tralac’s Daily News Selection
Africa payments: Insights into African transaction flows (SWIFT)
In 2013, SWIFT published the white paper “Africa Payments: Insights into African Transaction Flows”, which attempted to frame the cross-border banking context in the midst of regional initiatives, international regulatory pressures and the reconfiguration of trade corridors. Supported by some unique market data on payment routes, we identified various trends that summarised transaction flows in Africa at this time and explored the drivers for change. In 2018, we are updating and reviewing this data to explore how transaction banking has changed in Africa over the last five years, what external conditions are driving these changes, and look at possible evolution scenarios that will impact banking in Africa in the years to come.
The data reveals that intra-Africa payments and clearing is increasing in importance, and points to an increase in the use of African currencies for cross-border payments. SWIFT data highlights a significant increase in intra-African commercial payments, with almost 20% of all cross-border commercial payments being credited to an African beneficiary. This indicates that 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. While North America remains the main payment route of financial flows from Africa, its dominance is declining. Banks in North America (mainly the United States) 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. 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%.
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 British 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. [Note: the full text of the SWIFT report can be accessed after registration]
Cutting money transfer fees could unlock $15bn for developing countries: here’s how (WEF)
But the cross-border payments industry remains a fragmented legacy sector beset by inefficiencies, long settlement times, where payments can take days to arrive at the destination account, and high transaction fees. Additionally, the payments’ landscape is devoid of meaningful competition. Western Union and the three other largest money transfer operators (MTOs) account for approximately 25% of global remittance volumes. The remaining 75% is processed by thousands of small to mid-size MTOs which are hampered in their ability to scale owing to resource and latency constraints, illiquidity and a growing reluctance from banks to service smaller MTOs due to compliance overheads and moves to reduce the risk of their portfolios. So what is preventing small to midsize MTOs from scaling successfully? ZED Network has identified three primary factors: banking compliance, cash flow restrictions and technology challenges: [The author, Alan Safahi, is CEO of the ZED Network]
Towards an African e-commerce strategy: AU’s Nairobi e-commerce conference (23-26 July, Nairobi)
The main objective of the conference (pdf) is to provide a platform to enhance understanding of the current state of e-commerce in Africa, the challenges and opportunities building on the experience of actors on the ground as well as other regions of the world, and to discuss key elements of a roadmap for the development of a African Strategy of E-commerce with a view to promoting the emergence of African e-commerce champions and ensuring that African countries maximize the opportunities of e-commerce and the digital economy.
Trade law, regulation highlights
Dr Mukhisa Kituyi: The costs of trade war (UNCTAD)
Even worse, a global trade war might jeopardize the multilateral trading system itself. It would no doubt result in tariff increases greater than anything we have seen in recent history. UNCTAD research shows that average tariffs could rise from negligible levels to as high as 30% for US exporters and 35% and 40% for EU and Chinese exporters, respectively. So, even if the “elephants” have sufficient economic weight to withstand a trade war, they would not benefit from one. And, of course, developing countries that played no role in starting the conflict would be even less able to afford it. On average, tariffs applied on developing countries’ exports could rise from 3% to 37%. But whereas average tariffs affecting countries like Nigeria and Zambia probably would not go above 10%, those against Mexico could reach as high as 60%. Likewise, countries like Costa Rica, Ethiopia, Sri Lanka, Bangladesh, and Turkey could face average tariffs of 40-50%. [UNCTAD: See below the potential tariff increases by country]
Africa now has its own arbitration association: will disputes be resolved on the continent? (New Times)
President’s Advisory Council on Doing Business in Africa: US Commerce Secretary to lead delegation to Ghana (pdf)
US Secretary of Commerce Wilbur Ross will lead a delegation from the President’s Advisory Council on Doing Business in Africa (PAC-DBIA) on a fact-finding mission to Ghana later this month. Under Secretary of Commerce for International Trade Gilbert Kaplan will head the delegation on stops in Ethiopia, Kenya and Côte D’Ivoire as well as accompany Secretary Ross in Ghana. PAC-DBIA members have prioritized the four markets based on the potential to improve the U.S. trade relationship with each nation. The government of Ethiopia is making significant investments in infrastructure and is open to foreign investment. The government ofKenya is progressive in promoting business and actively seeks more U.S. companies in its power, aviation, healthcare, transportation, and agribusiness sectors. Côte D’Ivoire’s pro-business government seeks more U.S. companies in the country’s transportation and energy sectors. Members selected Ghana due to the country’s stable political environment and pro-market government focused on rail, road, mining, and manufacturing development.
