africa payments: insights into african transaction fl ows

8/18/2019 Africa Payments: Insights into African transaction fl ows

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SWIFT:

Thierry Chilosi

Damien Dugauquier

Geraldine Lambe

Michimaru Onizuka

The authors would like to thank the following for their support in producing this paper:

Rob Green, Head, Payments Market Infrastructure, FirstRand Bank

Goolam Balim , Chief Economist and Head of Research, Standard Bank

Vincent Mommaerts, Correspondent Banking, BNP Paribas Fortis

Moono Mupotola, Manager, Regional Integration & Trade Division, African Development Bank

Leina Gabaraane, Managing Director, Stanbic Botswana & Chairman, SADC Banking Association

Nerina Visser, Head of ETFs and Beta, Nedbank Capital

Patrick Gutmann, Head of Transaction Banking, Ecobank

Nkosinathi Moyo, Group Manager Cash Management, Ecobank


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‘Africa is rising’ is a powerful

phrase these days. Indeed, Africa

has a youthful population and

growing middle class which the

AfDB projects will spend more

than $1 trillion by 2020 – up from

$680 million in 2008. The rising

middle class will undoubtedly help

to drive up demand for consumer

goods, creating the business case

for African firms to upgrade their

production processes and expandtheir businesses. We already see

glimpses of this occurring: value-

added goods account for an

increasing share of intra-Africa

exports, versus primary goods for

extra-Africa exports.

The AfDB estimates that in 2010, 16%of Africa’s exports were directed to other

African states – higher than the 12%figure most often cited. Moreover, at

$57 billion, intra-Africa exports are notinsignificant. What is also encouragingis that in the period 2000-2010, exportsleaving Africa grew at only two-thirds therate of intra-African exports. Challengesremain, including continued effortsto remove non-tariff barriers, such asdelays along transit routes and borders;reducing transaction costs for cross-border payments; reducing high energycosts; and eliminating rent-seekingactivities and restrictive domestic

policies. Addressing these will improvethe competiveness and productivecapacity of African firms.

Africa’s economic integration agendais on-going and the majority of thecontinent’s 54 countries belong toone or more of the Regional RegionalEconomic Communities (RECs) thatis pursuing either a free trade area orcustoms union. At the 2012 AfricanUnion Summit, African heads of stateendorsed the Continental Free Trade

Area (CFTA) – expected to be in placeby 2017 – with the goal of increasingintra-African trade to 25% of total tradein the next decade.

However, as Africa pursues deepereconomic integration, facilitationof payments across borders andintegration of financial markets can nolonger be ignored. Transaction costsremain high, at least partly because alarge proportion of settlement processes- 48% - within Africa involve banksoutside of Africa. This impacts theproductive capacity of African firms.

This report also shows that 39% of Africa’s financial flows go to the UnitedStates, even though it accounts foronly 9% of commercial flows. Aswe put renewed focus on industrialand value chain development acrossthe continent in order to boost theef ficiency and profitability of Africantrade, it is imperative that we addressthe economic costs of settling so manypayments in dollars. Making cross-border payments easier, cheaper and

safer is an important part of the tradestory and an obvious step towardsboosting trade.

Today, Africa’s financial markets remainweak and rudimentary, focusing onlyon retail; building a strong intermediarysector is crucial for stronger financialmarkets. Given the presence of at least800 commercial financial institutionsin Africa, the next step will be to assistbanks, particularly domestic banks,to develop the capacity to becomeconfirming and corresponding banks sothat we can lower costs.

The AfDB, through its trade financeprogramme, will focus on strengtheningthe capacity of domestic banks to meetinternational standards as a way toprovide affordable finance for small andmedium enterprises. With the improvedlegal and regulatory reform, as well ascross-border payment systems andtechnological innovation, the tradefinance programme could have positiveeffects both on recipients and levels of

African imports and exports.

Continuing Africa’s structuraltransformation will be crucial in orderto extend the continent’s growth storyand promote inclusive growth. Alongwith driving forward integration, focusmust also be on deepening the financialsector.

As its cross-border markets expand,understanding the movement of goodsand money remains important. Suchtrade data has the potential to identifykey trends and highlight possible drivers

for change. This helps to bring clarityand understanding to the marketplace.

As such, papers like this one play animportant role in promoting debate.

FOREWORDBy Moono Mupotola, Manager Regional Integration & Trade Division African Development Bank


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Executive summary

Economic and demographic datademonstrate how fast Africa is growing– and how much further potentialthere is for this vibrant continent.

According to UN Conference on Trade &Development (UNCTAD) data, between2000 and 2011, Africa’s exports almostquadrupled in value, from USD148.6billion to USD581.8 billion a year. But theshift in where those exports are goingis even more startling. UNCTAD figuresreveal two clear trends: the falling shareof Africa’s exports going to the maturemarkets of the US and Europe and therising share of trade going to emergingeconomies, particularly to Asia and

specifically to China.Boosting trade both within and outside

Africa is a key goal of policy makersacross the continent. Understanding

Africa’s trade flows in terms of scale andcomposition, therefore, will be crucialin determining the right policies andprocesses to support further growth.

This report uses SWIFT’s unique datato map trade flows against financialflows for the first time, revealing a newperspective on Africa’s transaction

flows. The report also identifies potentialdrivers for change and their impact onbanks doing business in Africa andwith Africa.

This paper makes three keyobservations:

Current financial flows do notreflect the magnitude of commercial

flows between African countries

and Asia Pacific. Whilst 22% of the commercial

payments from Africa will end up in Asia Pacific, only 5% of the financialflows go directly to that region.Meanwhile, banks in North Americareceive almost 40% of the paymentssent by Africa, versus only 9% of thecommercial flows. A total of 48% ofintra-African import/export settlementinvolves intermediation by a bankoutside of Africa.

The US dollar prevails as the

dominant trade currency and the

EUR is rarely used for transactions

with clients that are not based in

the Eurozone. Almost 50% of commercial paymentssent from Africa are denominatedin USD. At the same time, morethan 80% of the dollar transactionssent from Africa to the US havetheir financial beneficiary in anotherregion. Conversely, only 15% of europayments from Africa are eventuallytransferred outside of the Eurozone.

The relative importance of US dollar

clearing banks has increased in the

past 10 years. Contrary to what may have beenexpected, the market share of USDclearing banks has grown rather thandiminished in the past decade – risingfrom just under 25% to almost 40% –even while trade with Asia

has increased at the expense oftrade with the US. Part of this maybe attributed to flows with Asia thatare denominated in USD and are

intermediated by banks in theUnited States.

However, we also see severalenvironmental factors that may drivechange in cross-border transactionflows. This could potentially lead to areshaping of pan-African banking, shiftsin currency usage and the opportunityfor multi-currency regional clearingin Africa.

Regulators & Risk

Management

More prudentialcontrols globally

Regulation driving-uptransaction costs

Global banksreviewing compliancerisk exposure

Financial Market

Infrastructures

FMIs interlinking andmodernizing

FMIs extending theirgeographical reach

FMIs increasing theaccessibility andattractiveness of local

Political Will

More Regional Integration

Attracting more FDI

Investments in Infrastructure

Demand Side

Growing economic activity

Proximity with trading partners

Competitive pressure

AfricanBanking

Rebalancing?

Key forces driving change

Shift inCurrencyUsage?

Opportunityfor Regional

Clearing?


