Regional initiatives a catalyst for cross-border trade: report
Intra-Africa payments clearing and trade is increasing in importance, according to SWIFT’s Africa Payments: Insights into African Transaction Flows report. The report maps commercial payment flows against financial flows, pointing to an increase in the use of African currencies for crossborder payments and a decline in the dominance of North American clearing banks and the use of the US dollar.
The paper, published for the 25th SWIFT African Regional Conference in Kigali, Rwanda in June, also identifies a reduction in the number of foreign correspondent banking relationships in most African regions.
African Development Bank director of regional integration, Moono Mupotola said: “More than ever before, Africa needs to accelerate intra-regional trade and bring down market barriers.”
COMMERCIAL PAYMENTS
SWIFT data highlights a significant increase in intraAfrican commercial payments, with almost 20% of all crossborder commercial payments being credited to an African beneficiary. This indicates more goods and services are being bought and sold within Africa. This is up from 16.7% in 2013.
Intra-African clearing of payments has also increased, from 10.2% in 2013 to 12.3% in 2017. This indicates that an increasing number of payments are being routed through Africa instead of via a clearing bank outside of Africa.
“Regional initiatives across Africa are eliminating obstacles to trade through integration and harmonisation, driving economic transformation,” says Sido Bestani, regional director for the Middle East, Turkey and Africa at SWIFT.
STABILITY
“They bring greater economic stability and resilience and, according to SWIFT data, are a major catalyst for the evolution of cross-border trade and banking in Africa. Other factors such as the evolving corporate sector and regulatory pressure in financial markets are playing a powerful role in driving change in Africa,” adds Bestani.
While North America remains the main payment route of financial flows from Africa, its dominance is declining. Banks in North America (mainly the US) now receive 39.5% of all payments sent by Africa, down from 41.7% in 2013. Use of the US dollar has also decreased as a share of payments originating in Africa from more than 50% in 2013 to 45.1% in 2017.
SWIFT says the use of local currencies such as the West African franc and South African rand is increasing. Use of the franc for cross-border payments has overtaken the rand and the British pound, accounting for 7.3% of payments in 2017, up from 4.4% in 2013. The rand has seen a smaller increase in cross-border payments from 6.3% to 7.2%.
Meanwhile, Europe’s significance as a clearing and trading partner for Africa is increasing. Commercial flows directed to clients based in Europe have increased from 26.4% in 2013 to 28.6% in 2017. In contrast, SWIFT data suggests that both the pound and UK clearing banks are losing share of African imports with commercial flows dropping to from 10.4% in 2013 to 9% in 2017 and financial flows from 11.7% to 9.3%.
Financial flows do not reflect the magnitude of commercial flows between Africa and the Asia Pacific region. While 21.7% of commercial flows are destined for Asia Pacific, only 5% of financial flows are routed through the region.
The report says since 2013, almost all African regions have experienced a significant drop in the number of foreign correspondent banking relationships. The Maghreb region has seen the largest reduction, of 47.25%, since 2013, while the East African Community is the only region to see an increase in relationships.
EVOLVING
According to Denis Kruger, head of sub-Sahara Africa, SWIFT, Africa’s transaction banking landscape is evolving as a result of a variety of macroeconomic factors, which will continue to shape Africa’s banking sector in the future.
“Digitisation and technological innovation will play an increasingly important role. To be successful, panAfrican players will need to monitor these forces so that business can be well positioned to benefit from potential shifts.”