SIRESS platform to a large extent provides an explanation for the increasing usage of the South African Rand (ZAR) as a settlement currency in comparison to 2013.
13 Annual Report on the payment systems of the BCEAO, 2016
17 Chapter 2: What is driving change Africa Payments: Insights in cross-border transaction flows? into African transaction flows
2. continued: 3. The development of Africa’s financial FMIs make intra-regional payments more While intra-African trade is increasing, its infrastructure competitive, reducing the need for foreign biggest trading partners are still outside Infrastructure weaknesses in Africa can be intermediation. As infrastructures mature, of the continent. According the African barriers to economic development. The intra-Africa transactions will converge Development Bank, 30% of African trade African Development Bank estimates the towards them. was carried out with the EU in 201514. infrastructure ‘gap’ to be about $50 billion The strong Africa-EU tie is reflected in per year16, which has led to a massive 4. Regulatory pressure in financial SWIFT’s data, with commercial payments ramp-up in public infrastructure projects. markets increasing from 26.4% in 2013 to 28.6% Transaction patterns are being shaped in 2017, and the use of the euro increasing Like telecommunications, roads and ports, by regulations that impose strong from 26.5% to 29.4% of all payments from financial market infrastructures (FMIs) prudential controls and operate a Africa. are an enabler for economic growth and zero-tolerance to exposure to potential quickly repay their investment, so many money-laundering and terrorist financing. This is a result of certain partnerships governments have made this a major For American and European global including the Africa-EU Strategic priority in the last few years. transactions, banks operating from Partnership established in 2007, which jurisdictions where the regulatory regimes acts as the formal platform for cooperation SWIFT is supporting the development are particularly onerous, it is becoming between the two continents. There are of Africa’s financial infrastructure and increasingly difficult and more expensive also numerous bilateral and unilateral connects and serves more than 25 market to do business with small African banks, agreements between the EU and Africa, infrastructures across the continent. especially if they cannot demonstrate that which means that most African countries they have robust Know Your Customer, enjoy duty-free and quota-free access to The first generation of FMI was introduced anti-money laundering and counter- the EU market15. in the 1990s in the form of real time gross terrorist financing processes in place. settlement (RTGS) systems, with a primary Trade between West Africa and Europe aim to equip domestic economies with This has led many global transaction is particularly strong. Local currencies, robust settlement and risk management banks to review and rationalise their including the West African franc (XOF) and systems. The second generation involved correspondent banking relationships. Central African franc (XAF), are pegged interlinking the RTGS with ancillary SWIFT data shows that almost every to the euro and are used for the trading systems, such as government securities, region in Africa has experienced a of many soft commodities coming from central securities depositories, automated reduction in foreign counterparties – in the region. The value chain of the trade clearing houses, cards and points of sale. other words, the foreign banks with whom therefore supports use of the euro, since African banks transact overseas. a lot of soft commodities denominated in The third generation includes systems euro – such as cocoa and cotton – are such as SIRESS, which have a cross- As a result, access to the US dollar and being sold to Europe; particularly cocoa, border reach and support multiple- dollar clearing may become more difficult. to France, Belgium and Switzerland. currencies. With the adoption of the latest communication and information While the withdrawal of international banks However, since most commodities technology, these third generation systems can create challenges, it also provides continue to be denominated in dollars it is will support central bank reporting, opportunities for African banks to expand, likely that the US dollar will continue to be improve transparency and increase and to provide clearing and settlement used for a large proportion of payments in security and resilience. services to other, smaller African banks. the future. SWIFT data shows that the number of Discussions are already taking place about intra-African correspondent banking the fourth generation, which would provide relationships has increased significantly richer data, greater speed and better since 2013 (see Fig. 14). integration with digital economy platforms. Larger African banks like Standard Bank, The development of strong and secure National Bank of Egypt, ABSA Bank, 14 African Development Bank African Economic Outlook 2017 FMIs has been important in helping to Ecobank, Banque Populaire du Maroc 15 https://eeas.europa.eu/sites/eeas/files/eu_-_africa_ drive more cross-border trade within and Attijariwafa are already positioning trade_2017.pdf Africa and with the rest of the world. themselves to become the gateway for 16 https://www.afdb.org/en/news-and-events/ FMIs provide greater certainty and banking in Africa. Attijariwafa, for example, speech-by-dr-akinwumi-a-adesina-president-of-the- efficiency in transaction processing. operates in 12 countries in sub-Sahara african-development-group-at-the-media-launch-of- Accompanied by a sound, harmonised Africa, Standard Bank has a presence in the-africa-investment-forum-johannesburg-may-8- 2018-18091/ legal and regulatory framework, robust 20, and Ecobank in 36.
18 Chapter 2: What is driving change Africa Payments: Insights in cross-border transaction flows? into African transaction flows
Figure 14. Number of intra-African accounts
330 320 310 300 290 280 270 260 250 240 230 220
50 40
20
0 2013 2014 2015 2016 2017
Number of correspondents sending MT 950 and MT 940 to Africa, FY 2013 – 2017 Source: SWIFT BI Watch
19 Africa Payments: Insights Chapter 3 into African transaction flows
WHAT WILL CHANGE IN AFRICAN CROSS- BORDER BANKING?