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Political will to regionalise, raiseFDI attractiveness and foster more

intra-Africa trade.

The AfDB estimates intra-Africa trade

accounts for 16% of total trade,versus 70% between Europeancountries. SWIFT figures point tointra-African trade accounting for 23%of the continent’s total; two possibleexplanations for this difference couldbe that SWIFT data, based on actualpayment traf fic, captures a largerproportion of the “grey” economythan other measures, and the SWIFTdata that we use for this report arebased on volume [and not value].

Boosting intra-African trade still furtheris important, as it has huge potentialto create employment, be a catalystfor investment and to boost growthin Africa. As a result, political backingfor regional integration projects thatsupport these aims is likely to impacttransaction flows.

The demand side of the African

market is expanding and evolving.

Corporates are the primary driver ofcross-border transactions. As they

expand across and out of Africa,their needs will evolve. This will leadto demand for new products andservices, and deeper relationships withbanks in key markets.

International regulatory pressures

also impact cross-border

transactions.

New regulations are making it

increasingly expensive for banks inthe United States and Europe to dobusiness with small and unknowncounterparties. Unless banks areable to prove their KYC (Know yourcustomer) and anti-money launderingprocesses comply with the toughestrequirements, they may lose businessor even find they have restrictedaccess to the dollar. SWIFT datashows that American and Europeanbanks have already shrunk their

African banking network. This opensthe way for larger African transactionbanks to position themselves as agateway to other markets in Africa.

Financial market infrastructures

modernising.

African countries are investing infinancial markets infrastructures (FMIs),many at a regional level. Policy makersrecognise that payment systems andother infrastructures play a huge rolein fostering and deepening economic

development. FMIs provide morecertainty and greater ef ficiency intransaction processing. Along withharmonised legal and regulatoryframeworks, robust regional FMIs willmake intra-region payments morecompetitive and reduce the need forforeign financial intermediation.

The SWIFT data in this reportunderscores the importance of tradecorridors between Africa and AsiaPacific and reveals higher than expected

intra-Africa volumes. It also confirms adisconnect between some commercialand financial flows, and highlights thecontinued dominance of the dollar.Regional integration initiatives as theymature are likely to contribute andimpact those flows. These initiatives andthe environmental factors identified havethe potential to shape significant changein banking on this vast continent. Thisreport concludes that there will be norevolution in the transaction banking

landscape in Africa but rather anevolution towards fewer but larger pan- African banks and a gradual pressure toadapt to new dynamics in the currencyenvironment. The scenarios discussedwill be driven by macro-economic andpolitical forces – yet, commercial banks,regulators and other actors in the Africanfinancial industry must watch carefullythe evolution of transaction flows inorder to anticipate market shifts.


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Introduction

The sustained growth of Africaneconomies is well reflected in SWIFTpayments volumes. A deeper-diveanalysis of transaction flows originating

from different African economic regionsalso shows the growing importance ofintra-African trade. The USD and EURremain the predominant base currenciesfor settling cross-border trade – butincreasing and renewed pressure frompolitical and economic drivers arechallenging that status quo. What doesthis mean for cross-border bankingin Africa?

This paper will attempt to frame thecross-border banking context in the

midst of regionalisation initiatives,international regulatory pressures,and the reconfiguration of the tradingcorridors. Supported by some uniquemarket data on payment routes, weare exploring what are the possibleevolution scenarios that will impactbanking in Africa.

Economic context

The financial and economic crisis in

advanced economies combined with arobust growth in Africa has led many tolook at the continent as an interestinginvestment opportunity.

Africa’s year-on-year gross domesticproduct (GDP) growth has repeatedlyoutperformed total world growth andthat of advanced economies in the pastten years.1

That said, the size of the Africaneconomy remains ten times smaller than

advanced economies and around fourtimes smaller than China. Amongst theBRIC countries, Africa’s total GDP as aregion would rank third, between Indiaand Russia.

Natural resources remain the biggestcontributor to African growth butthe continent’s economic vibrancyis increasingly supported byother flourishing sectors such astelecommunications, banking, retailand construction. The future also lookspromising with a fast growing populationand burgeoning middle

class, more, sophisticated infrastructure,and investments rising. Foreign directinvestment (FDI) is pouring capital intothe region, with Africa representing 5.6%of the global FDI in 2012 compared to3.5% in 2003.2 In terms of where newprojects are being launched, the financialsector leads by a large measure.3

Source:IMF

Africa (Region)

20

0

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

-20

Advanced economies

World

GDP growth

Source:IMF

Advanced economies

India

Brazil

Africa (Region)

Russian Federation

China, People’s Republic of

GDP in 2012 based on PPP(Billions of current international dollars)

41,637

12,406

4,684

3,360

2,513

2,356

1 Advanced economies : Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland,France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Republic of, Luxembourg,Malta, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden,Switzerland, Taiwan Province of China, United Kingdom, United States

2 Africa attractiveness Survey 2013, Ernst and Young3 Africa attractiveness Survey 2013, Ernst and Young


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Africa’s relationship with the rest ofthe world is also changing. WhileOECD countries remain criticaleconomic and political counterparts,

non OECD countries have becomemore and more important as tradingpartners. For example, the share ofnon-OECD countries in African tradehas risen from 26% in 2000 to 39%in 2009, whilst exports to the US andEurope, meanwhile, are falling (from17% to 10%, and from 47% to 33%,respectively).4

Intra-African trade, however, is smallerthan that between Africa and China and

Hong-Kong.5

Africa’s exports to Chinaare dominated by mineral fuel and rawmaterials (more than 80% of all exports),and its imports are mostly machineryand intermediary manufactured goodsfrom China (more than 70%).6

The environment is also changing within Africa. Several regionalization projectsare reshaping the political, economicand financial landscape. In addition topromoting peace and stability, theseinitiatives aim to boost intra-Africantrade by removing the obstacles to dobusiness and by harmonising rules andregulations between African countries.

All of these changes imply that decisionmakers and businesses in Africa andoutside of the continent will need toadapt to a new environment.

This paper takes an in-depth lookat the impact of these trends on thefinancial industry and asks what insights

Africa’s transaction flows can offerabout the nature of future growth anddevelopment.

The new world oftransaction flows in Africa

Our approach

This paper considers transaction flowsbased on cross-border commercialpayments, because these mirror actualtrade flows and generate associatedfinancial flows.

Two types of transaction flows can bedifferentiated: commercial flows andfinancial flows. Commercial flows referto the payment instruction sent by thebank of a client A, typically a corporate,to the bank of a client B for the importof goods or services. These flows aremeasured based on the commercialpayments sent by banks from Africa tothe country where the end-beneficiary issituated.

Financial flows represent the paymentroute used for the settlement of thetransaction. They are measured basedon the number of commercial paymentssent by banks from Africa to the countryof the counterparty bank.

