THE ROLE OF CENTRAL BANKS IN ADVANCING CONTINENTAL AND TRIPARTITE FREE TRADE AREA The Importance of Regional Payments Systems to Increase Trade in the Continental Free Trade Area December 2019
THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA) Main Objectives of the AfCFTA • Creation of a single continental market for goods and services, with free movement of business persons and investment, paving the way for accelerating the establishment of the Customs Union • Expand Intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across Regional Economic Communities (RECs) and across Africa in general. • Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. • Enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.
THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA) • Brings Together 55 Member States of the African Union • Covers a Market of over 1.2 Billion Inhabitants • With 60% of the Population below the age of 25 • Has a Combined GDP of over US$ 3.4 Trillion • Has the Potential to boost Intra- African Trade by 52.3% through the elimination of Import Duties
THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA) • AfCFTA’s role is critical in enhancing Intra-African trade which is low compared to intra-continental trade globally • In 2017 Intra-African exports were 16.6% of total exports, compared with 68.1% in Europe, 59.4% in Asia and 55.0% in the USA. • Intra-African trade (average of Intra-African Exports and Imports) during the period of 2015-2017 stood at 2%, compared to the USA – 47%, Asia – 61%, Europe 67%. • Regional Economic Blocs in Africa form a foundation for the success of the AfCFTA
REGIONAL ECONOMIC BLOCS
INTRA-REGIONAL ECONOMIC COMMUNITY TRADE – 2016 (US$ Billion) SADC 34.7 CEN-SAD 18.7 ECOWAS 11.4 COMESA 10.7 AMU 4.2 EAC 3.1 IGAD 2.5 ECCAS 0.8
COMESA EXPORTS TO & IMPORTS FROM THE REGION 2016 - 2018 (USD Million) SADC EAC ECOWAS Trade Flow 2016 2017 2018 2016 2017 2018 2016 2017 2018 Exports 8,570 15,241 20,610 2,934 3,738 4,373 488 630 860 Imports 13,413 14,082 15,544 3,031 2,700 3,424 479 599 370 Total Trade 21,983 29,323 36,154 5,965 6,438 7,797 966 1,229 1,230
REGIONAL PAYMENT AND SETTLEMENT SYSTEMS REGIONAL PAYMENT SYSTEMS ARE AMONGST THE POWERFUL • FACILITATION TOOLS FOR THE INCREASE OF INTRA-REGIONAL AND PAN AFRICAN TRADE THROUGH THE REDUCTION IN THE COSTS OF MAKING PAYMENTS FOR SUCH TRANSACTIONS THEY BUILD TRUST AMONGST TRADERS AND THEIR RESPECTIVE • COMMERCIAL BANKS THROUGH RELIABLE, SECURE AND COST EFFICIENT SYSTEMS WHICH ULTIMATELY ENABLE TRADE ON OPEN ACCOUNTS •
INTEGRATION OF PAYMENT SYSTEMS IN AFRICA • FINANCIAL REFORMS ARE TRANSFORMING PAYMENT SYSTEMS IN AFRICA FROM BEING COSTLY STAND ALONE PLATFORMS TO BEING MORE EFFICIENT AND COST EFFECTIVE • CHALLENGES OF GEOGRAPHIC LOCATIONS, CASH BASED SYSTEMS, VOLATILE CURRENCIES, DIFFERENT LEVELS OF NATIONAL PAYMENTS INFRASTRUCTURE, ETC, HINDER INTRA-AFRICA TRADE • PAYMENT SYSTEMS DEVELOPMENT & MODERNISATION WITHIN THE CONTINENT ARE HAPPENING AT RAPID PACE & HELPING TO PROMOTE CROSS BORDER TRADE, THUS ADVANCING THE REGIONAL INTEGRATION AGENDA.
INTEGRATION OF PAYMENT SYSTEMS IN AFRICA • REGIONAL PAYMENTS SYSTEMS ARE FINDING COMMON ATTRIBUTES AND INTEGRATION WILL INCREASE EFFICIENCY • CURRENT SYSTEMS COMPLEMENT EACH OTHER, NOT COMPETE. • REPSS (COMESA), SIRESS (SADC), EAPS (EAC), WAMZ ALL USE SWIFT AS MESSAGE CARRIER, A GOOD STARTING POINT • FOR COMPLETE INTEGRATION, THERE IS NEED FOR DEVELOPMENT OF LEGAL FRAMEWORK, ADVANCED CLEARING SYSTEM, TECHNICAL UPGRADE OF EXISTING SYSTEMS AND MULTILATERAL AGREEMENTS. • MEMBER STATES INVOLVEMENT AT HIGHEST LEVEL WILL ENSURE COMMITMENT, FUNDING & AWARENESS FOR SUCCESSFUL INTEGRATION.