20 Chapter 3: What will change in Africa Payments: Insights into African transaction flows African cross-border banking?
number of intra-African correspondent Simultaneously, across the continent, In the banking banking relationships has increased access to the US dollar is becoming significantly since 2013. increasingly difficult for smaller players, principally because of tighter anti-money landscape that Policy makers across the continent laundering and Know Your Customer are focusing on regional harmonisation requirements. This could further drive the is emerging as a means to foster intra-Africa trade use of regional currencies. flows. As regional markets become more harmonised, banks and corporates 3. Interlinkage of regional payments we believe that will find it increasingly compelling to systems maximise economies of scale across While regional payment systems are there are six multiple markets. It is therefore likely that being successfully deployed across the pan-African financial players will gain a continent, including the STAR-UEMOA, scenarios to business advantage. EAPS and SIRESS, several regions are looking at how these could be 2. A shift towards regional currency interconnected to allow payments to flow watch. denomination from one system to another and provide While the share of the US dollar in cross- pan-regional settlement capability. border payments from Africa has fallen, For example, there is a triparty it still accounts for 45% of all payments arrangement between the East African leaving the continent. For inter-continental Community, the Southern African 1. Fewer but bigger African players transactions and for transactions between Development Community and the Over the last five years we have seen less well known trading partners, it is Common Market for Eastern and Southern an increase in the number and strength unlikely that the hegemony of the dollar Africa, the ‘Tripartite Free Trade Area’. This of pan-African banks operating across will be challenged soon. agreement aims to promote economic and the continent and the trend looks set to social development in the region, create continue. However, SWIFT data suggests that for a large single market with free movement a substantial and growing proportion of goods and services to promote intra- This is because African banks are today of intra-Africa trade, we could expect regional trade, and enhance the regional better positioned in terms of their balance increased use of regional currencies. For and continental integration processes17. sheets, local market understanding and example, between 2013 and 2017, the risk appetite to capture growth across use of the West African franc increased Part of the agreement includes the the continent. While foreign global banks 4.4% to 7.3%, and the South African coordination of financial and payment possess some significant competitive rand from 6.3% to 7.2%. The further systems. Stakeholders are currently advantages, such as global reach and a development of regional payments discussing how this could be realised. sophisticated product offering, many have systems denominated in local currencies, less capacity (or willingness) to develop such as STAR-UEMOA (Système de a large footprint on the continent due Transfert Autmatisé et de Règlement de to liquidity and local market know-how. l’UEMOA run by the BCEAO), SIRESS Pan-African banks are therefore attractive and the East African Payment System, will partners for foreign banks interested in support this shift. doing cross-border business with Africa. Equally, African central bankers will Additionally, banks are refocusing their continue to promote the use of their local business and risk management strategies. currencies. An agreement in 2016 by the As global transaction banks review and five central banks in East Africa offers a rationalise their correspondent banking good example. Central banks in the region relationships in Africa as a result of ever agreed on direct convertibility of national increasing compliance obligations, pan- currencies, which will enable traders to African banks are taking the opportunity transact without having to convert national to expand. Many are already providing currencies into dollars first. clearing and settlement services to smaller African banks. SWIFT data shows that the 17 http://www.atf.org.na/cms_documents/feb-tft aagreements9june20151740hrscleaned.pdf
21 Chapter 3: What will change in Africa Payments: Insights African cross-border banking? into African transaction flows
4. Increased intra-African trade as payments’, which aims to promote the use services to their customers. M-Schwari, a result of regional economic of local currencies for intra-Arab clearing for example, is a Kenyan mobile-based transformation and settlement of payments alongside loans application formed in partnership Commodity-based African economies international currencies. between the Commercial Bank of Africa remain vulnerable to external shocks and and Safaricom20. fluctuations in the price of oil. As a result, In Africa, SIRESS is moving towards this African policy makers and international solution with the planned introduction As a result of such developments, Africa financial institutions such as the African of the US dollar in late 201819. This is today has the second-fastest-growing Development Bank are focused on expected to improve the settlement of banking market in the world. Between economic diversification and the capability transactions within the region and bring 2012 and 2017, African banking-revenue to add value to raw commodities through more transactions onto SIRESS that were pools grew at a compound annual growth processing and manufacturing, as a way previously settled through correspondent rate of 11% in constant 2017 exchange to increase economic resilience. banking arrangements using US dollar rates.21 clearers. Natural resources and commodities Pan-African banks are now exploring remain important as a source of revenue SADC’s Banking Association hopes how digital financial service products can in many African countries but their role in that the introduction of the US dollar will be rolled out across multiple markets. economic growth is decreasing. In Nigeria, improve the regional investment climate Technology is helping frictionless payments for example, oil represents more than 90% through enhanced cooperation among and borderless financial services to of foreign exchange earnings but only member states on payment, clearing and become a reality. around 10% of GDP. This is down from settlement systems in order to facilitate 25.6% in 2000. According to the African trade integration. Historically, innovations started in Development Bank, petroleum income has wholesale markets and then found their been replaced by other sectors, such as 6. Digital transformation way into retail markets. Now, innovation manufacturing, services and agriculture. Financial technology (FinTech) is driving increasingly starts in retail markets and sets Further, African Development Bank figures the digital transformation of financial the standard elsewhere. With the pace of for 2015 show that the five fastest growing services across Africa and has provided change quicker than ever and the borders African countries were non-resource rich, an opportunity for African economies to between countries and market segments led by Ethiopia, Ivory Coast and Rwanda18. disrupt and leapfrog legacy systems such becoming increasingly blurred, it will be as those in Europe and North America. interesting to observe how digitisation and Diversification is supporting the growth technological innovation will impact cross- of intra-Africa trade, where manufactured In the retail space, many markets have border and high-value payments moving goods are beginning to dominate regional embraced mobile payments, notably East forward. trade, accounting for 60% of total regional Africa. In 2017, MPesa, a Kenyan-based trade. In turn, higher levels of regional mobile money service, reported that it trade are helping to boost cross-border had more than 30 million users across 10 banking across Africa. countries accessing a range of services including international transfers, loans 5. The emergence of an African multi- and health provision. Mobile payments currency clearing centre enable consumers to make payments from As growth and greater integration generate anywhere using only their mobile phones. more transaction volumes, the economics This has led to increased levels of financial of setting-up multicurrency clearing inclusion particularly in remote areas where infrastructures that include the euro and people do not have easy access to bank dollar alongside regional currencies are branches or financial services. becoming more persuasive, and strong and reputable international financial centres Banks are also rolling out new products are emerging. and services across digital channels to grow their customer-base. Banks across 18 Such initiatives are already being the continent are transforming their African Economic Outlook 2017 19 https://www.sadcbanking.org/news/multi- established elsewhere in the world. In existing operations to increase their share currency-project/ 2018, the Arab Monetary Fund agreed to of digital sales and transactions. They are 20 Roaring to life: Growth and innovation in create an independent ‘Regional Entity also partnering with telcos and FinTechs African retail banking, McKinsey, 2018 for Clearing and Settlement of Intra-Arab to deliver new and cheaper financial 21 Roaring to life: Growth and innovation in African retail banking, McKinsey, 2018
22 Africa Payments: Insights Conclusion into African transaction flows
Africa continues to be a continent of growth and opportunity despite challenging global economic conditions over the last five years. This paper provides a transaction banking perspective on the continent’s developments using reliable and up-to-date payments statistics.
The paper confirms the importance of intra-regional trade corridors, both for financial and commercial flows. Regional initiatives across the continent, including payment market infrastructures and trade agreements such as the Continental Free Trade Area, will contribute to these flows in future.
The data also highlights the importance of the US dollar; however, the data also indicates that its dominance is declining and there is a shift towards the euro and Africa’s local currencies, including the South African rand and West African franc. While regional harmonisation projects will continue to promote the use of local currencies, the composition of African trade means that the US dollar will continue to be used in the future.
Macro-economic and political forces will continue to shape Africa’s banking sector as they have over the last five years. Digitisation and technological innovation will also play an increasingly important role. To be a successful pan-African player it will require careful monitoring of these forces so that business can be positioned to benefit from potential shifts.