Source: OECD factbook 2011

OECD-Europe

37%

China and

Hong-Kong 13%

Non-OECD other

17%

Intra-African

9%

OECD other

11%

United States

13%

Africa trade partners in 2009

4 UN Conference on Trade & Development (UNCTAD) figures, 2012.5 OECD Factbook 2011-2012: Economic, Environmental and Social Statistics6 UN Comtrade, 2009


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Example 2

Commercial

Goods / services

Example 2

Commercial

oods services

Bank of Client A

Clearing Bank

Bank of Client B

Angola

Algeria

Botswana

Central AfricanStates (BEAC)

COMESA

East African PaymentSystem (EAPS)

Egypt

The Gambia

Ghana

Kenya

Lesotho

Mauritius

Morocco

Namibia

Sierra Leone

SIRESS (ZA)

South Africa

Swaziland

Tanzania

Tunisia

Uganda

Zambia

Zimbabwe

West African States

(BCEAO)

Payments Market Infrastructures

Systems live on SWIFT

Status

Both HVP and LVP MI

HVP MI only

August 2013

3

21

Commercial and financial flows canmirror each other – see example 1 withan African import from Europe where thepayment is directly routed to a Europeanbank, or show a disconnect – seeexample 2 with an African import from

Asia intermediated by a clearing bank inthe United States.

Transaction flows are measured basedon customer credit transfers (calledMT103 SWIFT messages) executed onthe SWIFT network. The statistics in thispaper provide a very accurate picture oftransaction flows because cross-bordercommercial payments are rarely routedoutside of the SWIFT network.

SWIFT connects more than 10,000financial institutions and the corporationsin 212 countries and provides theproprietary communications platform,products and services that allow itscustomers to connect and exchangefinancial information securely and reliably.SWIFT is widely recognised as thetrusted financial telecommunicationservice provider for the paymentsclearing market, and provides messagingservices for more than 90 domestic andinternational payments clearing systemsworldwide, covering 2,000+ banks in

90+ countries.

SWIFT presence in the African regionis growing rapidly, as shown with thenumber of high-value payment (HVP) andlow-value payment (LVP) systems usingSWIFT. In addition, there are severalcountries and regional initiatives currentlyunder implementation that are expectedto go into production in 2013.

This paper discusses the currentsituation in Africa and takes a closer

look at the different regional initiatives.We will explain the drivers for a potentialreshaping of transaction flows in Africa.

The main assumption of this paper isthat we may see more direct financialflows between African countries andwith Asian counterparties. Finally, we willelaborate on the impact of this new mapof transaction flows for African and non-

African banks.


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Current situation

Economic growth in Africa isrepresented by transaction flows on theSWIFT network. With the exception of2009, transaction flows sent by banks

in Africa have shown a year-on-yeargrowth of around 10%.

Transaction flows in Africa today

can be summarized in three

observations:

1) Financial flows do not reflect the

magnitude of commercial flows

between Africa and the Asia

Pacific region.

SWIFT data shows that Africancommercial flows are largely directed

to clients based in Europe, Africa and Asia Pacific. Payment volumes between Africa and Asia Pacific and intra-Africaaccount for 45% of all flows.7

Drilling down within the regional flow, just five countries – France, the UnitedKingdom, China, the United States andSouth Africa – represent more than 40%of volume.

Financial flows, by contrast, aredominated by payments to North

America, followed by smaller volumesto Europe and Africa. Banks in North

America (mainly the United States)receive 39% of the payments sent by

Africa, but only 9% of the commercialflows. Banks in Asia Pacific, meanwhile,receive only 5% of the financial flows,even while 22% of the commercial flowsare destined for the region.

This divergence is explained by thestrong use of the USD by African banks(almost 50% of cross-border flows)

and intermediation offi

nancialfl

owsby US dollar clearing banks in theUnited States.

2) The USD remains the dominanttrade currency and the EUR is

rarely used for transactions with

clients that are not based in the

Eurozone.

More than 80% of the transactions sent

from Africa to the United States havetheir final beneficiary in another region. The three main regions where thepayment will eventually be transferredare: Asia Pacific (42%), Africa (17%)and Europe non Eurozone (10%). Thishighlights the intermediation role of USDclearing banks.

The picture is different for EUR flows,where only 15% of the payments areeventually transferred outside of theeurozone. Hence, volumes captured byEUR clearing banks directly depend onthe trade activity between Africa andeurozone countries.

Source: IMF and

SWIFT MT103GDP Africa payments on SWIFT

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SWIFT forecasts 6% GDP growth in 2013 based on the

evolution of SWIFT payments volumes

Evolution of GDP compared to SWIFT payments volumes

Europe – Euro Zone 26%

23%

22%

15%

9%

Africa

Europe – Non Euro Zone

North America

Region of commercial counterparty:

where are commercial payments going to?

39%

28%

14%

13%

5%

4%

1%

1%

0%

Africa

Middle East

Central & Latin America

Middle East


North America

Europe – Euro Zone


through which route are commercial payments going?

Source: SWIFT (number of cross-border MT103 sent f rom

Africa to counterparty region in April 2013)

7 These figures are based on the number of transactions for one month of data in 2013, hence a potential difference withthe trade flows computed by international organizations.


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3) The relative importance of

US dollar clearing banks has

increased in the past 10 years

The increase in the share of Africanfinancial flows directed to North America(predominantly the United States)illustrates this trend. An important partof this growth can be attributed to theemergence of trade flows with Asiancountries that are denominated in USD

and intermediated by banks in the UnitedStates. The decline in the share of tradebetween Africa and Europe also createdmore room for USD-denominatedtransactions.

Source: SWIFT (number of cross-border

MT103 sent from Africa to USA in USDin April 2013)

Source: SWIFT (number of cross-border

MT103 sent from Africa to eurozone inEUR in April 2013)

Europe –Non Euro

Zone 10%

Europe – Non Euro

Zone 7%Middle East7%

Africa 7%

North America0%

Central &Latin America0%

2%

Middle East1%

Africa5%


1%

42%Europe –

Euro Zone 4% Europe –

Euro Zone

85%

End destination of USD denominated commercial

payments received by banks in the United States

End destination of EUR denominated commercial

payments received by banks in eurozone

North America 13%

0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

10%

20%

30%

40%North America 38%

Others 19%

Africa 15%

Europe 28%

Source: SWIFT (number of cross-border MT103 sent f rom Africa to counterparty region)

This paper investigates whether thistrend is likely to change in the future,with more direct flows to other Africancountries (15% in 2012) and banksoutside Europe or America(19% in 2012).


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Regional initiatives in Africa

Africa is comprised of 54 countrieswith disparate economies. There issignificant political support for regionalintegration initiatives as a means to

create employment, act as a catalyst forinvestment and foster growth in Africa.Some of these involve a high degreeof integration and a common currency(ECOWAS-UEMOA/WAEMU andECCAS-EMCCA/CEMAC); some arepushing forward (SADC), while othersare rather inactive (Maghreb).

In terms of transaction volumes,the SADC region dominates the

African continent thanks to the largecontribution of South Africa. However,

other regional unions are showingincreasingly strong growth. Volumes inECOWAS – WAMZ, for example, havegrown more than 800% in 10 years.In 2013, the combined volumes ofoutgoing transaction flows from Nigeriaand Ghana represent the same shareof total African flows as those of South

Africa (18%).

The table below provides an overviewof the commercial flows sent fromthe different African regions and the

currency usage (split between the USD,euro, rand and ‘other’ currencies).ECOWAS – WAMZ and EAC areboth notable by the large proportionof USD transactions (80% and 69%,respectively), whilst ECOWAS –WAEMU/UEMOA sends only 10% ofits transactions in USD. ECOWAS –WAEMU/UEMOA has sizable intra-Africatransaction flows especially betweenthree large Member States (Senegal,Côte d’Ivoire and Mali). This, togetherwith a cross-border RTGS for the

region, explains that more than half ofpayments are denominated in the localcurrency (XOF). France, Germany and

The Netherlands are also importanttrade partners, which drives up the EURflows. WAMZ, however, transacts mainlywith Asia Pacific and North America.

