The foreign exchange (forex) squeeze has grinded local and international trade in the country. As the IT sector is essentially dollar-denominated, experts are pushing for a cross-border trade without forex as an intermediary.
In the technology space, while the growing maturity of Africa’s payment systems infrastructure has improved financial access, interoperability and cross-border money exchange remain big challenges.
Head of Growth, Brand Strategy, and Marketing at Paga, a mobile money operator, Daniel Oparison, said: “Making a cross-border payment is still a hurdle in Africa; it remains difficult to carry out those transactions in a low-cost way, and such transactions tend to be peer-to-peer (P2P) transactions.
“As technology advances, with more partnerships among companies and the use of central switches, such as the Nigeria Inter-Bank Settlement System, interoperability and cross-border activity will be significantly improved,” Oparison said.
According to Finance and Development reports, trade among Africa’s 55 countries amounts to only about 15 per cent of their total imports and exports. By contrast, an estimated 60 per cent of Asian trade takes place within the continent. In the European Union (EU), the proportion is about 70 per cent.
But Cellulant, an innovative fintech firm driving financial inclusion in Africa believes cross-border payments on the continent will grow bigger, better, and faster without the US Dollar in the middle.
Its Chief Executive Officer, Akshay Grover, said doing so will be a game changer for the continent.
Grover explained that having to first convert African currencies into dollars to trade is inefficient and a disincentive to trade.
He said: “When I want to change Ghanaian Cedi to Naira, I first need to change Cedi to US dollar then US dollar to Naira. That’s the most inefficient way of converting our currencies. What we could do is enable trade without converting to the US dollar. This is a huge opportunity for cross-border trade.”
Grover added that getting rid of dollars for trade will also help tackle the “dollar liquidity problem. Why is there so much demand for dollars? Why do I need to convert to the dollar to do business?”
He noted that though unfortunate, the ongoing Russia-Ukraine war has led to the benefit of using local currencies for items previously traded in dollars.
“People are now buying oil in local currencies, which never happened, but it is happening because of the Russia-Ukraine war,” Grover said.
The Cellulant chief said it was time financial regulators in Africa, particularly central banks, moved to resolve the problem of dollar dependence to boost cross-border payment on the continent.
“For this, you need a little cooperation. Everyone needs to come to the table. And this has to happen at the central bank or the government level, not Cellulant’s. Maybe it might not happen soon for all of Africa, but we can start building bridges. To some extent, Francophone African countries have tried to do that by trying to create one currency- the CFA – and it’s helped them quite a bit. So, I think the move has started, but how quickly we get onto that road will determine how big this could be in the next two, three years,” he said.
Grover explained that Cellulant was already playing in the cross-border payment space by hosting a lot of intra-Africa traffic through its self-built infrastructure.
Speaking further on the business, which helps SMEs and large local enterprises to resolve their payment and collection issues by directly providing solutions that enable them to collect payments or payout to their customers, disclosed that Nigeria might overtake Kenya as the biggest revenue contributor for Cellulant in six months.
Cross-border payments are just one of the many, barriers to trade in Africa. Others range from high tariffs and cumbersome border procedures to divergent commercial regulations and congested roads.
The African Continental Free Trade Area (AfCFTA) that went into effect in 2021 was designed to lower some of those hurdles and create a vast trading area from Casablanca to Cape Town, encompassing 1.3 billion people. In its first phase, AfCFTA would gradually eliminate tariffs on 90 per cent of goods and reduce barriers to trade in services. In later stages, it would harmonize policies on investment, competition, e-commerce, and intellectual property rights.
The AfCFTA’s backers say lowering trade barriers will supercharge commerce, attract foreign direct investment, and boost economic growth. A recent World Bank study estimates that the deal, if carried out in full, would raise real income by nine per cent and lift 50 million people out of extreme poverty by 2035.
Working in tandem with the agreement will be the Pan African Payment and Settlement System (PAPSS), a project of the AfCFTA secretariat and Cairo-based Afreximbank, which specializes in trade finance. The system aims to link African central banks, commercial banks, and fintechs into a network that would enable quick and inexpensive transactions among any of the continent’s 42 currencies.
As of 2017, only about 12 per cent of intra-African payments were cleared within the continent, according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The rest are routed through overseas banks, mostly in Europe and North America. As a result, an African currency must first be exchanged for dollars, pounds, or euros and then swapped a second time for a different African currency. That adds an estimated $5 billion a year to the cost of intra-African currency transactions.
Founded in 2003, Cellulant has more than 18 years of experience providing locally relevant payment solutions for businesses and their consumers. Its evolution over the years, from a digital content business to mobile banking and now to payments, has allowed the company to build an expansive network, strong relationships, and partnerships.
Oparison is also hopeful that the implementation of the PAPPS will help alleviate pressure and address hurdles including currency exchange on the continent.
PAPPS, launched in January 2022, is designed to enable inter-Africa trade by the use of local currencies, reducing exchange rate costs for traders.
“Cross-border activity around foreign exchange is a major challenge, so whatever we can do to keep the transfers between Africa and in African currencies will help a lot. The regulators have a role to play to clear the hurdles and make it a viable business opportunity cost-wise and regulation-wise,” Oparison said.
Africa’s fintech industry remains on a growth trajectory and, according to Financial and economic online publisher PYMNTS, raised $1.8 billion by half-year 2022, almost matching the funds raised in the whole of last year.
But will the variety of standards and technologies fragment the industry further?
Oparison doesn’t think so. “The variety of fintech tools available means consumers have more choice, and different tools meet the needs of different consumer segments. Some apps focus on local payments, some on savings, some on cross-border payments, and some on investments. It also means customers use fewer clicks to make their preferred selections rather than a generalised app with many tabs,” he told ITWeb Africa.
Paga has claimed it is on track to provide 40-50-million Nigerian adult users in the next five years with access to financial services through a hybrid approach (both online and offline channels).
“We processed a record N1 trillion in transaction values in 2021 and surpassed this total in 2022 by the end of May – recording 1.2 trillion Naira ($2.9+ million),” Oparison said.
