The cost and ease of cross-border payments, particularly local currency settlements, will play a crucial role in success for the African Continental Free Trade Area (AfCFTA) and as a consequence have a bearing on rates of recovery from the COVID-19 pandemic for countries in the region.
This was the consensus of a four-member panel of distinguished professionals – with expertise in finance, trade and technology – who served as resource persons on a webinar organised by currency trading solutions provider, AZA Finance. The session was facilitated by Nana Yaw Owusu Banahene, Country Manager-Ghana, AZA Finance.
They argued that the elimination of settlements in United States (US) dollars will reduce exchange rate pressures on local economies – a factor which has a direct bearing on the competitiveness of exporting nations.
Managing Partner at portfolio investment and advisory firm Access View Africa, Nkechi Akunyili, argued that while the US dollar is the de facto currency for international trade, there are many benefits which will accrue to participating countries if settlements can be made in respective local currencies.
“Settlements should actually be in our local currencies. Admittedly, there are some complexities and that is why nobody is talking about it; but if banks are shying away from it, these are the conversations we should be having. We are at a point where there are people who have a great deal of understanding about currency settlements in Africa. We need to ask ourselves, ‘How do we achieve that without putting pressure on our various economies’?”
In addition to this, she advocated for an increase in net exports of countries – arguing that it is the most ideal strategy to complement local currency settlements. She also called for financial institutions to play their part in providing funds for the real economy.
Taking his turn, the Executive Managing Director at the AfCFTA Policy Network-Ghana, Louis Yaw Afful, suggested that stakeholders must begin to explore options beyond settlements in fiat currency; stating that with the rise in rate of adoption for digital solutions, countries on the continent must be innovative lest they lag behind their counterparts across the globe.
Making a case for the consideration of cryptocurrencies, he said: “We have heard people say cryptocurrencies and bitcoin and all that are not important, but today we are seeing them being used in Asian economies. Now we hear some West African central banks looking to ‘okay’ cryptocurrencies. Why have we stayed inactive all these years? We need to always look at alternatives ahead of time,” he said.
He also suggested that variations of barter trade should be considered in the mix of potential payment solution strategies.
“The barter trade system can also help cushion our currency. What is the barter trade system that AfCFTA could create? For example, if you consider import substitution, you realise that Ghana probably imports millions of pounds of wheat from, say, Iran. At the same time, Nigeria can perhaps supply Ghana with that same quality and quantity of wheat. Ghana and Nigeria can come to an agreement where x amount of wheat is exchanged for salt, so the other does not import from Brazil. The time is coming, and we have to look at these situations that will strengthen our currency base,” he explained.
For Managing Director-MEST Africa Incubator Network, Ashwin Ravichandran, while there are still significant barriers for start-ups to surmount in their operations in the country, regulators such as the Bank of Ghana must be praised for creating an enabling environment – particularly for Financial Technology (FinTech) firms.
Economist and Chief Executive at Arkel Consult and Management Services, Martin Kwame Awagah, was upbeat about recovery of the local economy and prosperity of the trade area. “I strongly believe, and I am also optimistic looking at some of the benefits we have derived from government’s flagship programmes like the One District, One Factory (1D1F), Planting for Food and Jobs, and digitisation agenda for the economy. I think we can project some positive outlooks for 2021 and beyond,” he said.
AZA Finance is an established provider of currency trading solutions which expand global access to frontier markets through an innovative API and web infrastructure. Its flagship products, TransferZero and BFX, aim to significantly lower cost and increase the speed of business payments to and from frontier markets. AZA Finance’s partners utilise the company’s hybrid financial infrastructure and deep regional expertise to manage liquidity and send payments to dozens of bank networks and mobile money operators across Africa.