I have been writing on cross border mobile financial flows across the African continent since early 2015, when the partnerships and agreements made between African telcos to provide interoperability between their mobile money services first began to hit the headlines. In my last post back in August 2016, I asked if Cross Border Mobile Money Would Boost intra African Trade and Regional Integration?
Today, however, recent moves have made this question moot, and inspired me to dive into the topic again. Transformation is taking place across the African continent, than simply innovation on the mobile platform alone, one directly leading to greater regional integration and intra African trade.
The African Continental Free Trade Agreement (AfCFTA)
Fifty-four African nations met last weekend in Niamey, capital of Niger, to launch the pan-African free trade zone, the world’s largest. The AfCFTA aims to, among several other objectives, create a single market for goods and services and facilitate the free movement of people, capital, goods and services. If the massive deal works as hoped, it will connect 1.3 billion people, creating a $3.4 trillion single continental market, not unlike the European Union. Such trading is expected to begin on July 1st, 2020.
What caught my attention was a little snippet from the essay written by the former Indian High Commissioner to Nigeria, Mahesh Sachdev. He not only points out that informal cross border trade is rife across the continent, but that with the launch of the AfCFTA, Africa was finally dismantling one of the last major legacies of colonialism – the artificially drawn borders breaking up and fragmenting the ancient overland routes criss-crossing the continent since prehistory. Sachdev concludes:
Subsequent colonialism and mercantilism destroyed internal trade routes, replacing them with an ecosystem in which Africans had better links with their foreign “mentors” than among themselves. By the AfCFTA, the Africans are only trying to correct this historic distortion.
The Challenge of Intra African Financial Flows
Financial flows across the continent will be critical for the success of the AfCFTA. Stone Atwine wrote a couple of months ago:
…we can’t facilitate trade without smooth payment systems. It is particularly difficult to move money between African countries. The current regional payment systems are of poor quality or completely non-existent. Cross-border payments are expensive and sometimes slow, which is not ideal for regional trade.
In fact, cross border flows, particularly between currency regions such as those prevalent in Francophone West Africa and her neighbouring Anglophone countries of Ghana or Nigeria, are expensive and difficult because they must be settled outside the continent. The most recent SWIFT report illustrates the situation clearly:Transactions take time and money in fees and currency exchange losses through the formal financial and banking system. Nigeria’s regional traders often prefer to use the parallel market, through the regional Hausa currency bureaux networks, for direct naira to CFA franc conversions, and research quotes wholesale commodity traders on their need to carry sacks of paper money across the border to complete their transactions.
More recently, Mouhamed Kebe points to the need for the liberation of financial services as the key to unlocking the full economic potential of the continental market. And, at Niamey last week, the Afreximbank launched the first continent-wide digital payment system to facilitate payments for goods and services in local currencies – the Pan-African Payment and Settlement System (PAPSS).
However, what is being overlooked by both Atwine and Kebe is the informal trade ecosystem prevalent across the continent, the majority of whom may not consider their bank as the first choice for transactions. As the former Indian diplomat in Africa, Mahesh Sachdev writes:
Indeed, the logistical and financial networks across the continent are poor and customs formalities are foreboding, but these can be eventually overcome with stronger political will. Moreover, vigorous “informal” trade across porous national borders is already a fact of African life.
Africa’s informal cross border trade networks
It is this vigorous informal cross border trade and its reach, scale, and impact, that is currently being overlooked in all the assessments of the future of intra Africa trade in goods and services, financial or otherwise. Only rough estimates are available for the value of the informal flows across borders in Africa, some of which are given with caveats that the margin of error could be as high as 40%. What is known, however, that 4 times as many cross border traders are likely to be operating outside the ‘formal’ economy, than are within it.
The most common reason given is the bureaucratic nightmare clouding every aspect of international commercial activity, sometimes more so when its a neighbouring country. Benin’s Port of Cotonou, for instance, has grown into a major revenue base and employer by serving the much larger Nigerian market’s import needs. The changes to be instituted for the AfCFTA to be active will take time and effort to implement. Trade will not pause in the meantime, and it remains to be seen how the informal trade ecosystem will be affected, if at all.
Women play a significant part in informal cross border trade, although their role and market visibility tends to depend on their region’s culture and norms. In West Africa, women who trade have garnered respect, reputation, and influential power, the most successful coming to be known as ‘Nana Benz’.
Finally, intra African informal cross border trade is neither ‘informal’ in the sense of casual or ad hoc, nor is it simply the purview of the marginalized and vulnerable as INGO reports would have it. The extensive research conducted by scholars like Olivier J. Walther, and others at the OECD’s SWAC, inform us that traders and their intermediaries form extensive social networks spread across their region of activity, able to coordinate and complete complex transactions with a brief phone call.
