CONTINENTAL AND TRIPARTITE FREE TRADE AREA The Importance of - - PowerPoint PPT Presentation

THE ROLE OF CENTRAL BANKS IN ADVANCING CONTINENTAL AND TRIPARTITE FREE TRADE AREA

The Importance of Regional Payments Systems to Increase Trade in the Continental Free Trade Area

December 2019

Main Objectives of the AfCFTA

• Creation of a single continental market for goods and services, with free

movement of business persons and investment, paving the way for accelerating the establishment of the Customs Union

• Expand Intra African trade through better harmonization and

coordination of trade liberalization and facilitation regimes and instruments across Regional Economic Communities (RECs) and across Africa in general.

• Resolve the challenges of multiple and overlapping memberships and

expedite the regional and continental integration processes.

• Enhance competitiveness at the industry and enterprise level through

exploiting opportunities for scale production, continental market access and better reallocation of resources.

THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA)

• Brings Together 55 Member States of the African Union
• Covers a Market of over 1.2 Billion Inhabitants
• With 60% of the Population below the age of 25
• Has a Combined GDP of over US$ 3.4 Trillion
• Has the Potential to boost Intra- African Trade by 52.3% through the

elimination of Import Duties

THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA)

• AfCFTA’s role is critical in enhancing Intra-African trade which is low

compared to intra-continental trade globally

• In 2017 Intra-African exports were 16.6% of total exports, compared

with 68.1% in Europe, 59.4% in Asia and 55.0% in the USA.

• Intra-African trade (average of Intra-African Exports and Imports)

during the period of 2015-2017 stood at 2%, compared to the USA – 47%, Asia – 61%, Europe 67%.

• Regional Economic Blocs in Africa form a foundation for the success
• f the AfCFTA

THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA)

REGIONAL ECONOMIC BLOCS

INTRA-REGIONAL ECONOMIC COMMUNITY TRADE – 2016 (US$ Billion)

SADC 34.7 CEN-SAD 18.7 ECOWAS 11.4 COMESA 10.7 AMU 4.2 EAC 3.1 IGAD 2.5 ECCAS 0.8

COMESA EXPORTS TO & IMPORTS FROM THE REGION 2016 - 2018 (USD Million)

SADC EAC ECOWAS Trade Flow 2016 2017 2018 2016 2017 2018 2016 2017 2018 Exports 8,570 15,241 20,610 2,934 3,738 4,373 488 630 860 Imports 13,413 14,082 15,544 3,031 2,700 3,424 479 599 370 Total Trade 21,983 29,323 36,154 5,965 6,438 7,797 966 1,229 1,230

• REGIONAL

PAYMENT SYSTEMS ARE AMONGST THE POWERFUL FACILITATION TOOLS FOR THE INCREASE OF INTRA-REGIONAL AND PAN AFRICAN TRADE THROUGH THE REDUCTION IN THE COSTS OF MAKING PAYMENTS FOR SUCH TRANSACTIONS

• THEY BUILD TRUST AMONGST TRADERS AND THEIR RESPECTIVE

COMMERCIAL BANKS THROUGH RELIABLE, SECURE AND COST EFFICIENT SYSTEMS WHICH ULTIMATELY ENABLE TRADE ON OPEN ACCOUNTS

• REGIONAL PAYMENT AND SETTLEMENT SYSTEMS

INTEGRATION OF PAYMENT SYSTEMS IN AFRICA

• FINANCIAL REFORMS ARE TRANSFORMING PAYMENT SYSTEMS IN

AFRICA FROM BEING COSTLY STAND ALONE PLATFORMS TO BEING MORE EFFICIENT AND COST EFFECTIVE

• CHALLENGES OF GEOGRAPHIC LOCATIONS, CASH BASED SYSTEMS,

VOLATILE CURRENCIES, DIFFERENT LEVELS OF NATIONAL PAYMENTS INFRASTRUCTURE, ETC, HINDER INTRA-AFRICA TRADE

• PAYMENT SYSTEMS DEVELOPMENT & MODERNISATION WITHIN

THE CONTINENT ARE HAPPENING AT RAPID PACE & HELPING TO PROMOTE CROSS BORDER TRADE, THUS ADVANCING THE REGIONAL INTEGRATION AGENDA.

INTEGRATION OF PAYMENT SYSTEMS IN AFRICA

• REGIONAL PAYMENTS SYSTEMS ARE FINDING COMMON

ATTRIBUTES AND INTEGRATION WILL INCREASE EFFICIENCY

• CURRENT SYSTEMS COMPLEMENT EACH OTHER, NOT COMPETE.
• REPSS (COMESA), SIRESS (SADC), EAPS (EAC), WAMZ ALL USE

SWIFT AS MESSAGE CARRIER, A GOOD STARTING POINT

• FOR COMPLETE INTEGRATION, THERE IS NEED FOR DEVELOPMENT

OF LEGAL FRAMEWORK, ADVANCED CLEARING SYSTEM, TECHNICAL UPGRADE OF EXISTING SYSTEMS AND MULTILATERAL AGREEMENTS.

• MEMBER STATES INVOLVEMENT AT HIGHEST LEVEL WILL ENSURE

COMMITMENT, FUNDING & AWARENESS FOR SUCCESSFUL INTEGRATION.

REGIONAL PAYMENT SYSTEMS (RPS) AND TRADE IN CFTA

• REGIONAL PAYMENT SYSTEMS BROADEN ACCESS TO MARKETS

THUS AIDING THE REGIONAL AND CONTINENTAL INTEGRATION PROCESS

• REDUCED PAYMENT RELATED COSTS ENABLES MORE USERS TO

TRADE THEREBY ENHANCING COMPETITIVENESS. THIS FURTHER LEADS TO GREATER QUALITY AND EFFICIENCY AND INCREASED TRADE.

