2024-02-15 17:18:57
African countries have redoubled their efforts to facilitate the movement of goods and services between them. As in any business transaction, one party must pay and another must be paid. It makes sense that interoperable cross-border payment systems, among other digital finance infrastructure, would increase opportunities for intra-African trade.
Cheaper, more accessible cross-border payments might boost the African economy
Cross-border trade has been limited in Africa, in part because direct cross-border payments are expensive and often inaccessible to most people except the largest and most financially and digitally connected businesses and consumers. Africa remains the most expensive continent for sending remittances, with an average cost of 7.8% (World Bank 2022a). Few cross-border payment systems enable business-to-business (B2B) and person-to-business (P2B) payments. Lacking better options, too many individuals and businesses rely on informal and often cash-based methods to send and receive money across borders. For this reason and others, only regarding 18% of Africa’s trade is between its countries, according to African Union data. This figure is insignificant compared to other continents : In 2022, 68% of European exports were destined for trading partners located on the same continent. In Asia, this rate was 59%.
The growth of cross-border trade has the potential to catalyze socio-economic opportunities for people across the continent and drive inclusive sustainable development. More specifically, the secretariat of the African Continental Free Trade Area (AfCFTA) – created in 2018 to facilitate cross-border trade on the continent – estimates that the establishment of a single integrated African market might enable 30 million people to escape poverty and increase incomes on the continent by US$450 billion by 2035. Additionally, trade across Africa might help minimize disruptions from global shocks, such as the coronavirus pandemic. COVID-19, reducing dependence on external markets.
The limits of cross-border payments in today’s market
Facilitating the secure flow of money across borders might accelerate this opportunity. To achieve this, the continent must scale up the deployment of nationally and regionally interoperable instant payment systems capable of processing cross-border transactions seamlessly. AfricaNenda defines inclusive instant payment systems as open, public or public-private retail payment platforms, in which any authorized payment service provider in a given economy can participate to enable digital transactions in real-time and at any time. This definition explicitly excludes closed-loop proprietary instant payment systems, including most card systems.
Although private sector proprietary payment platforms have played an important role in enabling some cross-border payments, their solutions are often expensive and limited to certain types of payments or end users. These high prices are commercially necessary for a for-profit company to absorb the burden of complying with multiple and sometimes conflicting national regulations and information obligations, as well as possible sanctions for non-compliance with these. regulations. These companies are important, but the services they provide will not be enough to increase cross-border trade flows across all sectors of the African economy. Making instant cross-border payments accessible to everyone who wants to use them will only be possible if the payment systems themselves are accessible to everyone, interoperable, affordable and convenient to use for individuals and businesses. In other words, they must be inclusive.
The best way to achieve this is to establish a partnership between private and public actors. The future of inclusive instant payments that support cross-border trade lies in ecosystem collaboration between central banks, monetary policy authorities and data protection agencies, as well as regional economic communities. When such collaboration is part of a continental trade agreement such as the AfCFTA, we have more momentum for long-term success. Indeed, digital trade is set to play a central role in achieving the objectives of the AfCFTA, as it is one of the catalysts for increasing intra-African trade from its current level of 18% to around 50%. by 2030 (United Nations, 2020). AfricaNenda is proud to support the ongoing consultations on the Digital Trade Protocol through the working group organized by the AfCFTA Secretariat.
How instant payment systems combined with regulatory harmonization can develop cross-border trade.
According to Report on the status of inclusive instant payment systems in Africa 2023 (SIIPS 2023), three of the 32 active instant payment systems in Africa are regional. These are the Pan-African Payment and Settlement System (PAPSS), GIMACPAY in the Central African Economic and Monetary Community (CEMAC) and Cleared Transactions on an Immediate Basis (TCIB) in the African Development Community. Southern Africa (SADC). Three other regional instant payment systems are under development, namely in the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Economic and Monetary Union West Africa (UEMOA).
When operating at scale, these regional instant payment systems will enable greater access to cross-border payments for all who can use them, including small and medium-sized businesses that may have been excluded from formal cross-border trade in the past.
Participating economies can help harmonize their policies and regulations to support digital trade and enable the seamless cross-border flow of money. Establishing risk-proportionate authorization and supervision regimes and interoperability frameworks with similar guiding principles, including those related to ‘know your customer’ regulations for the payment sender and recipient, will enable to make cross-border payments more accessible
Ultimately, this will facilitate business access to regional markets and support intra-African trade. It will also reduce complexity and encourage competition in the payments space. Ultimately, this will also result in cheaper, faster and more reliable cross-border payment options for everyone on the continent.
The SIIPS annual report provides a best practice framework for the basic elements of regulatory harmonization to be considered based on instant payment systems already in place. Through this work, African countries can learn from each other. They can also learn from the experience of regional economic communities in other parts of the world that have promoted the harmonization of policies and regulations to catalyze cross-border trade. Through proactive partnership and knowledge sharing, the African community can develop the capabilities we need to ensure greater economic prosperity for everyone. Inclusive instant payment systems supported by favorable regulations can be key accelerators of cross-border trade in the market of 1.3 billion consumers under the AfCFTA.
On Sabine Mensah,
Deputy Director General of AfricaNenda
1708040996
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