23 Africa Payments: Insights Views from Africa into African transaction flows
By Dilwonberish Aberra and John Ndunguru Interoperability: the next step Financial Services for the Poor for mobile money in Africa Bill & Melinda Gates Foundation
Retail payments are a major component of appliances to the common codes used in settles payments between diverse players, the digital payment landscape, especially in web development. When digital money is including mobile money providers, banks, and Sub-Saharan Africa. A digital wallet is much universally accepted, regardless of which merchants. more beneficial when it can be used not only particular service a person subscribes to, we to trade funds among friends and family but can expect more and more people to sign up What Next? also to purchase and sell goods. But in many for digital banking services. The next step for both the public and countries where mobile money proliferates, private sectors is to take advantage of the merchants remain off the digital payments There is parallel logic on the supply side as growing set of resources and best practices “grid.” well. Private sector providers who charge making interoperability attainable. Given small fees for their services depend on high the strong regional relationships in Africa, A major cause is the lack of interoperability: transaction volumes to make a profit. An there is a particular opportunity to connect There is no common platform connecting interoperable scheme multiplies the number of national infrastructures to enable cross- all customers throughout the market that other users a customer can transact with. This border payments. Using a tool like Mojaloop, merchants can connect to as well. Customers leads to more transactions per customer and countries can power and propel intra-region and services stand apart in their own silos. more fees collected by the provider. commerce without the need for a settlement Therefore, a repair shop or grocery wishing bank off the continent. to accept digital payments must subscribe Interoperability Today to one provider, effectively alienating the The inertia toward interoperability is very As stated earlier, another important step is customers who subscribe to other services. evident on the continent. Tanzania integrated looping in retail. Currently, mobile money These silos also keep money from flowing payments among its mobile money services in customers move cash in and out of their across borders, despite the fact that many 2014, and now one of those services, Airtel, digital wallets quite often. But when digital in Africa have business and personal processes more than US $16 million in cross- payments are accepted by the vendors and relationships beyond the citizens of their home platform transactions every month.24 A soft merchants that customers depend on daily, countries. launch of the Southern African Development cash will stay digital. That allows customers Community’s payments project, which aims to fully utilise the speed and security of digital Mobile money has immense potential for to bring region-wide interoperability to its 15 payments, as well as build a robust digital growth and financial inclusion. But unlocking member nations, is possible as early as June transaction history that can be used to inform its full potential depends on integrating of this year.25 Meanwhile, the eight countries new lines of credit, eligibility for loans, and retailers in the payment landscape and of the West African Economic Monetary other entrees into more advanced and helpful connecting customers on a wider scale. And Union (WAEMU) are planning an interoperable financial services. that depends on interoperability. system that will connect 110 million people across banks, financial systems, and borders. With regional interoperability that includes From Included to Connected retail, we can envision a real-time payment Since 2014, the percentage of Sub-Saharan The path to interoperability will be unique network spanning the entire continent, Africans with traditional financial accounts has in every case. But in broad strokes, every connecting all 400 million unbanked people not changed. But the percentage of mobile approach is enabled by national, regional, who live there. This future is closer than it may money users has doubled, to 21 percent.22 and commercial market infrastructures appear. African governments, businesses, embracing principles of cost reduction, cost and citizens are already transforming their With mobile money and other digital financial recovery, and cost sharing. Competitors economies. The tide of innovation and services, people can store money securely, must cooperate, recognising that a common progress will soon come to include—and spend it effortlessly, and afford the small platform serves the common good. benefit—everyone. fees charged by their providers. In Kenya, nearly 200,000 households emerged from In that spirit, a number of non-proprietary extreme poverty after the mobile money tools are becoming available to help service M-PESA was established in their governments and businesses achieve communities.23 interoperability at a national or regional level. Publicly available APIs allow providers to build Interoperability is the logical evolution of digital bridges between their services. Our mobile money markets. Essentially, it will team at the Bill & Melinda Gates Foundation drive growth through national or regional helped develop open-source software called standardisation, a process we’ve seen Mojaloop, which can be used to build a in everything from electrical sockets and central “switch” that verifies, routes, and
22 World Bank, Global Findex. 24 GSMA, “The Impact of Mobile Money Interoperability in Tanzania.” 23 Suri and Jack, Science. (link is gated; findings also covered in thisMIT article) 25 Per interview with Maxine Hlabah, executive secretariat of SADCBA.
24 Africa Payments: Insights Views from Africa into African transaction flows
Financial Crime Compliance By Idrissa Diop Group Head Compliance in Africa Ecobank
In the wake of financial crises, cybercrime, At the same time, African Banks are beginning In this challenging environment, international money laundering and tougher domestic to offer products to their customers allowing banks with dealings in Africa are reviewing controls, financial institutions are facing them to transact across the continent. This is and rationalising their relationships, a more and more international financial crime reflected in SWIFT’s data, which confirms an phenomenon known as de-risking. This is compliance regulations. These include the increase in intra-African accounts and intra- reflected in SWIFT data, which shows a requirements of the Basel Committee, FATF Africa trade. The increase of intra-African trade drop in the number of foreign correspondent recommendations and the international has led local supervisors to introduce stronger banking relationships in almost all African recommendations to fight tax evasion. Within frameworks with which banks need to comply. regions as a result. this new environment, banks are expected to illustrate stronger governance that ensures Technology is fuelling change too. The rise The World Bank has reported that global their ability to finance the economy without of mobile banking in Africa means that financial institutions are threatening to cut exposing institutions, and countries, to financial services are able to reach some of off access to the global financial system for unknown risk. the most remote regions, bringing unbanked remittance companies and local banks in populations into the financial system. This certain regions, putting them at risk of losing To remain competitive, banks must anticipate enables banks to develop platforms where access to the global financial system26. and meet customer needs while generating millions of Africans can access services returns that meet investor’s expectations, and including healthcare and education. However, According to the World Bank, if the current remain compliant at the highest level expected supervisors are also introducing specific trend continues, people and organisations in by regulatory supervisors. regulations to address this new development. the more volatile areas of the world or in small countries with limited financial markets could Banks around the world are expected to: All of the above have created a more be completely cut off from access to regulated – Promote good governance though a challenging regulatory environment for African financial services. robust risk framework, including a risk banks. appetite statement which states that African banks at a crossroads the bank has the financial, technical and Local initiatives With the combination of increased and managerial capacity to manage their risk In the West African Monetary Union region, tighter regulations imposed on sub-Saharan appetite. the Central Bank (BCEAO) has taken banks by supervisors, whose main objective – Implement a strong compliance important steps to promote financial stability, is to ensure compliance with international culture by strengthening compliance including the adoption of Basel II and III standards, and the de-risking phenomenon, capabilities and building more robust capital standards and the introduction of African banks find themselves at a regulatory compliance risk management consolidated supervision. This has led to crossroads. methodologies. increased discipline in terms of capital buffers – Establish quality data management to and prudential ratios. African banks will need to comply with ensure that data is accurate, accessible, international regulatory requirements while consistent, secure and up-to-date. Data is a The Central Bank of Nigeria has also promoting innovation if they want to continue key asset for banking since it helps identify promoted several regulations that have helped playing the role expected of them: supporting clients, accounts, balances, transactions, local banks adapt their structure to better the development of African economies while risks, assets, liabilities, income, etc. support the growth of the local economy. remaining connected to the global economy.
The increasing compliance challenge in The impact of these challenges on Africa African banks In sub-Sahara Africa, supervisors are The introduction of AML/CFT regulations introducing regulations which align with that banks are expected to strictly implement international standards such as Basel II/ across their network has led to important III, anti-money laundering /counter-terrorist investments in terms of monitoring systems, financing (AML/CTF) regulations which hiring of control units and several millions reflect FATF recommendations, and foreign of US dollars declared to local financial exchange regulation to protect their intelligence units as being linked to money economies. laundering and terrorist acts.
26 http://www.worldbank.org/en/topic/financialsector/brief/de-risking-in-the- financial-sector
25 Africa Payments: Insights Views from Africa into African transaction flows
Enabling economic development By Chris Hamilton CEO in Africa – do payment systems BankservAfrica matter?