• SIMPLICITY OF REGIONAL PAYMENT SYSTEMS WITH

GUARANTEED SETTLEMENT ENSURE GREATER EXCHANGE OF GOODS AND SERVICES, EASING TRADE LIBERALISATION EFFORTS

• WITH THE GROWTH OF DIGITAL TRANSACTIONS, PREVIOUSLY

UNTAPPED MARKETS ARE NOW ACCESSIBLE WITH PAYMENTS TAKING SHORTER TO COMPLETE.

• INFORMAL CROSS BORDER TRADE WHICH IS LARGELY

UNRECORDED IS BEING FORMALISED AND ITS CONTRIBUTION TO TRADE RECOGNISED.

COMESA AT A GLANCE

TOTAL AREA 11.7 MILLION SQ. KM POPULATION 556.9 MILLION MEMBERSHIP 21 COUNTRIES FTA MEMBERSHIP 16 COUNTRIES INTRA-COMESA TRADE $ 20.5 BILLION (2018)

COMESA MEMBERSHIP

COMESA INSTITUTIONS

• TRADE AND DEVELOPMENT BANK
• COMESA CLEARING HOUSE
• COMESA COURT OF JUSTICE
• COMESA COMPETITION COMMISISON
• COMESA RE-INSURANCE COMPANY (ZEP-RE)
• AFRICAN TRADE INSURANCE AGENCY
• AFRICA LEATHER AND LEATHER PRODUCTS INSTITUTE
• COMESA REGIONAL INVESTMENT AGENCY
• COMESA BUSINESS COUNCIL
• FEMCOM
• COMESA MONETARY INSTITUTE

INTRA-COMESA TRADE BY COUNTRY 2017-2018 (USD MILLIONS)

COMESA REGIONAL PAYMENT & SETTLEMENT SYSTEM (REPSS) OBJECTIVES

• STIMULATE ECONOMIC GROWTH THROUGH AN INCREASE IN

INTRA-REGIONAL TRADE

• REDUCE COST AND DURATION OF CROSS BORDER TRANSACTIONS
• HOMEGROWN SOLUTION, OPERATED BY THE COMESA

COUNTRIES

• RELIABLE, SECURE AND PREDICTABLE SYSTEM
• LOW INVESTMENT AND OPERATIONAL COSTS
• SETTLEMENT IN HARD CURRENCIES ($,€)

REPSS FEATURES

• SYSTEM IS CENTRALLY LOCATED
• LOCAL BANKS ACCESS THE SYSTEM THROUGH CENTRAL BANKS
• PAYMENT SYSTEM LINKING CENTRAL BANKS
• PAYMENTS TO BE EFFECTED THROUGH CLEARING (NOT REAL

TIME)

• PRINCIPLE OF CREDIT PUSH (PRE-FUNDED ACCOUNT)
• COMPLIANT WITH BIS CORE PRINCIPLES

PAYMENT & SETTLEMENT FLOWS

Correspondent fees Delays

Traditional Cross Border Payment

7

T+0 T+0 T+1 REPSS

REPSS Model

BENEFITS

• REDUCES NUMBER OF SETTLEMENT TRANSACTIONS
• REDUCES FOREIGN CORRESPONDENT BANKING CHARGES
• REDUCES COST OF INTRA-REGIONAL TRADE
• REDUCES SETTLEMENT TIME PERIOD
• GUARANTEES PROMPT PAYMENT TO EXPORTER
• BUILDS TRUST AMONG TRADERS
• SETTLEMENT FINALITY
• LEVELS PLAYING FIELD FOR COMMERCIAL BANKS
• EVENTUALLY ALLOWS TRADE ON OPEN ACCOUNT

REPSS & OTHER SUPPORT FACILITIES

• WHILE REPSS IS A PAYMENT PLATFORM, IT CAN ALSO SUPPORT

CREDIT & OTHER FINANCE FACILITIES THROUGH THE CENTRAL BANKS.

• FUTURE SUPPORT TO MOBILE PAYMENT SYSTEMS

THE FUTURE OF REGIONAL PAYMENT SYSTEMS AND TRADE IN CFTA

• ONCE CFTA IS ACHIEVED, MISSING LINK WILL BE AN INTEGRATION

OF EXISTING PAYMENTS SYSTEMS OR A SINGLE CONTINENTAL PAYMENT PLATFORM

• INTEROPERABILITY A QUICKER WAY TO CLOSE THE GAP BY

ALLOWING SHARED INFRASTRUCTURE TO CUT DOWN ON INVESTMENT COSTS IN SYSTEMS

• A DETAILED STUDY REQUIRED FOR CONTINENTAL PAYMENT

PLATFORM – DYNAMICS INCLUDE CURRENCY INSTABILITY

REPSS AND INTEGRATION OF OTHER REGIONAL PAYMENT SYSTEMS

• REPSS IS THE ONLY REGIONAL PAYMENT SYSTEM THAT OPERATES

ON A SINGLE CONVERTIBLE CURRENCY SETTLEMENT BASIS.

• THE SYSTEM CAN BE USED TO SETTLE PAYMENTS ONCE CLEARED

AT THE REGIONAL PAYMENT SYSTEM LEVEL

• REPSS ALLOWS MEMBERSHIP OF NON-COMESA STATES
• THE SYSTEM OPERATES ON A T+0 BASIS

Q&A