Africa Payments: Insights into African transaction flows - White paper - Swift
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
White paper Africa Payments: Insights into African transaction flows
Contents Africa Payments: Insights
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
2Foreword:
Africa Payments: Insights
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.
3Executive
Africa Payments: Insights
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
In this paper, we consider two types of between Africa and the Asia Pacific
is growing and how much potential region.
transaction flows:
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
the intermediaries that are clearing/settling largely denominated in US dollars as the
predicted to accelerate in 2018. dominant reserve currency.
the payments
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
Turkey1. 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
4Executive summary Africa Payments: Insights
into African transaction flows
ENVIRONMENTAL FACTORS 2. Evolving & expanding
demand in Africa
DRIVING CHANGE
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. P
olitical 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. T
he demand side of the African 4. R
egulatory 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. T
he 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.
5Introduction &
Africa Payments: Insights
into African transaction flows
economic context
Figure 2: African commercial payments evolution
Millions
90
The sustained growth of African
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
15
payments. While the US dollar and euro
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
Advanced economies: Australia, Austria, Belgium,
“Africa Payments: Insights into African further this year. 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 Puerto Rico, San Marina, Singapore, Slovak Republic,
growth, which leaves commodity-dependent
Slovenia, Spain, Sweden, Switzerland, Taiwan,
data on payment routes, we identified various 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
smaller than advanced economies2 and four growth and generate employment for a
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
6Introduction &
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 the continent, which has yet to reach its full
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
potential and lags behind other regions such
-2
as Europe or Asia. In 2016, intra-African
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
AFRICA’S TRADING PARTNERS the goods. For the moment, the use of the
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
Africa’s relationship with the world is if African central banks move to use the
1.2 billion people, including a growing middle
changing. Over the past decade, trade has renminbi as a reserve currency. In May 2018,
class, and a combined GDP of more than
begun to move away from OECD countries the MEFMI hosted a Forum for Eastern and
$3,400 billion and has the potential to boost
and towards emerging economies5. At the Southern African permanent secretaries of the
intra-Africa trade by more than 52% through
same time, there is growing evidence that Ministries of Finance and deputy governors
the elimination of import duties; economists
African countries are increasingly trading with of central banks in Harare. Seventeen
argue this increased trade could be doubled if
their near neighbours. representatives from 14 nations discussed the
non-tariff barriers are also reduced.
possibility of adopting the renminbi as part
According to the African Economic Outlook of a reserve currency management initiative
This paper takes an in-depth look at the
2017, intra-African trade has increased by central banks in the region. It is hoped
impact of these trends on the financial
fourfold over the last two decades, the introduction of the Chinese currency will
industry and explores the insights that
suggesting that such African trade is less enhance currency and debt management, and
Africa’s transaction flows can offer about the
vulnerable to economic downturns than unlock greater trade value.
nature of future growth and development.
exchanges with other parts of the world.
This is because intra-regional trade
comprises mainly manufactured goods 3
frican Economic Outlook 2018
A
which are less susceptible to price shocks
4
Attractiveness Programme Africa, 2017, EY
5
IMF Direction of Trade Statistics, 2017
than commodities, for example. 6
African Economic Outlook 2017
7
Brookings Institute
7Our approach
Africa Payments: Insights
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
Goods / services
bank in the United States.
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.
8Chapter 1
Africa Payments: Insights
into African transaction flows
2017
TRENDS
9Chapter 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. E
urope’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. N
orth 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.