Policy makers focus on payments 2. Regional economic groupings are gradually Interoperability is key infrastructure increasing in importance, reflected in This is good news, but there is a caveat. In over 400 years of global economic increased payment flows within groupings Uncoordinated growth of point-to-point mobile engagement in Africa – from slavery through as the regional payment infrastructures remittance services will store up cost and risk colonialism, primary resource development gradually improve. for later. There is a direct analogy here with the and ultimately development aid – there historic and haphazard development of Africa’s has been little focus on payment methods. The more efficient both intercontinental rail infrastructure to meet immediate needs Payment systems overwhelmingly relied upon and regional flows become, the better (i.e. ports and mines). Different gauges and cash, reflecting the extractive nature of most the prospects for economic development bespoke routes mean economic growth has relationships. Until now. across Africa’s 55 national governments. been inhibited by inefficiency. This is expensive Efforts by the Southern African Development to fix. Public policymakers know that a healthy, Community (SADC) and its counterparts to growing economy cannot rely solely on a improve regional payments, plus international A better path would be a systematic, cash-based payments system. The world’s developments like SWIFT’s global payments international approach to coordinated most advanced economies have the largest innovation (gpi) service, need vigorous support. development of mobile-based payments proportion of electronic payments in the infrastructure. It is important to encourage national payments infrastructure. Attempts National flows competition and innovation, but within a to promote national development that ignore Cross-border flows are only one part of the framework of interoperability. This is not just the “plumbing” – the way value moves around total payments ecosystem. Economic benefit a national issue, but a regional and ultimately a national economy and between it and could also be obtained by investing in national continental one. The pilot now under way for its major trading partners – are likely to be payments infrastructure. And the time to do it providing regional mobile interoperability within frustrated by costly inefficiencies and large is now. For the first time in history, it is possible the SADC region is an important step in the financial risks. Getting this right is not an for non-cash payment services to reach even right direction. economic silver bullet, but it is a necessity. the remotest, least developed communities in Africa – through the mobile handset. As African nations continue to develop their Accordingly, African national governments, modern payments infrastructure, the more regional economic groupings and international In this way, we have the opportunity to they do so in a way that allows for seamless aid agencies are all focusing on, and investing reverse a familiar pattern in so many African national and cross-border interoperability, the in, non-cash payments infrastructure. Lead countries – a small proportion of the population better for long-term economic health. The times are long, but this will ultimately bear fruit well served by traditional banking services technology is freely available: what is needed is for African economies, societies and citizens. and infrastructure, with a broad mass of political and business will. The better the payments infrastructure, the underbanked people. Even South Africa, more economic opportunity for all. with its sophisticated financial infrastructure, reaches only 77% of its population with Cross-border flows banking services. Some other sub-Saharan SWIFT’s insights into cross-border flows countries reach only 10%. Yet GSMA tell part of the story. We can see from data estimates that by 2020, more than 50% of the collected in this white paper that cross-border entire African population will have access to flows reflect two key vectors: mobile services, two thirds of them through a smart phone. It is therefore no surprise that 1. Intercontinental flows remain dominated more than 140 African mobile money services by US dollar-denominated, US-routed have sprung up in recent years. movements, although Europe remains the most likely destination for outward flows. It is no longer a question of if, but when. As Both of these phenomena are reducing, mobile coverage improves, we can expect as the euro and local currencies increase rapid organic growth in payments services to in significance and Asia becomes a more African communities using the mobile. significant payments destination.
26 Africa Payments: Insights Views from Africa into African transaction flows
By Chris Hamilton Facilitating inter-regional By Tim Masela CEO Head of the Payments Department BankservAfrica payment flows South African Reserve Bank
Payment infrastructures can contribute As payments take place in a network For retail payments, the central banks should significantly to enabling economic activity economy, collaboration among a multiplicity of take the lead and engage with the private in Africa. Although intra-regional trade stakeholders is imperative. Central banks, as sector on key public policy objectives such as within some African regions may be low, regulators and overseers of payment systems financial inclusion, competition and consumer implementation of practical, safe and efficient and facilitators of their development, are well protection. They should also establish an payment infrastructures will go a long way placed to take the lead and induce change. environment that enables the private sector to towards making it easier to do business in This will drive engagement and ensure that work on possible solutions while continuing to Africa by removing some of the friction. desired outcomes are achieved. Established monitor progress. It is also worth noting that collaboration structures within the continent private sector stakeholders should come from Various African regional initiative groups should be leveraged to initiate dialogue and a range of sectors beyond the banking sector. have been hard at work developing payment engagement between public and private infrastructures as part of their integration sector stakeholders. By working together, all participants can agendas. Progress has been achieved in ensure that these infrastructures are built these programmes and some visible changes The initial outcomes of the engagement with the considerations of standardisation in the profile of payment flows are evident. process may be practical frameworks that lay and interoperability as integral components, However, questions are often raised relating the foundations to enable the integration of ensuring that they will be able to achieve their to the need to open up some of these existing or future infrastructures. These could goals. infrastructures to payments from other African be followed by more tangible roadmaps that countries. The core question here is whether set out the path to achieving inter-regional the different regional groups will be open to integration. As part of the process, short, facilitating inter-regional payment flows in medium and long term strategies supported addition to intra-regional. by practical monitoring mechanisms will need to be put in place. This is a valid question that should be answered sooner rather than later. This will The drivers for easier inter-regional payment ensure that openness and the adoption of flows include: standards that will facilitate integration are – Increased payment efficiency in terms of key considerations in the development of speed and cost these infrastructures. To achieve this, it will be – Increasing the ease of doing business necessary to establish platforms for dialogue – Greater access to payment services and develop appropriate frameworks. – More transparency in the payment value chain process – Addressing the de-risking aspects as far as they relate to payments in Africa
For wholesale payments, banks are the best partners for developing the right approach and frameworks that will ensure successful delivery. It is, however, crucial that the process involves a public-private partnership between the regulators/overseers and the bank stakeholders to ensure that all appropriate building blocks are part of the end solution.