This reflects the fact that China andthe United States are the main importpartners for the two largest economiesin the WAMZ region, Nigeria and Ghana,leading to a high proportion of USD flows.

African regions

SADC

EAC

ECOWAS –WAMZ

Maghreb

COMESA

ECOWAS –UEMOA/WAEMU

(BCEAO)

ECCA –EMCCA/CEMAC

(BEAC)

Commercial payments sent from Africa by integration regions

2003 2004 2005 2006 2007 2008 2009 2010 2011

Others

SADC

ECOWAS –WAMZ

EAC

Arab Maghreb Union

ECOWAS –UEMOA/WAEMU

ECCA –EMCCA/CEMAC

Source: SWIFT (number of cross-border MT103 sent from African regio

Source: SWIFT (number of cross-border MT103 sent from

Source: SWIFT (number ofcross-border MT103 sent from

North America

0% 40% 60% 80% 100%

Africa

Union

75%

9%

70%

8%

19%

17%

7%

18%

18%

58%

14%

13%

0%

4%

0%

0%

0%

14%

13%

18%

69%

10%

80%

53%

57%

EAC

ECCAS –

ECOWAS –

SADC

COMESA

USD EUR ...


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Regional FinancialIntegration – a catalystfor change

Leina Gabaraane , Chairman,

SADC Banking Association

Twelve countries in the SADC region havebeen actively working on introducing anumber of regional payment schemesaimed at improving payment processes inorder to support increased, trade, tourismand investment within the region.

These payment schemes, by their nature,are bringing about many changes in theway banks in SADC process cross-border transactions in the region. The

infrastructures that are being implementedwill mean that certain paymentinstruments currently used, such ascheques, will be eliminated. In other casespayment processes will be streamlinedwhich means they will be faster and morecost effective and address some of therisks inherent in the current paymentmethods. Other changes are aimedat making it easier for the non-bankedpopulation in SADC to benefit from thetechnologies that can be deployed to suittheir needs.

The journey so far

The SADC Banking Association becameactively involved in the SADC PaymentsProject some two and a half years agoand has worked very closely with theCentral Bank team appointed by theCommittee of Central bank Governorsin SADC (CCBG). This joint initiative hasculminated in the first payment schemegoing into production on 22 July this

year, i.e. Credit Transfers with ImmediateSettlement. This scheme is being pilotedin the 4 Common Monetary Area countriesin SADC (CMA), i.e. Lesotho, Namibia,South Africa and Swaziland.

This payment scheme allows banks inSADC to remit payments to each otherwhich are settled immediately throughthe Real Time Gross Settlement Systemknown as SIRESS – SADC Integrated

Regional Electronic Settlement System. This allows banks to maintain theircorrespondent banking relationships buteliminates any inter-bank settlement risk inintra-SADC cross-border payments.

The next phase for this payment schemeis to bring the non-CMA countries intoproduction. A number of non-CMAcountries have undertaken testing ofthe system and they will be scheduledfor production once a number of otherregulatory and technical matters havebeen completed.

The introduction of SIRESS has alsoallowed commercial banks in the CMAregion to stop the practice of allowing theirclients to use current account chequesas a means of cross-border payments.Commercial banks in the other area ofSADC have taken this a step further andhave stopped issuing drafts drawn in randand are offering their clients alternativeelectronic or card-based payments.

Next phases

Clearly the work has just begun; otherpayment schemes are progressing ata pace and will be introduced once allthe details have been worked through.

These schemes will include low-valuecredit transfers, direct debits, card basedpayments and the cash leg of settlementsof any stock market trades and publicdebt securities.

These schemes will aim to achieve thefollowing: make low-value cross-borderpayments as ef ficient as domestictransfers; increase the usage of cardbased payments and make them moreaffordable; and eliminate the settlementrisks associated with cross-border tradesin equities and public debt securities.

The SADC BA is working closely onthese initiatives with other stakeholdersinvolved such as the Committee ofSADC Stock Exchanges as well as likelyservice providers and financial marketinfrastructure operators.

Regionalisation leading to positive

change

The SADC is currently undertaking majorchanges within the financial area in theregion which should not only lead toimproved trade, tourism and investmentwithin SADC but also to an improvedperception globally. An improvedperception globally should in turn lead

to increased investor confidence andincreased external trade, tourism andinvestment in the region.


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With its strong economic growth anddevelopment, Africa attracts significantinvestment and donor fund flows.Consumer spending is on the rise, a newmiddle class is emerging, export marketsare evolving and corporates are keen tocapitalise on the rising sales of goods andservices. According to McKinsey’s 2012report “The rise of the African consumer”,the continent’s consumer-facing industriesare expected to grow by $400bn by 2020;this represents Africa’s single largestbusiness opportunity and outpacesgrowth in resources revenue.

Such consumer and export growth meanscorporates are increasingly expandingacross borders to create regional and pan-

African businesses. This places greaterdemands and new requirements on thefinancial services needed to supportthem. Multinational companies active onthe continent expect corporate banking

solutions that are aligned with globalbest practices – and this is increasinglytrue for African corporates, too. As theyexpand across the continent and beyond,

Africa’s businesses require ever moresophisticated banking products andservices that work effectively and ef ficientlyacross multiple countries, in multiplecurrencies, and in a variety of regulatory

jurisdictions.

The banking sector in Africa is responding. The sorts of services and solutionsthat have historically been consideredtoo complex to deliver in Africa – suchas direct connectivity or cash poolingarrangements – are now increasinglyfeasible for corporations or internationalorganizations that have operations acrossthe continent.

This is critical. To support economicgrowth in Africa, it is crucial that thecontinent’s corporate community hasaccess to the right products and services.Moreover, it is essential that services suchas cash management are not limitedto a few of Africa’s biggest economies,but are offered in a greater number ofcountries across the continent. This willenable treasurers to achieve higher levelsof integration and standardisation, andsupport improved ef ficiency for theirorganisations. This brings down cost and

increases growth opportunities.

Corporates are looking for bankingpartners that have the right technicalinfrastructure and the right capabilities,where they need them. But the valuethat banks now bring goes beyond theirproduct offering. In a world where bordersare reducing but regulations are ever-morestringent, banks must also understand thevarious regulatory environments and the

constraints that other policies place onbusiness. For example, most countries in

Africa regulate the movements of fundsbetween countries, so it is crucial forcustomers operating in these marketsto understand the implications for theirbusiness, and how it will effect cashmanagement operations and local liquidity.

Africa is a complex, nuanced market of 54countries and more than 2000 dialects,according to Unesco. What is typical inthe north or the east – whether in termsof consumer preference or businessculture – will likely differ from other regions.Corporates are increasingly looking forbusiness partners who can help them tonavigate this vast continent, and providethe kind of integrated and sophisticatedset of services to formulate a winningbusiness model. The needs of corporateclients are helping to shape the banks in

Africa as much as the African economy is

driving the companies that banks serve.

The evolving bankingrequirements of Africancorporates

Patrick Gutmann &

Nkosinathi Moyo , Ecobank


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SWIFT © 2013 12

What will drive change incross-border transaction flows?