10Chapter 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
11Chapter 1: 2017 trends Africa Payments: Insights
into African transaction flows
Figure 9. Final destination of payments from Africa routed through US clearing banks
4. F
inancial flows do not reflect the
magnitude of commercial flows
Asia-Pacific 35.0
between Africa and the Asia Pacific
region (see Fig. 8)
In our 2013 report, SWIFT data showed
Commercial counterparties
that while 21.6% of African commercial Sending bank Finance Africa 19.5
flows were directed to customers in Asia Africa counterparty
Pacific, only 5% of financial flows were USA
routed through the region. The same trend
North America 15.3
is reflected in this year’s data. While 21.7%
of commercial flows are destined for Asia
Europe – Euro Zone 10.7
Pacific, only 5% of financial flows are
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-
Source: SWIFT BI Watch
border flows) and intermediation of financial
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. T
here 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
originating from elsewhere. denominated in RMB. USD 45.1
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
12Chapter 1: 2017 trends Africa Payments: Insights
into African transaction flows
Figure 11. Africa’s currency usage for cross-border commercial
Currency usage ofpayments by regions
integration region
0 10 20 30 40 50 60 70 80 90 100 %
2017
SADC
More EUR and ZAR
2013
2017
More USD and others
EAC
2013
2017
WAEMU ECOWAS
WAMZ
More USD
2013
ECOWAS–
(BCEAO)
UEMOA/
2017
More XOF
2013
2017
BEAC
2013 More EUR
Maghreb
2017
Stable
2013
COMESA
2017
More EUR and others
2013
ECCAS
2017
More EUR
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.
13Chapter 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
%
.08
2,000
-16
Number of correspondents
1,500
%
.11
1,000
-20
%
%
.25
.11
%
-47
+7
500
%
.63
%
99
35
%
-17
-5.
72
-4.
-4.
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. T
here 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.
14Chapter 2
Africa Payments: Insights
into African transaction flows
WHAT IS
DRIVING
CHANGE IN
CROSS-BORDER
TRANSACTION
FLOWS?
15Chapter 2: What is driving change Africa Payments: Insights
into African transaction flows
in cross-border transaction flows?
Cross-border payments, both intra- initiatives taking place across the continent African foreign direct investment – money
(see Fig. 13). Such regional harmonisation that African companies invested in African
Africa and between Africa and the rest
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
be seen in SWIFT’s data. Intra-African payment and therefore the destination of
showing a move away from the US the goods and services – have risen from
financial flows – the route taken by
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
West African franc, for example, used by countries in March 2018 is a major step
forces that have been re-shaping towards building a “borderless Africa” that
all members of the West African Economic
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. P
olitical 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. T
he 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
Many African countries believe that will impact all types of industrial and from outside Africa12. 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
policy makers have recognised the need 18 countries across the continent: 32
10
Lions on the Move II: Realising the potential of
Africa’s economies, McKinsey, 2016
to build sound financial marketplaces from South Africa, 10 from Morocco and 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/
16Chapter 2: What is driving change Africa Payments: Insights
into African transaction flows
in cross-border 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
17Chapter 2: What is driving change Africa Payments: Insights
into African transaction flows
in cross-border 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. R
egulatory 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
frican Development Bank African Economic
A
Outlook 2017 FMIs has been important in helping to Ecobank, Banque Populaire du Maroc
https://eeas.europa.eu/sites/eeas/files/eu_-_africa_
15 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.
18Chapter 2: What is driving change Africa Payments: Insights
into African transaction flows
in cross-border 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
19Chapter 3
Africa Payments: Insights
into African transaction flows
WHAT WILL
CHANGE IN
AFRICAN
CROSS-
BORDER
BANKING?
20Africa Payments: Insights
Chapter 3: What will change in into African transaction flows
African cross-border banking?
In the banking
number of intra-African correspondent Simultaneously, across the continent,
banking relationships has increased access to the US dollar is becoming
significantly since 2013. increasingly difficult for smaller players,
landscape that Policy makers across the continent
principally because of tighter anti-money
laundering and Know Your Customer
is emerging are focusing on regional harmonisation
as a means to foster intra-Africa trade
flows. As regional markets become
requirements. This could further drive the
use of regional currencies.
we believe that more harmonised, banks and corporates
will find it increasingly compelling to
3. Interlinkage of regional payments
systems
there are six maximise economies of scale across
multiple markets. It is therefore likely that
While regional payment systems are
being successfully deployed across the
scenarios to
pan-African financial players will gain a continent, including the STAR-UEMOA,
business advantage. EAPS and SIRESS, several regions
are looking at how these could be
watch. 2. A
shift towards regional currency
denomination
interconnected to allow payments to flow
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. F
ewer 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
21Chapter 3: What will change in Africa Payments: Insights
into African transaction flows
African cross-border banking?
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. T
he 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
frican Economic Outlook 2017
A
Such initiatives are already being the continent are transforming their 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
22You can also read
