Institutions such as the World Bank and African Development Bank (AfDB) indicate that African countries only carry out about 15% of their trade with one another. However, SWIFT data on cross-border payments shows that the figure is slightly higher at 23%.
“Intra-African trade is still relatively low though and ranks among the smallest levels of intra-regional trade globally. Almost 70% of the European Union’s trade takes place within the bloc,” says SWIFT head of Africa South, Hugo Smit.
Improved cross border payment systems could facilitate intra-regional trade. While intra-regional trade is determined by economic fundamentals of supply and demand, the lack of efficient regional payment systems could add significant costs to intra-regional trade.
The Southern African Development Community (SADC) last year launched an electronic payments platform for the bloc. Called the SADC Integrated Regional Electronic Settlement System (SIRESS), it is designed to allow transactions among banks in member countries to be settled in real time and without the need for the funds to flow through third-party clearing banks.
SIRESS has so far been successful in that seven of SADC’s 15 members have already joined and three more are scheduled to join in the next few months. Around 40 commercial banks are currently participating and a large volume of trade-related transactions is already being settled through the system.
The next phase for SIRESS will be to accommodate low-value, or retail, transactions such as remittances, scheduled to be implemented by the end of September. Provided that the commercial banks’ systems can accommodate this it could pave the way for the transfer of small payment amounts within SADC.
SIRESS will not just eliminate unnecessary banking costs. It will also give governments and economists a more accurate picture of the levels of intra-regional trade. With half of cross-border African payments being made in dollars – and the flows thus going to the US, at least initially – it is difficult to assess African trading patterns, which makes it tough for policy-makers to forge strategies to boost regional commerce.
In addition, it is thought SIRESS will lead to greater financial inclusion. By eventually being able to handle remittances and small transactions, it will help bring flows that are currently cash-based into the formal financial system.
“The big question is whether SIRESS can bring about greater trade within SADC. There is no guarantee that it will. But a system that makes the cross-border payments process easier and for cost-efficient can only be good in the long-term for encouraging greater trading between southern African countries,” says Smit.