Cross-border payments intra-Africa andbetween Africa and the rest of the worldare skewed towards USD usage and

USD clearing via North American banks.Of all commercial payments sent from

Africa, 49% are dollar-denominated. This trend may look unsustainable whenless than 10% of the underlying tradeshave their final destination in the UnitedStates.

This paper identifies four environmentalforces that are likely to reshape Africancross-border payment flows. Theseforces are: (1) the political will to

regionalise and better equip Africanfinancial markets; (2) the evolvingrequirements of the African marketdemand side; (3) the internationalregulatory pressures making accessto USD clearing more costly; and (4)the emergence of new financial marketinfrastructures that aim to increaseregional accessibility, improve ef ficiencyand reduce settlement risk.

1. Political will to regionalise,

raise FDI attractiveness and boost

intra-Africa trade

Many African countries believe regionalcollaboration will help to achieve theirpolitical, economic and social goals.Smaller economies may be constrainedin their growth prospects and have lessbargaining power at an internationallevel. Integration and cooperation caneliminate obstacles to trade and makeregions more competitive in the globalfinancial marketplace, helping all thecountries within the region to benefit.

African leaders also see in regionalisationa way to foster intra-Africa trade flowsand attract FDI. To that end, policymakers recognise the need to buildsound financial marketplaces withthe appropriate legal framework andtechnological infrastructures. Eventually,these initiatives are likely to increaseintra-Africa trade flows and may result

in cross-border payment flows usinglocal currencies and regional clearinginfrastructures.

A powerful illustration of the potentialimpact of regionalisation on African

cross-border payments is theexperience of the ECOWAS-UEMOAand ECCAS-EMCCA region. Thesegroupings of Western and Central

African states share common currencies(XOF and XAF) and common clearingand settlement infrastructures forpayments. As a result, only 2% ofECOWAS-UEMOA and ECCAS-EMCCA trade settlement involves afinancial intermediary outside of Africa– compared to 48% of intra-Africa tradesettlement overall.

2. The demand side of the African

market is expanding and evolving

Corporates are the primary driversbehind cross-border transactions. Asthey expand across Africa and developrelationships with foreign businessesin Asia or other regions, their needsfor financial services are evolving. Thecontinent’s regionalisation initiativessupport those corporates by providingeasier access to a wider range offinancial products.

Large corporates in industry segmentssuch as telecommunications, oil, andmining already operate with a regionalscope; as a result, within the ECOWA-UEMOA region, for example, manyof these are asking for facilities suchas centralised liquidity managementproducts. It is expected that small- andmedium-sized businesses (SMEs),attracted by similar growth prospects,

will follow larger corporates into adjacentcounties; and as SMEs expand in Africa,so will the volume of intra-regionalpayments. It is therefore likely thatbusinesses will become increasinglycomfortable with trading in their ownor other local currencies. Indeed, somecorporates in Eastern Africa are alreadywilling to issue invoices and accept randpayments from other African businesses.

For those corporates working with Asianfirms, the current disconnect betweenthe volume of commercial flows and thatof financial flows could point to the needfor banks on both sides to rethink theirservice proposition. For example, banks

may look to further integrate the tradefinance and cash management offerings,particularly as the RMB gains ground.Indeed, many are already anticipatingthat the main trading currency willone day be the RMB, given that thedominant trade corridor is with China.However, SWIFT statistics illustrate thatdespite the strong 36% annual growth ofthe RMB, the USD remains the preferredtrading currency and current RMBvolumes are negligible, representing only0.04% of existing African cross-bordertransactions.

Assuming the RMB sustained its currentgrowth rate and the USD growthremained flat, it would take 25 yearsfor the RMB to catch-up with the USDcurrent volumes. That said, the growingimportance of the China-Africa corridormeans this is an important macro-economic parameter to monitor. Shoulda shift to the RMB occur, it will likelyhappen rapidly once the tipping point is

reached.


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SWIFT © 2013 13

3. International regulatory

pressures also impact cross-border

transactions

Transaction patterns will also bereshaped by regulations that imposestrong prudential controls and operate

a zero-tolerance to exposure topotential money laundering or terroristfinancing. For European and Americanglobal transaction banks – operatingfrom jurisdictions where the regulatoryregimes are particularly onerous – it isbecoming prohibitively expensive to dobusiness with small banks they do notknow, particularly if they cannot provethat that they have in place suf ficientanti-money laundering and counter-terrorist financing (AML/CFT) processes.

The graph above illustrates thetrend: active correspondent bankingrelationships have been reducingbetween African banks and theirEuropean and American counterparts.

Regulations in Europe and the UnitedStates have increased the cost oftransacting with banks on the Africancontinent through the implementation ofmuch tighter KYC (know-your-customer)and AML requirements. As a result,

American and European banks arereviewing their network of correspondentbanks in Africa, usually with the objectiveof reducing number of preferred partnerbanks. Some may even decide tooutsource coverage of the Africancontinent to other providers. Trusted localbanks therefore have an opportunity toplay a greater role as intermediaries in theprovision of local transaction services.

Already, we are seeing African transactionbanks positioning themselves as a

gateway for banking with Africa.

Such trends mean African banks willlikely experience change in their businessrelationships with foreign banks. Smallerlocal banks in countries where AML/ CFT frameworks are still immature arelikely to face the biggest challengesand risk finding themselves with nodirect access to USD or EUR clearing.

On the other hand, African banks thatinvest in the processes, infrastructuresand know-how that will enable them to

demonstrate compliance in a transparentway will capture the lion’s share of foreignbusiness. Foreign banks from matureeconomies are eager to participate in

Africa’s vibrant growth because their coremarkets do not offer the same prospects.So, while they may want to reduceexposure to Africa from a complianceperspective, they are more than willing toinvest assets given the right assurance.

4. Financial Market Infrastructures

modernising

Africa is investing heavily in itsfinancial markets backbone. Liketelecommunications, roads and ports,financial market infrastructures pay forthemselves in terms of fostering economicdevelopment. SWIFT connects andserves more than 20 payments marketinfrastructures in Africa and is proactivelysupporting the design and roll-out of whatwe call the ‘third-generation’ of paymentmarket infrastructures in Africa.

The first generation was introduced in the1990s in the form of RTGS systems, withthe primary aim of equipping domesticeconomies with robust settlement andrisk management systems. The secondgeneration involved interlinking RTGS withancillary systems, such as governmentsecurities, CSDs, ACH, cards and pointof sales. Some African nations are nowplanning infrastructures with a cross-

border reach and multi-currency support,which use international standards suchas ISO 20022 for messaging and adhere

to CPSS-IOSCO key principles. With theadoption of the latest communicationand information technology, these thirdgeneration systems will support centralbank reporting, raise transparency, andincrease security and resiliency.

African central banks and regionaleconomic communities understand theimportance of sound financial marketinfrastructures in developing African trade.FMIs provide more certainty and greateref ficiency in transaction processing.

Accompanied by a sound, harmonisedlegal and regulatory framework, robustregional FMIs will ultimately make intra-region payments more competitive,reducing the need for foreign financialintermediation. This change will likelybe gradual, but it looks irreversible; asthese infrastructures mature, intra-Africatransactions will converge towards them.

201201 201204 201207 201210 201301 201304

Number of

counterparties in

Africa, -5%

0%

-1%

-2%

-3%

-4%

-5%

-6%

Evolution of number of African counterparties for European

and American banks

Source: SWIFT (number of banks in Africa sending MT940

to counterparties in Eurozone or North America)


16/24


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SWIFT © 2013 15

What will change in Africancross-border banking?