The Role of the Mobile Phone
Its that brief phone call – the one that informs a far flung currency bureau outlet of a Hausa or Somali trader’s cash needs and validates the recipient. The phone number that acts an “informal” package tracking mechanism. The call that brings an order from a regular customer “across the border” and provides the means to receive his payment via mobile money.
Its the mobile phone that connects the far flung networks, whether directly through a phone call, or indirectly through various social digital platforms. And, its the phone that boosts the trading capacity and reach of the businesswomen who now don’t need to cross the border with their goods on their head. As their network of customers and vendors stabilize, this powerful handheld device becomes their primary tool for commerce and communication. Many traders leave their bank accounts dormant, and turn to the convenience of mobile money – agents tend to be part of their daily transactional network and facilitate services such as cashing in and out at times convenient to the businesswoman rather than to the bank.
Mobile money has only increased their efficiency and productivity, whether its receiving small amounts directly into their wallet, or whether its large payments facilitated by such services as MPesa directly into their bank accounts. Though workarounds have already been established for cross border digital payments such as visible at the borderlands of Uganda and Kenya – wholesalers’ agents in Kampala keep a Kenyan SIM active for MPesa payments – African telcom providers have already recognized the importance of interoperability for boosting transactions and revenues.
Slow to pick up pace, as telco negotiated with telco, what 2019 brings us is the ‘age of interoperability‘, now seen as a key facilitator for economic growth. And, it is this that is driving the dream of regional integration while lowering costs and increasing efficiencies of intra-African, all the while remaining under the radar of institutions and their observers. And, it takes the concept of seamless digital payments on the mobile platform beyond the scope of simply mobile money or p2p transactions, as we will see.
The Age of Interoperability
While Tanzania is considered first to have established interoperability of mobile money services, it is Ghana who has surpassed the entire continent in adoption of mobile money and in the implementation of interoperability between various financial payments platforms.
…seamless cross mobile money network transactions became possible in May 2018, following a challenge thrown to the Ghana Interbank Payment and Settlement System (GhIPSS), the telcos and financial institutions […] described the Mobile Money Interoperability (MMI) initiative as successful. He said it has provided a very efficient way of funds transfer for many people, opening up the mobile money payment platform and enabling people and businesses to use it in different ways. Beginning with just 96,907 transactions in its first month, public usage of the cross-network platform grew phenomenally to 502,873 transactions in May 2019.
Interoperability has boosted the use of mobile money payments, and even telcos deem it to be a profitable undertaking. Two major telcom providers across the African continent joined hands to launch a pan-African mobile money platform – Orange and MTN’s Mowali. The GSMA – the telco industry’s global body – is very excited by this move, and help us understand the power of interoperability on a continental scale:
Interoperability solutions make it possible to send money between any two financial accounts, transforming the financial landscape for everyday consumers. Greater interoperability of financial services, including across mobile money accounts, stands to accelerate growth in Africa.
The objective of Mowali is to encourage the everyday usage of mobile money by unlocking access to a diverse payments ecosystem beyond the individual user’s own provider. The introduction of a common payments acceptance brand through Mowali will accelerate online and physical merchant payments. International remittances, payroll services, and a wide range of other financial services will also be made easier by the convenience and reach that Mowali will bring to consumers across the African continent.
In addition to industry led initiatives, mega donors are cashing in the game from the perspective of the financially excluded. Francophone West Africa’s BCEAO bank has just received a grant from the African Development Bank (supported by the Gates Foundation) to develop an interoperability platform for its member countries – the West African Economic and Monetary Union (WAEMU).
The grant will create an interoperable digital payment system that will allow consumers to send and receive money between mobile wallets, and from these wallets to other digital and bank accounts. That is, the WAEMU countries that surround Ghana will now also be working towards the same degree of interoperability for digital payments, in parallel with the Orange and MTN platform’s launch. To assess the combined impact, here are the countries where Orange (Left, 2018) and MTN (Right, 2017) are active on the African continent.
A Pan African Digital Economic Ecosystem?
Given what we’ve already seen happen in Kenya, and East Africa, as the outcome of the rapid adoption of mobile telephony and mobile money among the informal sectors of the economy, the foundation is being laid for the hybrid digital economic ecosystem to connect up with each other and scale across the entire continent. It is the value flows that will accelerate beyond the borders, and link the regional value creators up not only with each other, seamlessly, but also provide the accelerant to flow outwards beyond the continent’s borders to the rest of world.
It is highly likely that Africa’s “informal” trade ecosystem might be first out the starting gate by the time the implementation of the AfCFTA begins to lift barriers to the freer movement of goods, services and people. And, given the evidence that mobile money prevalence is linked to a decrease in the informal sector, the actual outcome in 5 to 10 years time might turn out to be far more transformational than ever imagined.
Very nice & relevant information