27 Africa Payments: Insights Views from Africa into African transaction flows
By Philip Panaino Renminbi: Africa’s long-term Regional Head,Transaction Banking Africa & Middle East trading currency? Standard Chartered
China’s renminbi is rapidly developing as Some are questioning whether recent events Secondly, for volumes to stabilise in Africa an international currency. Within global mark the end of the renminbi’s rapid growth or and for corporations to take advantage of a trade corridors, the renminbi is maturing, whether the currency’s place internationally is maturing trade currency, the renminbi will need albeit while experiencing some teething entering a phase of more strategic usage. In to be used more strategically. In our view, issues. However, with fluctuations in foreign the context of the deepening trade relationship widespread adoption of the currency in Africa exchange movements and resurgence in between China and Africa, it clearly points to will not be a one-size fits all approach. more traditionally used currencies, renminbi a longer-term story whereby the renminbi will volumes unilaterally retreated across both play a more strategic role in facilitating cross- However, broader adoption of the renminbi payments and trade finance globally in border trade. According to SWIFT data, the will have greater potential to occur when 2017. Unsurprisingly, volumes in Africa have number of inter-bank relationships between FX markets develop further in Africa and followed global trends. China and Africa has increased substantially renminbi pioneers gradually transition its usage from 20 in 2008 to 186 in 2017. In parallel, from an export currency to a supply chain China’s Belt and Road initiative is expected Chinese companies and banks are using the constituent. Furthermore, the development of to expedite cross-border investments, and renminbi in trade with an increasing number more hedging solutions and broader in-house will play an important role in promoting of African countries and a number of those and third party renminbi expertise available the internationalisation of the renminbi. In nations have included it in their baskets of to African corporations and banks will also Africa, long term commitments such as the currencies. promote more strategic usage. Chinese-led railway project in Kenya and the 600-megawatt Karuma Hydroelectric Ghana, Nigeria, Mauritius and Zimbabwe use Thirdly, it is essential for more knowledge Power Station, currently under construction the renminbi for payments and reserves, for to be shared with corporates. Providing a in Uganda, will generate demand for the instance, and the Nigerian central bank has sustainable platform across the continent currency and act as drivers to facilitate 10% of its foreign reserves in the renminbi. to ensure better understanding of the major Renminbi usage. As the Belt and Road With an expected rebound in China and Sub- renminbi considerations for corporates will initiative continues to foster financial Saharan Africa trade in 2018, we remain very be a vital step in this larger process. In this cooperation and trade in Africa, it makes confident in the renminbi’s usage and future in context, we see scope for the expansion of economic sense for countries along the Africa; with the right support the currency will the risk management knowledge required to modern ‘Silk Road’ to use the Chinese develop more meaningfully. use a developing global currency. currency. The next chapter To address these challenges, Africa will A strategic currency Several important factors will need to align to ultimately need to create a renminbi In 2016, policymakers in China pivoted facilitate the renminbi’s next growth phase in ecosystem to facilitate the next phase of trade towards an agenda of economic stability, Africa. finance across the continent. This will not inadvertently allowing the renminbi happen overnight but will instead require both internationalisation project to find its own feet Firstly, the increased use of the renminbi in substantial domestic bank involvement and for the first time. According to SWIFT data African trade finance will need to be further expertise from foreign players to succeed. from March 2018, the Renminbi is the sixth supported by central banks to ensure most active currency for domestic and cross- continual traction. Numerous central banks border payments, trailing the Canadian Dollar. across the continent are now using the However, the renminbi’s share for payments renminbi as a reserve currency and many still accounts for only 1.62% of domestic and others have indicated their plans to expand cross-border payments. Furthermore, data their renminbi holdings. within this paper states that, despite more than 10% of payments from Africa ending up This trend provides an incentive to African in China, the use of the renminbi remains low corporations to invoice more trade in renminbi with only 0.1% of all payments. and demonstrates to the market that confidence in China’s currency is increasing at an institutional level. As more favourable exchange rates and payment terms with Chinese counterparties become a reality for African corporations, we also expect to see increased liquidity and renminbi-based use.
28 Africa Payments: Insights Appendix into African transaction flows
REGIONAL INITIATIVES IN AFRICA
29 Appendix: Regional Initiatives in Africa Africa Payments: Insights into African transaction flows
EAC Africa comprises 54 countries with SADC disparate economies. There is ECOWAS –WAMZ ECOWAS –WAEMU/UEMOA significant political support for regional (BCEAO) integration initiatives as a means to Maghreb create employment, act as a catalyst ECCAS –EMCCA/CEMAC for investment and foster growth in (BEAC) Africa. Some of these involve a high others degree of integration and a common currency, while others are relatively inactive.
In terms of transaction volumes, the SADC African regions region dominates the African continent thanks to the large contribution of South Africa. However, other regional unions are showing increasingly strong growth.
The following section takes a closer look at the different regional initiatives and provides transaction flows across two metrics: overview of the main commercial and financial counterparties for outgoing payments; and distribution by counterparty region for intra- Source: SWIFT BI Watch Africa financial flows.
Commercial payments sent from Africa by integration regions
Others ECOWAS – WAEMU/UEMOA (BCEAO) ECCAS – EMCCA/CEMAC (BEAC) EAC
Maghreb
ECCAS – EMCCA/CEMAC (BEAC) SADC
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Live and delivered MT 103, transactions sent from Africa by integration regions since 2003 Source: SWIFT BI Watch
30 Appendix: Regional Initiatives in Africa Africa Payments: Insights into Africa transaction flows
EAC – East African NEXT STEPS – TOWARDS A MONETARY EAC UNION? Member States: The Republic of Burundi, Community As part of their regional integration, the EAC Kenya, Rwanda, South Sudan, the United Treaty laid the groundwork for a monetary The East African Community (EAC) is the union by 2023. It aims to harmonise monetary Republic of Tanzania, and the Republic regional intergovernmental organisation with and fiscal policies, payment and settlement of Uganda a mission to widen and deepen economic, systems, financial accounting and reporting Population: 145.5 million (2015) political and social integration in order to practices and eventually establish an East Land area: 1.82 million km² improve the quality of life of the people of African Central Bank. East Africa. GDP (nominal): USD 147.5 billion (2015)
The Treaty for the Establishment of EAC Source: East African Community was signed in November 1999 and entered into force in July 2000 by the original three African regions partner states - Kenya, Tanzania and Uganda. Rwanda and Burundi became full Members EAC – Distribution of outgoing payment flows of the Community in July 2007. South Sudan acceded to the Treaty in April 2016 and 11 became a full member in August 2016. North America 65 6 According to EAC, the regional integration Middle East process is in full swing, as reflected by the encouraging progress of the East 12 Europe – Non Euro Zone African Customs Union, the establishment 9 of the Common Market in 2010 and the 8 implementation of the East African Monetary Europe – Euro Zone 8 Union Protocol. Central & Latin America The Africa Regional Integration Index Report 2016 highlighted that the EAC is the top 35 Asia-Pacific performing Regional Economic Community on 7 regional integration overall and in particular in 27 areas of trade and infrastructure development. Africa 10