It is clear from existing initiatives thatsub-regions which share historical andeconomic ties are evolving to form

relatively small building blocks, but itseems unlikely that Africa will integrateinto a single trading or economic bloc.

The forces for change mentioned abovewill take time to materialise; however, inthe banking landscape that is emergingwe believe there are three scenarios thatshould be watched:

1. Fewer but bigger African players

The first trend we anticipate is that Africanbanking will morph towards fewer but

bigger African players in the cross-borderspace. This is because African banksare today better positioned in terms ofbalance sheet, local market understandingand risk appetite to capture growth acrossthe continent. South Africa’s StandardBank, Morocco’s Attijariwafa Bank, Togo’sEcobank, and Nigeria’s United Bank for

Africa are all good examples of banksalready pursuing a pan-African expansionstrategy. Banks that grow outside theirnational borders will not only gain accessto new “local” markets, but also capturethe related regional and international trade.

Those banks that do become trulypan-African will also be more attractiveto foreign banks interested in doingcross-border business with Africa. Whilethey possess some significant competitiveadvantages, such as global footprint anda sophisticated product offering, manyforeign global banks have less capability todevelop a large footprint on the continentdue to liquidity and local market know-

how. So, attracted by the strong growthin sub-Saharan Africa, they could belooking for strong and reputable partners.

The business relationship between banksin Africa and banks dealing with Africa istherefore likely to evolve; what used tobe seen as a one-sided arrangement isevolving towards a more balanced andreciprocal partnership.

2. More transactions will shift

towards regional currency

denomination

The USD is the base currency for half ofall cross-border payments from Africa.For inter-continental transactions and for

transactions between less well knowntrading partners, it is unlikely that thehegemony of the USD will be challengedsoon; transacting in USD brings greatercertainty.

However, the experience from ECOWAS-WAMU/UEMOA and ECCAS-EMCCA/ CEMA suggests that for a substantial andgrowing proportion of intra-Africa trade,we could expect a shift in currency use.

Equally, African central bankers willcontinue to promote the use of their localcurrencies. Angola’s recent changes inmonetary policy offer a good example.In an effort to further integrate the oil-powered, US dollar-based side of theeconomy with that of the rest of thecountry, the regulator is gradually imposingthe usage of the kwanza.

Simultaneously, across the continent,access to the USD is also becomingincreasingly dif ficult for smaller players,

principally because of tighter anti-moneylaundering and know-your-customerrequirements.

The USD became a global reservecurrency after the Second World Warwhen the United States was the largesttrading nation, exporter and creditor. Giventhat this role is increasingly being taken byChina and that by 2014 OPEC estimatesChina will become the world’s largest oilimporter, the emergence of the Petroyuan

may be just around the corner. Russia andIran are already accepting yuan to payfor oil exports; Angola, with 38% of its oilexports destined for China, may be next.

SWIFT data illustrates that a USD/ RMB tipping point is still some way off,although banks are already preparing forthis scenario. Before it could happen,a number of conditions must first

materialise. The first – the existence ofimportant Africa-China trade corridors – isalready met. Other conditions – includingthe right regulatory framework, RMBconvertibility and corporate demand –remain latent.

3. Opportunity for an African multi-

currency clearing centre

As growth and greater integrationgenerate more transaction volumes,the economics of setting-up amulticurrency (EUR, USD) clearinginfrastructure for the continent maybecome more pursuasive. Moreover,growing local flows denominated inforeign currencies could eventuallyencourage the financial communityto set up more ef ficient clearingarrangements. In 1996 Hong Kongestablished such an arrangement,under the leadership of the Hong KongMonetary Authority and in partnershipwith two clearing banks: HSBC forthe USD and Standard Charteredfor the EUR.

That said, the context is different in Africa than in Hong Kong. There isnot yet a well-established internationalfinancial centre on the continent. Equally,

even if local USD clearing could createtransaction processing ef ficiency andtransparency, neither African nor USregulators are looking in this direction.

Additionally, while technically feasible,this scenario does not follow the politicaldirection of existing regional integrationinitiatives, which favour use of an Africancurrency.

However, this scenario meritsconsideration. As the African markets

develop, it becomes increasingly likelythat a strong and reputable internationalfinancial centre will emerge. In this case,the set-up of a multi-currency clearingcould arise.


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SWIFT © 2013 16

How may the changesimpact banks?

Because cross-border payments are amirror of economic development, analysisof cross-border transaction flows can

provide banks with some valuable insightsfor their businesses. We end the reportwith some key findings from two differentperspectives: banks doing business ‘in’

Africa, and banks doing business ‘with’ Africa.

Banking in Africa

Growing economies offer African banksan obvious opportunity to expand. Thereis a huge un-banked population tocapture, a growing middle class and a

corporate client base that is expandingacross and beyond the continent. In termsof cross-border banking, regionalisationwill strengthen African banks’ competitiveadvantage because they will be ableto capture the increasing intra-Africatrade flows.

In the face of tough new regulations andonerous capital charges, banks will needto think about raising their complianceprofile. This may require effort not justfrom individual banks but from entirefinancial communities as well as policymakers and regulators. Compliance withinternational regulatory frameworks, suchas that laid out by the G20-mandatedFinancial Action Task Force, will becomeintrinsically linked with a country’s businessreputation: attracting inward investmentand maintaining access to internationalcapital will require compliance at acommunity level.

Because achieving, proving and

maintaining regulatory compliance isa high, fixed cost, smaller and purelydomestic African banks may find thecompliance challenge a significant hurdle.For banks with a low volume of cross-border transactions, it will be particularlydif ficult to justify the investment required.In these circumstances, shared andcommunity solutions could offer a viablealternative.

Going forward, successful internationalbanks in Africa will need to consider apan-African reach, compliance reputation,evolutions in multi-currency management,and the ability to offer ef ficient solutionsto African corporates. Relationships

with international banking partners willevolve and offer opportunities for furthercollaboration.

Banking with Africa

Global banks from mature economieswill likely rethink their transaction bankingactivities with Africa. While they want toparticipate in the growth opportunities,for some, the costs and risks of doingbusiness in Africa could outweigh thebenefits.

Business strategies will diverge along tworoutes: building or outsourcing. In thefirst, banks will maintain a large networkof domestic banks across Africa; in thesecond, they will have a smaller number ofpan-African banking partners which will inturn provide access to a greater numberof markets. Whichever strategy is chosen,the nature of the business relationshipswith African banks will evolve.

Banks from emerging markets that are

important trading partners for Africa arealso likely to reconsider their productand service positioning. Evolution in theneeds of African corporates will eventuallytranslate into new requirements, such asa growing appetite for centralised liquiditymanagement and use of other currencies,and drive new business propositions.

For example, as trade volumes betweenthe emerging economies of Africa and

Asia continue to grow faster than between

Africa and mature economies such asEurope and the US, banks from Asia maylook to serve their own corporate clientsusing expertise from the local Africanmarkets rather than from global players.Gradually, direct relationships will build upwith African banks and global players maybe disintermediated. This could offer newpartnership opportunities.

