SOUTHERN African Development Community (SADC) has the Integrated Regional Electronic Settlement System (SIRESS) while East Africa has the East African Cross-Border Payment System (EAPS), but are they helping in improving African trade?
African countries are pushing towards having a continental free trade area and trade in Africa has long been touted as the big corporate opportunity. For such a vast area, trade in Africa to date has been relatively simple to define. For most of its 54 countries it has been a mix of importing finished goods and exporting agricultural and mining commodities. But this is a picture that is beginning to transform into something more complex and beneficial for all parties.
Whilst the current import/export balance continues, nations such as Ghana, Kenya, South Africa, Mozambique and Uganda, and many others, are, by varying degrees, developing their manufacturing capacities and starting to export finished and semi-finished goods whereas Zimbabwe seems to be lagging behind due to its economic and political turmoil. There is a notable upswing in the importation of big-ticket goods such as cars, along with clothing, electrical goods and other consumables.
Investor and financiers from outside the region wanting to understand and appreciate the continent, needs to grasp two key facts. Firstly, Africa has a population of 1.3 billion, growing at around 32 million annually. Secondly, the countries that define the continent have between them a widely differing mix of cultures, currencies and regulations, each characterised by varying degrees of economic nationalism and liberalism. The other important challenge is the dynamic nature of regulation which is hard to keep up with. The authorities can issue circulars on a regular basis, seemingly moving the goalposts and at times reversing previously communicated decisions. For an investor sitting in Europe or the US, it seems uncoordinated, it can certainly be difficult to pick up regulatory trends across multiple countries. Of course, a foreign business seeking to invest in the continent needs to know upfront how to extract value from its overseas activities, by repatriating funds or paying dividends, for example.
But with such regulatory “dynamism” across the board, staying close to the regulators, making a point of understanding the ever-changing framework in which they operate is very important. Ignoring this will see the investor of financier in serious trouble.
Lack of systemic integration between countries is also a challenge. Sending funds from Zimbabwe say to Eswatini, for example, is surprisingly complex. Money may have to leave Africa and be channelled through a European or US partner bank before reaching its beneficiary. In this example, frustration can arise because correspondent banking relationships between some countries simply do not exist.
However, change is coming and the driver for this change is the rise of regional payment systems. The launch in 2004 of the Central Bank of West African (BCEOA) real-time gross settlement system (RTGS) removed the need for complex correspondent banking relationships, contributing to the integration of the economies of BCEAO member states. The East African Cross-Border Payment System (EAPS) went live in 2013 doing the same for its members. The same year, SADC rolled out in four countries with SIRESS and, today, some 40% of all southern African regional payments traverse this platform.
These platforms are having some effect. Markets such as Zambia and Mozambique are becoming strong trade partners of Zimbabwean businesses. But still there are huge opportunities for the taking. The development of intra-Africa trade and changing the culture embedded by historical precedent will require neighbouring countries to trust each other in delivering quality products on time and at a competitive price.
It has not helped that the various RTGS in Africa are not currently interoperable. However, this may be about to change. The Common Market for Eastern and Southern Africa (Comesa), a free trade area with 21 member states, is now talking about the creation of an open trade hub. It is a mammoth project but the conversation is clearly in the right place. Intra-Africa trade will help improve and converge growth among African countries and the authorities should quickly move towards removing all the barriers.
Tinashe Kaduwo is a researcher and economist. Contact: firstname.lastname@example.org