International Trade Secretary Dr Liam Fox MP has appointed Ms Emma Wade-Smith OBE as HM Trade Commissioner for Africa. Wade-Smith is a senior diplomat and trade expert of 20 years, and has served in Brussels, Chile, Mexico, Washington and more recently in Africa as DIT’s regional trade director. More than £28 billion of goods and services were traded between the UK and African countries in 2016.
Government expects to finance 67.5% of the 2018-19 budget through domestic resources, 16% through loans and expects 16% to come from grants. Total domestic resources are estimated at FRW 1,645.1 billion, which accounts for 67% of the total budget and this shows an increment of FRW 232.3 billion compared to FRW 1,412.8 billion in the 2017/18 revised budget. [Downloads: Rwanda Budget Framework Paper 2018-2021, Rwanda Budget Speech 2018-2019]
South Africa’s current account deficit widened more than expected in the first quarter to register its largest shortfall in two years as the trade balance swung to a deficit after a steep decline in exports, the central bank said on Thursday. The South African Reserve Bank said in its quarterly bulletin the current account deficit widened to 4.8% of gross domestic product in the first quarter from 2.9% in the fourth quarter of last year. The deficit was the largest since the first quarter of 2016 and wider than the average forecast by economists surveyed by Reuters, who had expected it at 3.8 percent of GDP. The quarterly trade balance swung to a deficit of R25bn ($2bn) from a surplus of R74bn as the value of exports fell sharply, the central bank said. “The value of merchandise exports was affected by both lower export volumes and lower rand prices as the external value of the rand strengthened,” the bank said. [SARB: Full Quarterly Bulletin]
Tanzania: How can we unlock the potential of household enterprises? (World Bank)
Due to the growing importance of non-farm household enterprises, our team conducted a study to understand why household enterprises are not growing and what their major constraints are to productivity gains. We used two methodologies to look into these issues: a qualitative analysis including focus group discussions, key informant interviews, life stories, and a community mapping exercise with 385 individuals from different districts across Tanzania; and a quantitative survey that was carried out to more than 7,400 poor households. The study (pdf) identified four main bottlenecks for household enterprises in Tanzania. Access to finance was the major constraint to starting or growing a household enterprise. The majority of respondents identified it as the biggest constraint to day-to-day operations and an additional 24% identified it as the second largest obstacle. Here are some interesting facts:
The challenges urbanization in West Africa: World Bank Economic Update for Guinea, Mali, Niger
Focusing in particular on the three capitals, Bamako, Niamey and Conakry, the report, titled “The Challenges of Urbanization in West Africa,” considers how the cities could harness and develop their potential for productivity growth and livability. These three cities contribute significantly to the national economy, with Bamako accounting for 34% of Mali’s GDP, and Conakry and Niamey contributing approximately 27% of the GDP of Guinea and Niger. “Despite their importance to the national economy, Bamako, Niamey and Conakry are not true drivers of growth: in the three cities, labor productivity, calculated as gross value added per capita, is low and has not risen in the last fifteen years, in contrast to the average of 15 other sub-Saharan African cities,” said Meskerem Brhane, Task Team Leader of the World Bank urbanization programs in those countries and co-author of the report. Extract (pdf): Owing to their post-colonial legacy, Bamako, Niamey, and Conakry are less chaotic in their urban planning compared to their East African counterparts. This provides them with an opportunity to make early investments in connective infrastructure closely synchronized with land use planning. To achieve this goal, sub-national policy makers will need to build coalitions across jurisdictions and with their national governments while finding ways to expand their sources of revenues. Urban investments are long-lived and path-dependent. The time to act is now.
The report is based on the findings of four separate country case studies carried out in Benin, Burkina Faso, Ghana, and Nigeria (see the annexures). Overall, the findings suggest that, in general, NAFSN has espoused the NEPAD and CAADP values and principles of alignment, inclusivity and mutual accountability, even if there is room for improvement in their implementation. In all participating countries, the initiative helped bring together major players in the food system, especially governments, development partner agencies, farmers associations, and the private sector. Commitments by individual development partners were found to be aligned with country priorities as spelled out in the respective National Agricultural Investment Plans. The review and dialogue processes were among the weakest aspects of NAFSN, as established modalities for accountability and reporting did not allow for full participation of the private sector or broad and sustained engagement among all stakeholders and beneficiary communities. The findings also indicate that stakeholders made real progress with respect to the implementation of commitments that are set out in the various Country Cooperation Frameworks, although many commitments were not fully realized. [The authors: O. Badiane, J. Collins, B. Dimaranan, J. Ulimwengu]