Conclusion

Africa’s economic vibrancy is felteverywhere. With this paper, our aim is toprovide a transaction banking perspectiveon the continent’s development usingreliable and up-to-date payments

statistics. This data confirms theimportance of trade corridors between

Africa and Asia Pacific and also intra- Africa. Intra-African payment volumesrepresent a higher than expected totalshare of volumes (23%). Regionalintegration initiatives as they mature arelikely to contribute to those flows. The dataalso highlights the importance of the EURand USD denominated payment flows,and despite the common expectationsthat major tectonic shifts may soonchallenge those currencies, we find noevidence that this is happening. Weconclude that there will be no revolutionbut rather an evolution in African cross-border banking. Yet no-one can ignorethe macro-economic and political forcesat play; to be a successful pan-Africanplayer will require careful monitoring ofthese forces so that businesses can bepositioned to benefit from potential shifts.


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SWIFT © 2013 17

APPENDIX

The following section takes a closer lookat the different regional initiatives andprovides a transaction flows identity card

across two metrics: overview of the maincommercial and financial counterpartiesfor outgoing payments; and distributionby counterparty region for the intra-Africafinancial flows.

EAC – East AfricanCommunity

The East African Community (EAC) is the regionalintergovernmental organisation with a mission towiden and deepen economic, political, social andculture integration in order to improve the quality oflife of the people of East Africa through increasedcompetitiveness, value added production, tradeand investments.

Current status

The EAC established a common market in 2010aiming to provide the free movement of goods,labour, services and capital.

Policies to improve the free movement of capitalwithin the EAC include enhanced macro-economicpolicy harmonisation and coordination particularlywith regards to fiscal regimes and monetary policy.Under the Common Market Protocol, partner statesagreed to remove all barriers and restrictions onthe movement, sale, investment and payments ofcapital. To this end, Kenya, Tanzania and Ugandahave implemented a multicurrency regionalpayment system interlinking the domestic paymentsystems in each of the three countries. Thisfacilitates cross-border fund transfers within theCommunity and thereby supports increase of freemovement of goods, labour and services.

Next steps – enlargement of the Community

The realisation of a large regional economic blocencompassing the five member states – with a

combined population of more than 130 millionpeople (2010*), land area of 1.82 million squarekilometres and a combined gross domestic productof $74.5 billion (2009*) – has great strategic andgeopolitical significance and will play a key role inboosting the economies of the East African region.

Immediate next steps would be to buildinfrastructures in Burundi and Rwanda withdevelopment of key financial market infrastructuresas the core engine of the domestic economy.

The next phase of the integration will see the blocenter into a monetary union and ultimately becomea Political Federation of the East African States.

EAC

Member States

Burundi, Kenya, Rwanda, Tanzania, Uganda

Population

141 million (2011)GDP:

USD $82.8 Billion (2011)GDP/population

USD 584 (2011)


Middle East

Africa



North America

EAC –

Others

SADCECOWAS –WAMZ

EAC Arab Maghreb Union

Financial counterpartyCommercial counterparty

ECOWAS –UEMOA/WAEMUECCA –EMCCA/CEMAC

Source: SWIFT, MT103 sent intra Africa in 2012Source: SWIFT (number of cross-border MT103 sent from Africa in April 2013)

42%

0%

0%0%

7%

7%

15%

36%

10%

10%10%

8%

8%

64%

24%

57%

0%

0%

0%0%

1%


20/24

SWIFT © 2013 18

SADC – Southern African Development Community

The Southern African Development Community(SADC) aims to achieve economic development,peace and security, alleviate poverty, and enhancethe standard and quality of life of the peoples ofSouthern Africa through regional integration.

Current status

In order to achieve the above objective, acomprehensive development and implementationframework – the Regional Indicative StrategicDevelopment Plan (RISDP) – was formulated in2001 guiding the regional integration over a periodof fifteen years (2005-2020). The RISDFP outlineskey integration milestones in five areas: free tradearea, customs union, common market, monetaryunion and single currency. The free trade area wasachieved in August 2008, meaning that for 85% ofintra-regional trade there is zero duty. The secondmilestone, to establish a customs union, has been

postponed, with a new target date of sometimein 2013.

Although the ultimate goal of monetary union witha single currency is several years away, the SADCPayment System integration project is already inmotion. This has strategic objectives to: harmoniselegal and regulatory frameworks to facilitate

regional clearing and settlement arrangements;implement an integrated regional cross-borderpayment settlement infrastructure; and establish aco-operative oversight arrangement based on theharmonised regulatory framework.

The first phase of the cross-border paymentsettlement infrastructure (SIRESS) went live for theCommon Monetary Area countries that use theSouth African rand (South Africa, Lesotho, Namibiaand Swaziland) in July 2013. The new systemallows the settlement of payment transactionsin a central location using rand as the commonsettlement currency.

Next steps – towards an Economic Union

If successful, the new system will be rolled out tothe rest of the SADC Member States as the regionadvances towards its eventual establishment as an

economic union.

In parallel, the immediate next step is theestablishment of the SADC customs union, whichpresents a number of challenges; the major oneis the establishment of a single Common External

Tariff, which requires convergence of all individualtariff policies into a single and uniform tariff regime.

SADC

Member States

Angola, Botswana, DRC, Lesotho, Madagascar,Malawi, Mauritius, Mozambique, Namibia,Seychelles, South Africa, Swaziland, Tanzania,Zambia, Zimbabwe

Population

233 million (2011)GDP:

USD $ 631 Billion (2011)GDP/population

USD 2,699 (2011)


Middle East

Africa



North America

Others

SADCECOWAS –WAMZ





22%25%

24%

27%

3%1%

1%0%

7%

9%

15%

16%13%

37%

94%

4%1%1%


21/24

SWIFT © 2013 19

ECOWAS – WAMZ – West African Monetary Zone

The Economic Community of West African States(ECOWAS)’ Monetary Cooperation Programme(EMCP) provided the blueprint for the economicintegration of the countries of West Africa. Amongstother measures, the EMCP called for the creationof a single monetary zone in the sub-regions knownas the West African Monetary Zone (WAMZ).

The WAMZ was created in April 2000 with thegoal to establish an economic and monetaryunion of the member countries. In 2001, WAMZcreated the West African Monetary Institute(WAMI) to undertake preparatory activities for theestablishment of the West African Central Bank(WACB), and the launching of a monetary union forthe Zone. The WAMZ programme aims to increasetrade among the ECOWAS/WAMZ membercountries, reduce transaction costs for the usersof payment systems, domesticate cross-border

transactions within the WAMZ through the use of asingle currency, develop safe, secure and ef ficientpayment systems that conform to global standardsand build a payment system that will facilitatemonetary policy management for the WACB.

Current status

Ahead of the establishment of the WACB, having amodernised, safe and stable financial infrastructurein place is a prerequisite to introduce a monetaryunion successfully. To this effect, a grant of aboutUSD 30 million from African Development BankFund was approved for the WAMZ PaymentsSystem Development Project, which aims toimprove the basic infrastructure of the financialsector through upgrade of the payment systemsof our countries – The Gambia, Guinea, SierraLone and Liberia. The system components ofthe project include Real-Time Gross Settlement(RTGS) system, Automated Clearing House (ACH)

/ Automated Cheque Processing (ACP) systems,Central Securities Depository (CSD) / ScriplessSecurities Settlement (SSS) systems, Core Banking

Application (CBA) system and infrastructureupgrade (telecommunication and energy).

