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Intra-Africa trade, inclusion drives growth

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Financial inclusion, intra-African investment through capital markets and East Africa trade corridors were among the topics aired at Swift’s first Business Forum East Africa.

The event brought together close to 300 prominent members of the financial community and policy makers to discuss the many opportunities and challenges the region faces.

“The theme for this year’s Business Forum is ‘Unleashing growth through regional collaboration’; by opening an office in one of Africa’s most dynamic  markets, SWIFT will be better placed to support this growth,” says Hugo Smit, head: sub-Sahara Africa at Swift.

“It is through events such as the Business Forum East Africa and the annual African Regional Conference – which first took place in Kenya 22 years ago – that we are able to provide a platform for discussion on topics such as financial market development, regulation and regional harmonisation with key decision makers from across East Africa,” he adds.

The keynote speaker was Ehoumann Kassi, MD of Ecobank East Africa, who highlighted the importance of regional harmonisation projects and the need for collaboration to address the challenges – and capitalise on the opportunities – that are present in the region.

“There is still a lot to achieve, but the momentum for regional trade is building,” says Kassi. “Four of the East African Community, Rwanda, Uganda, Kenya and Burundi, do more trade with each other than any other countries in Africa. We already have a young and growing population, and with Ethiopia and South Sudan, that brings an even more dynamic demographic to the EAC. This, the investment in infrastructure and increasing integration, are a good basis for future growth.”

However, he points out that there are a lot of challenges. “We have overlapping of trade blocks. Each member of EAC belongs to another trade block. These may have different trade tariffs and other rules, so this adds layers of complexity. Also, the cost is higher in Africa than in other countries. When you lift a container in Africa, it costs $2 000; the same container cost in Asia is $900, we have a long way to go to be more competitive.”

Kassi highlighted the region’s reliance on the dollar and the additional costs that this adds to business. “We have to find a way to reduce reliance on the dollar and instead bridge the gap between deals conducted in the Burundi franc and Kenyan shilling, for example. The East African Payment System can play a growing role in resolving this challenge for the region.”

A session on financial inclusion highlighted it key role as a driver for economic development. Panellists shared examples of where progress has been made in East Africa and how regional players are harnessing technology to drive up financial inclusion rates. However, they also highlighted the gaps in extending financial services to the region’s smallholder farmers and extending the reach of mobile microfinance.

Stephen Mwaura, head: national payments system at the Central Bank of Kenya, says the start of successful financial inclusion begins with the access to banking services. The industry is doing something wrong, he cautioned. “In the 100 years that we have been doing banking in Kenya, only 20% of the population has gained access to banking. It makes you wonder whether the system is working properly. When 80% of the population is unbanked you cannot effectively implement monetary policy either,” he said. “Access to financial services and inclusion will be the best way of eliminating poverty and banks will to be more innovative. Perhaps one of biggest impacts of mobile money and mobile payments has been to force banks to be more creative in response.”

Natalie Baatjies, senior director: financial inclusion at Visa, points out that, through a public-private partnership with the government of Rwanda, the company has taken a holistic approach. “We are working to enable a government and empower a whole nation,” says Baatjies.

For example, Visa has put in place a financial literacy programme, established a payment acceptance network – in shops, hotels, garages and supermarkets – and helped the government to increase the number of ATMs from 15 in 2011 to 2015 today. All the systems are interoperable and accessible by customers of multiple banks.

John Staley, CFO and executive director of Equity Bank, holds a different viewpoint. “ATMs are not the solution for Africa…and neither is mobile the only answer. In the home of mobile money, 98% of transactions are still happening in cash. Mpesa is largely digitising transactions of $30-40 upwards. Poor people are transacting from $5 down. This is a huge gap,” says Staley.

“We made an assumption that poor people have electronic money; they do not. We have found more success with agents in Kenya and at the moment there are 20 000 throughout the country. This is having a huge impact on transactions which are rising significantly. People enjoy this accessibility. It’s not just about giving people accounts, it’s about giving people accounts that they can use.”