REGIONAL PAYMENT SYSTEMS (RPS) AND TRADE IN CFTA • REGIONAL PAYMENT SYSTEMS BROADEN ACCESS TO MARKETS THUS AIDING THE REGIONAL AND CONTINENTAL INTEGRATION PROCESS • REDUCED PAYMENT RELATED COSTS ENABLES MORE USERS TO TRADE THEREBY ENHANCING COMPETITIVENESS. THIS FURTHER LEADS TO GREATER QUALITY AND EFFICIENCY AND INCREASED TRADE. • SIMPLICITY OF REGIONAL PAYMENT SYSTEMS WITH GUARANTEED SETTLEMENT ENSURE GREATER EXCHANGE OF GOODS AND SERVICES, EASING TRADE LIBERALISATION EFFORTS • WITH THE GROWTH OF DIGITAL TRANSACTIONS, PREVIOUSLY UNTAPPED MARKETS ARE NOW ACCESSIBLE WITH PAYMENTS TAKING SHORTER TO COMPLETE. • INFORMAL CROSS BORDER TRADE WHICH IS LARGELY UNRECORDED IS BEING FORMALISED AND ITS CONTRIBUTION TO TRADE RECOGNISED.
COMESA AT A GLANCE TOTAL AREA 11.7 MILLION SQ. KM POPULATION 556.9 MILLION MEMBERSHIP 21 COUNTRIES FTA MEMBERSHIP 16 COUNTRIES INTRA-COMESA TRADE $ 20.5 BILLION (2018)
COMESA MEMBERSHIP
COMESA INSTITUTIONS TRADE AND DEVELOPMENT BANK • COMESA CLEARING HOUSE • COMESA COURT OF JUSTICE • COMESA COMPETITION COMMISISON • COMESA RE-INSURANCE COMPANY (ZEP-RE) • AFRICAN TRADE INSURANCE AGENCY • AFRICA LEATHER AND LEATHER PRODUCTS INSTITUTE • COMESA REGIONAL INVESTMENT AGENCY • COMESA BUSINESS COUNCIL • FEMCOM • COMESA MONETARY INSTITUTE •
INTRA-COMESA TRADE BY COUNTRY 2017-2018 ( USD MILLIONS )
COMESA REGIONAL PAYMENT & SETTLEMENT SYSTEM (REPSS) OBJECTIVES STIMULATE ECONOMIC GROWTH THROUGH AN INCREASE IN INTRA-REGIONAL TRADE REDUCE COST AND DURATION OF CROSS BORDER TRANSACTIONS HOMEGROWN SOLUTION, OPERATED BY THE COMESA COUNTRIES RELIABLE, SECURE AND PREDICTABLE SYSTEM LOW INVESTMENT AND OPERATIONAL COSTS SETTLEMENT IN HARD CURRENCIES ($, € )
REPSS FEATURES • SYSTEM IS CENTRALLY LOCATED • LOCAL BANKS ACCESS THE SYSTEM THROUGH CENTRAL BANKS • PAYMENT SYSTEM LINKING CENTRAL BANKS • PAYMENTS TO BE EFFECTED THROUGH CLEARING (NOT REAL TIME) • PRINCIPLE OF CREDIT PUSH (PRE-FUNDED ACCOUNT) • COMPLIANT WITH BIS CORE PRINCIPLES
PAYMENT & SETTLEMENT FLOWS
Traditional Cross Border Payment Correspondent fees Delays
REPSS Model 7 T+0 T+1 T+0 REPSS
BENEFITS REDUCES NUMBER OF SETTLEMENT TRANSACTIONS REDUCES FOREIGN CORRESPONDENT BANKING CHARGES REDUCES COST OF INTRA-REGIONAL TRADE REDUCES SETTLEMENT TIME PERIOD GUARANTEES PROMPT PAYMENT TO EXPORTER BUILDS TRUST AMONG TRADERS SETTLEMENT FINALITY LEVELS PLAYING FIELD FOR COMMERCIAL BANKS EVENTUALLY ALLOWS TRADE ON OPEN ACCOUNT
REPSS & OTHER SUPPORT FACILITIES • WHILE REPSS IS A PAYMENT PLATFORM, IT CAN ALSO SUPPORT CREDIT & OTHER FINANCE FACILITIES THROUGH THE CENTRAL BANKS. • FUTURE SUPPORT TO MOBILE PAYMENT SYSTEMS
THE FUTURE OF REGIONAL PAYMENT SYSTEMS AND TRADE IN CFTA • ONCE CFTA IS ACHIEVED, MISSING LINK WILL BE AN INTEGRATION OF EXISTING PAYMENTS SYSTEMS OR A SINGLE CONTINENTAL PAYMENT PLATFORM • INTEROPERABILITY A QUICKER WAY TO CLOSE THE GAP BY ALLOWING SHARED INFRASTRUCTURE TO CUT DOWN ON INVESTMENT COSTS IN SYSTEMS • A DETAILED STUDY REQUIRED FOR CONTINENTAL PAYMENT PLATFORM – DYNAMICS INCLUDE CURRENCY INSTABILITY
REPSS AND INTEGRATION OF OTHER REGIONAL PAYMENT SYSTEMS • REPSS IS THE ONLY REGIONAL PAYMENT SYSTEM THAT OPERATES ON A SINGLE CONVERTIBLE CURRENCY SETTLEMENT BASIS. • THE SYSTEM CAN BE USED TO SETTLE PAYMENTS ONCE CLEARED AT THE REGIONAL PAYMENT SYSTEM LEVEL • REPSS ALLOWS MEMBERSHIP OF NON-COMESA STATES • THE SYSTEM OPERATES ON A T+0 BASIS
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