CURRENT STATUS Commercial counterparty Financial counterparty % The process towards an East African Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch Federation is being fast tracked, underscoring the serious determination of the East African leadership and citizens to construct a powerful EAC – Intra-Africa and sustainable East African economic and financial counterparties 2 2 political bloc. EAC
The East African Regional Payment System SADC (EAPS) was launched in November 2013 ECCAS with Kenya, Tanzania and Uganda. Rwanda ECOWAS –WAMZ successfully joined the EAPS in December 42 54 2014 and Burundi is expected to connect this % ECOWAS –WAEMU/UEMOA year. The regional payment platform facilitates (BCEAO) intra-regional trade by allowing easier, faster, Maghreb cheaper and secure transfer of funds by both BEAC importers and exporters. MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
31 Appendix: Regional Initiatives in Africa Africa Payments: Insights into Africa transaction flows
SADC – Southern African Planning is also underway for SIRESS to SADC extend settlement in multiple currencies. Member States: Angola, Botswana, Development Community The access criteria to the regional payment Comoros (since 20 August 2017), platform may need to be reviewed in order to Democratic Republic of Congo, The Southern African Development facilitate various intra-SADC financial flows; Lesotho, Madagascar, Malawi, Mauritius, Community (SADC) aims to achieve economic however, legal or regulatory harmonisation Mozambique, Namibia, Seychelles, South development, peace, security and growth, could take a long time. Africa, Swaziland, United Republic of alleviate poverty, and enhance the standard Tanzania, Zambia, Zimbabwe and quality of life of the people of Southern Population: 277 million Africa through regional integration. Land area: 9.88 million km² GDP: USD 1,193 billion (2013 estimate) CURRENT STATUS SADC has commenced the process of Source: SADC formulating a new cooperation and regional integration strategy. The Regional Indicative Strategic Development Plan (RISDP), which was first approved by SADC leaders in 2003 SADC – Distribution of outgoing payment flows and revised in 2015 is expected to end in 9 2020. A new development blueprint will be North America drafted to shape Southern Africa’s regional 39 integration agenda post-2020. 3 Middle East 1 The SADC regional cross-border settlement 15 system – SADC Integrated Regional Electronic Europe – Non Euro Zone Settlement System (SIRESS) – has been in 9 21 operation since July 2013. The current system Europe – Euro Zone settles payments denoted in ZAR (South 23 African rand) only but additional currencies 1 will be added to the system in the near future, Central & Latin America starting with the US dollar which is planned for 23 late 2018. Asia-Pacific 9 NEXT STEPS – CRAFTING NEW SADC Africa 29 STRATEGIES? 17 The post-2020 SADC Development Commercial counterparty Financial counterparty % Cooperation Vision 2050 should provide a framework for a long-term vision for SADC as Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch the region seeks to position itself in a context of emerging global and continental issues, including increasing financial instability. SADC – Intra-Africa 2 2 In the shorter term, SADC’s focus seems to be financial counterparties EAC 3 on extending and/or creating a new payment SADC platform to serve the growing need of intra- SADC credit transfers (i.e. cross-border ECCAS remittances, mobile payments, etc). Today, ECOWAS –WAMZ they are processed informally and/or formally % ECOWAS –WAEMU/UEMOA at a relatively high cost and many people still (BCEAO) do not have access to formal mechanisms in Maghreb order to send cross-border remittances. 92 BEAC
MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
32 Appendix: Regional Initiatives in Africa
ECOWAS – Economic NEXT STEPS – SMOOTH FLOWS OF ECOWAS – WAMZ CAPITAL WITHIN THE REGION? Member States: The Gambia, Ghana, Community of West African Immediate next steps will be to finalise the Guinea, Liberia, Nigeria, Sierra Leone States terms of reference and framework of phase 2 of the WAMZ PSDP, and commence work Population: 243 million WAMZ – West African on interlinking the domestic RTGS systems Land area: 1.6 million km² in order to facilitate smooth flows of capital GDP: USD 457 billion (2017) Monetary Zone within the sub-region. Source: IMF, WAMZ The West African Monetary Zone (WAMZ) is one of the two sub-regional blocs of the Economic Community of West African States (ECOWAS). Established in 2000, it comprises six mainly English-speaking countries within ECOWAS. ECOWAS-WAMZ – Distribution of outgoing payment flows
20 In 2001, WAMZ created the West African North America Monetary Institute (WAMI) which aimed 69 to undertake preparatory activities for the 5 Middle East establishment of a West African Central Bank and monetary union for the zone. The plan to 20 launch a single currency by member states of Europe – Non Euro Zone the WAMZ was later abandoned. WAMI also 24 10 aims to develop a safe, secure and efficient Europe – Euro Zone payment system. 5 1 There is still broader political will for a single Central & Latin America currency for the entire ECOWAS region 30 by 2020, however, proper analysis and Asia-Pacific 7 preparation by each and every country for the monetary integration are essential in order to Africa 27 progress the economic convergence forward. 3
Commercial counterparty Financial counterparty % CURRENT STATUS Following the successful implementation of Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch phase 1 of the WAMZ Payments System Development Project (PSDP) to improve financial market infrastructures in The Gambia, 2 0 Guinea, Sierra Leone and Liberia, the WAMZ ECOWAS-WAMZ – Convergence Council of Governors and Intra-Africa financial EAC Ministers have approved the next stage of counterparties 4 SADC the WAMZ PSDP to inter-link the six WAMZ 7 domestic RTGS systems. Discussions ECCAS 8 are ongoing to coordinate the project 39 ECOWAS –WAMZ and determine its terms of reference and % framework. ECOWAS –WAEMU/UEMOA (BCEAO) 19 Maghreb
BEAC 21 MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
33 Appendix: Regional Initiatives in Africa Africa Payments: Insights into Africa transaction flows
ECOWAS – Economic Community of West African States WAEMU/UEMOA – West of digital payments across all stakeholders, payment instruments and payment channels. African Economic and ECOWAS – WAEMU/UEMOA Member States: Benin, Burkina Faso, Monetary Union With respect to monetary integration in ECOWAS, the single currency may be the Ivory Coast, Guinea-Bissau, Mali, Niger, The other sub-region of ECOWAS is the ultimate objective of member states. However, Senegal, Togo West African Economic and Monetary Union it is the most difficult part of the integration Population: 119 million (WAEMU) / Union Economique et Monétaire process because the various national currencies Land area: 3.5 million km² are at various levels in terms of stability, Ouest Africaine (UEMOA). GDP: USD 97 billion (2017) convertibility and control. WAEMU have a WAEMU was established in 1994 to promote common currency, which is pegged to the euro. a customs and currency union. It comprises Source: World Trade Organisation, WAEMU, BCEAO eight mainly French-speaking states and shares the West African franc as a common currency. It is a trade zone agreement to ECOWAS-UEMOA/WAEMU – Distribution of outgoing payment flows improve trade based on uniform tariffs for goods and to establish a regional stock 5 North America exchange and regional banking system. 13 2 CURRENT STATUS Middle East The Central Bank of West African States 5 (BCEAO: Banque Centrale des Etats de Europe – Non Euro Zone l’Afrique de l’Ouest) is the common central 3 bank of WAEMU. It is responsible for 28 Europe – Euro Zone managing the common currency, their foreign 37 exchange reserves and implementing the common monetary policy. Central & Latin America
6 A regional real time gross settlement system Asia-Pacific (RTGS) was launched and operational since 2004 and the regional automated clearing Africa 54 house system since 2008. 47
