Payments Systems And Intra-African Trade

Payments Systems and

Intra-African Trade

8.1 Introduction

A key challenge to intra-African trade is the facilitation of payments. By comparison

with international practices, African payment systems are often inefficient

in terms of cost, time, convenience, adaptability and finality. An international fund

transfer via electronic networks that takes just minutes to go around the globe can

take two weeks to arrive at the cross-border beneficiary in some African countries

because of geographical handicaps, and a check can take more than a month to

clear in sub-Saharan Africa. Forty per cent of Africa comprises island or landlocked

economies.

Most African economies are cash-based, rendering their payment systems costly and

inefficient. Finality of payment is not always guaranteed because of potential counterfeits

and the lack of financial discipline when checks or other paper-based means

of payment are used. Most African payments systems are small, fragmented and

lack competition, adding to inefficiencies, high payments costs and exorbitant bank

charges. The situation hurts the ability of African enterprises, especially SMEs, to

trade efficiently, while many also are forced to make informal arrangements to effect

payment transactions. To overcome such constraints, African countries have pursued

economic, financial and monetary integration since the 1960s, extending their payments

system services across borders and making them increasingly regional.

8.2 The role of payments systems

Payment systems reduce the cost and delays of exchanging goods and services and

the disadvantages of holding cash (such as the risk of theft, counterfeit currency and

lost interest); therefore, they support the growth of transactions. In Africa, as elsewhere

in the world, the development of payments systems is closely associated with

the movement of goods, services, capital and people.

8

...