The Gambia’s high-value payment system wentlive in July 2012 and Sierra Leone is currentlygoing through the implementation. The target dateof the project completion in all four countries isJune 2014.

Next steps – making Eco, the single

currency, a reality

The upgrade of the payment systems is one of thecritical regional financial infrastructural requirementsfor the successful launch of the monetary union andthe single currency.

Immediate next steps will be to align the level offinancial infrastructures in all member countriesand complete the payments system project in theremaining three countries.

ECOWAS – WAMZ

Member States

The Gambia, Ghana, Guinea, Liberia, Nigeria, SierraLeone

Population209 millionsGDP:

USD $ 284.7 Billion (2011)GDP/population

USD 1,359 (2011)


Middle East

Africa



North America

ECOWAS – WAMZ –

ECOWAS – WAMZ –

Others

SADCECOWAS –WAMZ





22%

6%

5%10%

10%

0%

33%

1%

1%

0%

0%

19%27%

67%

0% 3%

21%

35%

40%

1%0%


22/24

SWIFT © 2013 20

The other sub-region the ECOWAS’ EMCPcreated as a single monetary zone is the West

African Economic and Monetary Union (WAEMU) / Union Economique et Monétaire Ouest Africaine(UEMOA). The WAEMU was established topromote economic integration among member

countries and a common market that shareWest African francs (CFA francs) as a commoncurrency, monetary policies, and French as anof ficial language. It is a trade zone agreement toencourage internal development, improve trade,establish uniform tariffs for goods, establish aregional stock exchange and a regional bankingsystem.

Current status The UEMOA/WAEMU has successfullyimplemented macro-economic convergence criteriaand an effective surveillance mechanism; adopted

a customs union and common external tariff; andcombined indirect taxation regulations, in additionto initiating regional structural and sectoral policies.

Uniquely amongst Africa’s regionalisation projects,UEMOA/WAEMU has a single central bank,

Banque Centrale des Etats de l’Afrique de l’Ouest(BCEAO), which governs all of the financialinstitutions across the Union. As part of the projectfor modernisation of the payment and financialinfrastructure, the BCEAO launched a regional Real

Time Gross Settlement (RTGS) system in 2004and the regional Automated Clearing House (ACH)system in 2008.

Next stepsIn terms of the future outlook, some measures arebeing implemented to improve the services such asthe establishment of an intra-day advance liquidity

management mechanism and the enhancement ofpayment system security in order to foster financialstability and limit systemic risk.

ECOWAS – WAEMU/UEMOA Member StatesBenin, Burkina Faso, Ivory Coast,Guinea-Bissau, Mali, Niger, Senegal, Togo

Population98.5 millionsGDP:USD $ 77 Billion (2011)GDP/populationUSD 781 (2011)

ECOWAS – WAEMU/UEMOA – West African Economic and Monetary Union

AMU – Arab Maghreb Union


Middle East

Africa



North America

ECOWAS – WAEMU/UEMOA –

ECOWAS – WAEMU/UEMOA –

Others

SADCECOWAS –WAMZ





4%

1%

31%

23%

25%

25%

0%

4%

0%0%

0%

4%3%

11%

95%

1%1%

1%1%1%


Middle East

Africa



North America

AMU –

Others

SADCECOWAS –WAMZ





6%17%

4%

74%

1%

67%

4%

2%

7%

0%0%

1%

13%6%

1%1%10%

0%

1%

2%

85%

The Arab Maghreb Union (AMU, in French:Union du Maghreb Arabe, UMA) is a tradeagreement aiming for an economic and futurepolitical unity among Arab countries of theMaghreb in North Africa.

Current status The union is not active due to deep political andeconomic disagreements within the sub-region.

Next stepsResolve, among others, the issue ofWestern Sahara.

AMUMember States

Algeria, Libya, Mauritania, Morocco, Tunisia

Population88.8 millionsGDP:USD $ 401.2 Billion (2011)GDP/populationUSD 4.513 (2011)


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SWIFT © 2013 21

he Economic Community of Central African States(ECCAS; in French: Communauté Économique desÉtats de l’Afrique Centrale, CEEAC) is an EconomicCommunity of the African Union for promotion ofregional economic co-operation in Central Africa.ECCAS aims to achieve collective autonomy,

raise the standard of living of its populations andmaintain economic stability through harmoniouscooperation. Its ultimate goal is to establish aCentral African Common Market.

In 1994, it established an Economic and MonetaryCommunity of Central Africa (more commonlyknown as CEMAC from its name in French,Communauté Économique et Monétaire del’Afrique Centrale) to promote the entire processof sub-regional integration through the forming ofmonetary union with the Central Africa CFA franc asa common currency.

Current statusCEMAC countries share a common financial,regulatory, and legal structure, and maintain acommon external tariff on imports from non-CEMAC countries.

The Central Bank of Central African States (BEAC,Banque des Etats de L’Afrique Centrale) launcheda regional RTGS system in 2007 as part of theframework of payment and financial infrastructuremodernisation project.

Next stepsMovement of capital within CEMAC is free and, intheory, tariffs have been eliminated on trade withinCEMAC, but full implementation of this has beendelayed. To date, the region has not achieved itsobjective of creating a customs union.

ECCAS – EMCCA/CEMAC Member StatesCameroon, Central African Republic, Chad,Republic of Congo, Equatorial Guinea, Gabon

Population42.4 millionsGDP:USD $ 88.7 Billion (2011)GDP/populationUSD 2,090 (2011)

COMESA – Common Market for East and Southern Africa

ECCAS – EMCCA/CEMAC


Middle East

Africa



North America



Others

SADCECOWAS –WAMZ





4%

7%

3%

70%

7%

51%

10%

0%

9%

1%0%

0%

7%7%

18%

78%

1%0%1% 2%


Middle East

Africa



North America

COMESA –

Others

SADCECOWAS –WAMZ





6%46%

7%

18%

17%

13%

33%

2%

27%

0%0%

6%

13%11%

1%1%

98%

The Common Market for East and Southern Africa(COMESA) is a free trade area aiming to generateself-sustaining economic growth and create a fullyintegrated and internationally competitive regionwhere goods, services, capital, labour and personsmove freely across borders. With its 19 memberstates, population of more than 389 million, anannual import bill of around US$32 billion andexport bill of US$82 billion, COMESA forms a majormarket place.

Current status The COMESA launched the COMESA CustomsUnion in 2009 and the COMESA Regional Payment

and Settlement System (REPSS) to facilitate cross-border payment and settlement between CentralBanks in the COMESA region. The new systemprovides a single gateway for Central Banks withinthe region to effect payment and settlement oftrades.

Next steps The banking industry tasked the COMESABusiness Council (CBC) to increase awareness ofthe REPSS amongst the bankers so that tradersin the region can have more competitive andaffordable cross border transactions.

COMESA Member StatesBurundi, Comoros, DRC, Djibouti, Egypt, Eritrea,Ethiopia, Kenya, Libya, Madagascar, Malawi,Mauritius, Rwanda, Seychelles, Sudan, Swaziland,Uganda, Zambia, Zimbabwe

Population349 millionsGDP:D $ 413,6 Billion (2011)GDP/populationUSD 1,183 (2011)


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Thierry Chilosi

Head of Banking Initiatives,EMEA, SWIFT,[email protected]

Geraldine Lambe

Communications & Events,EMEA, [email protected]

To find out more...

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