According to the 2016 BCEAO annual report, Commercial counterparty Financial counterparty % at the end of December 2016 there were 118 Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch participants in the regional RTGS, WAEMU Automated Transfer and Settlement System. In 2016 758,995 transactions were settled at 1 1 0 a value of 457,831 billion francs; this was an ECOWAS-UEMOA/WAEMU – 1 0 increase of 49.25% in value and 11.14 % in Intra-Africa financial EAC volume compared to 2015. counterparties 3 SADC NEXT STEPS – MAKING THE SINGLE ECCAS CURRENCY A REALITY IN ECOWAS? ECOWAS –WAMZ Securing, promoting and modernising % ECOWAS –WAEMU/UEMOA payment systems and instruments remain (BCEAO) priorities for the BCEAO. During 2016, it Maghreb carried out some actions to increase the BEAC efficiency of the RTGS and ACH systems, 93% including the finalisation of work to launch a Others new intra-day liquidity management module MT 103 sent intra Africa, FY 2017 and the on-boarding of national treasury departments in payment systems. It is also Source: SWIFT BI Watch considering implementing interoperability
34 Appendix: Regional Initiatives in Africa
AMU – Arab Maghreb Union AMU The Arab Maghreb Union (AMU) was founded Member States: Algeria, Libya, in February 1989 with a primary aim to Mauritania, Morocco, Tunisia progress free movement of people, goods, services and capital by eventually establishing Population: 94.2 million a Maghreb economic union between the Land area: 5.8 million km² member states. GDP: USD 425 billion (2016)
CURRENT STATUS Source: United Nations Conference on Trade and The union is not active due to various Development statistical database (2016) challenges and only the most basic level of cooperation exists today between the regions’ five countries. Arab Maghreb Union– Distribution of outgoing payment flows
6 North America 18 3 Middle East 1 13 Europe – Non Euro Zone 4 66 Europe – Euro Zone 75
Central & Latin America
6 Asia-Pacific
Africa 5 1
Commercial counterparty Financial counterparty %
Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch
Arab Maghreb Union 1 1 0 – Intra-Africa financial 0 counterparties EAC 2 7 SADC ECCAS
ECOWAS –WAMZ
% ECOWAS –WAEMU/UEMOA (BCEAO)
Maghreb
89 BEAC
Others
MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
35 Appendix: Regional Initiatives in Africa Africa Payments: Insights into African transaction flows
ECCAS/CEEAC ECCAS/CEEAC Member States: Angola, The Republic of Burundi, Cameroon, The Economic Community of Central African Central African Republic, Chad, Congo, Democratic Republic of States (ECCAS; in French: Communauté Économique des États de l’Afrique Centrale, the Congo, Equatorial Guinea, Gabon, Rwanda, and Sao Tome CEEAC) was established in October 1983 to and Principe promote regional economic co-operation in Population: 158.3 million (2014) Central Africa. Land area: 6.5 million km² GDP (nominal): USD 257.8 billion (2014) ECCAS aims to achieve collective autonomy, raise the standard of living of its populations Source: United Nations Conference on Trade and Development statistical database (2016), and maintain economic stability through Understanding regional economic policies in Central Africa, Bruce Byiers harmonious cooperation. The Community also focuses on security and defence cooperation ECCA EEAC – Distribution of outgoing payment flows to establish and sustain regional stability. 6 CURRENT STATUS North America In July 2004, ECCAS launched its free trade 24 4 area with the aim of establishing a customs Middle East union of common external tariff by 2008. However, the timetable for establishing the 6 Europe – Non Euro Zone free trade area has been postponed. 5 ECCAS is implementing trade facilitation 44 programmes, including the construction of Europe – Euro Zone one-stop border posts that are becoming 60 2 more frequent in the region. Central & Latin America
NEXT STEPS – MAINTAINING PEACE 12 Asia-Pacific AND SECURITY 3 The central aim to create a Central African 26 single market and free movement of goods Africa 8 and services is only possible based on the peace and security cooperation. Through Commercial counterparty Financial counterparty % the Council for Peace and Security in Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch Central Africa, and a mandate to form a Free Trade Area as part of the African Economic Community, the Community’s focus is shifting ECCAS/CEEAC – towards maintenance and consolidation of 3 1 Intra-Africa financial peace and security in the area covered by counterparties EAC ECCAS. 6 SADC 7 ECCAS 31 ECOWAS –WAMZ
% ECOWAS –WAEMU/UEMOA (BCEAO) 26 Maghreb
BEAC
26 Others
MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
36 Appendix: Regional Initiatives in Africa Africa Payments: Insights into African transaction flows
EMCCA/CEMAC (BEAC) EMCCA/CEMAC The Economic and Monetary Community Member States: Cameroon, Central African of Central Africa (more commonly known Republic, Chad, Republic of Congo, as CEMAC from its name in French, Equatorial Guinea, Gabon Communauté Économique et Monétaire Population: 51 million (2015) de l’Afrique Centrale) was created in 1994 Land area: 5.8 million km² to replace the previous largely neglected customs union that had been established in GDP: XAF 46,449 billion (2015) the 1960s. It became operational after the treaty’s ratification in 1999. Source: CEMAC, IMF Country Report No. 17/389
CEMAC operates a customs union and monetary union. The monetary union is EMCCA/CEMAC (BEAC)– Distribution of outgoing payment flows in place with the Central Africa franc as a common currency. 7 North America CURRENT STATUS 37 3 The Monetary union is underpinned by Middle East the Bank of Central African States (BEAC, Banque des Etats de L’Afrique Centrale, the 5 central bank serving six member states). The Europe – Non Euro Zone 6 regional RTGS system was launched as part 34 of the framework of payment and financial Europe – Euro Zone infrastructure modernisation project and it has 46 been operational since 2007. Central & Latin America
Movement of capital within CEMAC is free 14 Asia-Pacific and, in theory, tariffs have been eliminated 4 on trade within CEMAC. Most recently the 36 free movement of people and goods within Africa CEMAC was established in October 2017. 6 Commercial counterparty Financial counterparty % NEXT STEPS – STRENGTHENING THE FOUNDATION Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch The fall of oil prices in 2014 has highlighted the structural weaknesses suffered by the countries of CEMAC, including the strength EMMCA/CEMAC – of the common currency. This has forced 3 Intra-Africa financial EAC member states to adopt structural reforms counterparties to strengthen budget management, the fight 4 SADC 6 against corruption, improve the business ECCAS environment and reduce macro-economic imbalances. 13 37 ECOWAS –WAMZ
% ECOWAS –WAEMU/UEMOA (BCEAO)
Maghreb
BEAC 37 Others
MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
37 Appendix: Regional Initiatives in Africa Africa Payments: Insights into Africa transaction flows
COMESA – Common Market COMESA for East and Southern Africa Member States: Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, The Common Market for East and Southern Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Republic Africa (COMESA) was established in 1994 to of Sudan, Swaziland, Uganda, Zambia, Zimbabwe replace the Preferential Trade Area for Eastern Population: 492.5 million and Southern Africa (PTA) which was set up Land area: 12 million km² in 1981. The Free Trade Area was achieved GDP: USD 657.4 billion (2014) in October 2000 with an aim to eliminate tariffs on goods traded among the member Source: United Nations Economic Commission for Africa states. It also launched its Customs Union in June 2009, which is yet to be operational. COMESA envisages becoming a full Economic Community by 2025. COMESA – Distribution of outgoing payment flows
CURRENT STATUS 9 Strengthening of market integration is the North America 54 main strategic objective of COMESA in its 6 Medium Term Strategic Plan 2016-2020, Middle East which includes trade facilitation through 2 simplification and harmonisation of documents 13 Europe – Non Euro Zone and procedures, and lowering the cost of 8 cross-border trade through the removal of 16 trade barriers. Europe – Euro Zone 18
With regard to the payment market Central & Latin America infrastructure, COMESA Regional Payment 25 and Settlement System (REPSS), has been Asia-Pacific live since February 2014, which aims to 6 facilitate cross-border payments within Africa 32 the COMESA region. The system settles 13 payments denominated in US dollars and euros. Commercial counterparty Financial counterparty %
Number of cross-border MT 103 sent from Africa, FY 2017 Source: SWIFT BI Watch NEXT STEPS – STRENGTHENING OF KEY REGIONAL SECTORS According to the medium term strategic COMESA – Intra-Africa 1 plan 2016-2020 for COMESA, there financial counterparties 1 will be concerted efforts in the areas of EAC implementation of the agreed commitments 2 SADC in the four priority sectors namely: transport, 11 communication, financial and tourism services. ECCAS ECOWAS –WAMZ
19 % ECOWAS –WAEMU/UEMOA (BCEAO)
66 Maghreb
BEAC
Others COMESA
MT 103 sent intra Africa, FY 2017
Source: SWIFT BI Watch
38 Africa Payments: Insights SWIFT in Africa into African transaction flows
Africa is an important region for SWIFT works with many countries to deliver implementation of measures that prevent SWIFT. SWIFT traffic growth across Real Time Gross Settlement (RTGS) systems illegal behavior becomes an increasing that equip domestic economies with robust challenge for local banks. the continent is impressive with year- settlement and risk management systems, as on-year growth exceeding 10% for the well as systems that interlink the RTGS with Penalties for non-compliance with rules and last decade. SWIFT opened its first ancillary systems, such as: central securities regulations can be severe. Smaller banks in African office in Johannesburg, South depositories; automated clearing houses; and particular risk losing valuable correspondent Africa in 2002. It has since expanded card, point of sale and government securities relationships with banks overseas if they systems. cannot demonstrate their compliance with the its footprint, opening two new offices rules and regulations. in Accra, Ghana and Nairobi, Kenya to SWIFT is also supporting the development get closer to its customers. of regional payment infrastructures that have To assist customers’ compliance with these cross-border reach and support multiple rules, SWIFT provides a growing range of National Member and User Groups currencies, including: the Southern African products and services whether through To ensure that activity on the continent Development Community’s Regional Electronic the development of appropriate messaging matches the needs of the African community, Settlement System (SIRESS), the West African standards, products, processes or services. SWIFT works closely with Member and States’ central bank (BCEAO), the Central User groups in more than 40 countries African States’ central bank (BEAC), the East SWIFT has been providing solutions for on the continent. These represent SWIFT African Payments System, and the West Africa Financial Crime Compliance to the community shareholders and users, and serve in an Monetary Zone. since 2012 and currently serves more than advisory capacity to the Board of Directors 120 customers in 37 countries in Africa alone. and SWIFT management. In addition, Standards each group supports the interests of the SWIFT is also facilitating Africa’s push for Cybersecurity shareholders and users of the nation they regional harmonisation through its strong SWIFT takes cybersecurity very seriously: it represent by coordinating their views and implementation of messaging standards. is core to the service it offers – a secure and feeding this back to SWIFT. reliable communications channel. Financial messaging standards sit at the Bringing the African financial community heart of virtually all economic activity, from Cybercrime is becoming increasingly together executing the smallest retail transactions sophisticated and far reaching. SWIFT believes SWIFT holds numerous events across to managing massive global institutional that a community-based approach can best Africa to bring together the African financial businesses. Standards are vital to allow confront this challenge and therefore launched community. The African Regional Conference for a common understanding of data the SWIFT Customer Security Programme is the flagship event, attracting about 500 across linguistic and systems boundaries, (CSP) in 2016 to reinforce the security of leading financial services executives from more and to permit the seamless, automated the global financial ecosystem. The CSP than 45 countries across Africa, including transmission, receipt and processing of assists customers in protecting and securing financial institutions, market infrastructures, communications exchanged between their local environments, in preventing and international corporations and technology users. Use of standardised messages and detecting fraud and in sharing fraud-related partners to do business and shape the future reference data ensures that data exchanged information. of Africa’s financial industry. Additionally, between institutions is unambiguous and SWIFT holds business forums across the machine friendly; in turn this enables efficient All of SWIFT’s 11,000+ customers from more region that focus on the interests of particular automation, thereby reducing costs and than 200 jurisdictions around the world have communities. mitigating risks. been directly targeted and reached through the Customer Security Programme. In Africa, Supporting domestic and regional In its role as a financial messaging standardiser, webinars and workshops, roadshows and infrastructure SWIFT’s Standards Group works with the roundtables, training sessions and bootcamps SWIFT is supporting the development financial community to define standards for have been held since the CSP’s launch, of Africa’s financial infrastructure and these messages. SWIFT plays a key part in attracting 1300 attendees in more than 30 connects and serves more than 25 market integrating IS020022 across the banks on the countries. infrastructures across the continent. The network and would relish the opportunity to adoption of SWIFT for a payments market assist African banks in this work. SWIFT Corporate Social Responsibility infrastructure leads to major improvements SWIFT integrates social, environmental, in stability, efficiency, interoperability and cost Financial Crime Compliance ethical, and human rights concerns into its reduction for financial institutions and regulators As regulators across Africa and in more operational strategy. SWIFT sponsors a wide alike – something that’s vitally important in fast- advanced economies demand greater tools range of charities in Africa with a special focus growing markets like those in Africa. for detection and prevention of money- on education and under-privileged children. laundering, terrorist financing and fraud, the
39 About SWIFT Disclaimer To find out more
SWIFT is a global member-owned This report is provided for information The SWIFT Africa Payments White cooperative and the world’s leading only. If the customer or any third party Paper is based on unique data provider of secure financial messaging decides to take any course of action and analysis from SWIFT Business services. or omission based on this report and/ Intelligence. This portfolio of tools, or any conclusion contained therein, including analytics, insights and We provide our community with a they shall do so at their own risk and economic indicators, provides granular platform for messaging and standards SWIFT shall not be liable for any loss detail on your SWIFT traffic across a for communicating, and we offer or damage, arising from their acts or variety of metrics, including currency, products and services to facilitate omissions based on this report and/ product type and value, and enables access and integration, identification, or any recommendations contained you to track market evolution. This analysis and financial crime compliance. therein. helps financial institutions to make Our messaging platform, products and fact-based business decisions and services connect more than 11,500 more efficient use of their resources, banking and securities organisations, and to identify market trends. For market infrastructures and corporate more information on SWIFT Business customers in more than 200 countries Intelligence and other services, please and territories, enabling them to contact SWIFT. communicate securely and exchange standardised financial messages in a Denis Kruger reliable way. Head of Sub-Sahara Africa, SWIFT [email protected] As their trusted provider, we facilitate global and local financial flows, support Sophia Lyscom trade and commerce all around Communications & Events, the world; we relentlessly pursue EMEA, SWIFT operational excellence and continually [email protected] seek ways to lower costs, reduce risks and eliminate operational inefficiencies. Headquartered in Belgium, SWIFT’s international governance and oversight reinforces the neutral, global character of its cooperative structure. SWIFT’s global office network ensures an active presence in all the major financial centres.
SWIFT contributors Tom Callaert Leah Capili Thierry Chilosi Geraldine Lambe Sophia Lyscom Michimaru Onizuka
© SWIFT 2018 June 2018