AfCFTA and Cashless Economy: How Ready Are Member Countries?
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By Adebayo Abubakar
The successful launch of the Pan-African Payment and Settlement System (PAPSS), as one of the strategic digital platforms designed to ease transactions, as well as the movement of funds across the Africa Continental Free Trade Area (AfCFTA) zone, set the tone for a cashless trading zone in Africa.The launch of the AfCFTA protocol on digital trade negotiations in February 2020 is another statement of intent towards cashless trading within the zone. These milestone achievements are being consolidated with “SOKOKUU”, the African E-Commerce Platform by African Union and African Electronic Trade Group, which was launched in July 2020.
The next question that should preoccupy the minds of critical stakeholders, as well as the bigwigs involved in “project-AfCFTA” is, therefore, how prepared member countries are in terms of the “Financial Market Infrastructures” (FMIs) to enhance the evolution and seamless take-off of a cashless trading bloc of AfCFTA’s magnitude. The launch of PAPSS, and other initiatives mentioned above, serve as a prelude to going cashless, which is mostly internet-dependent. So, when we talk about a cashless economy, we should, as a matter of relatedness, be talking about the level of internet penetration among the populace in each of the member countries, among other issues. Going cashless does not wholly depend on the Internet, but to a very large extent, it does. For instance, the use of USSD for transactions on basic GSM phones that are not internet-enabled is not, at least from the user’s end, internet-dependent, but it is also a form of cashless transaction. Like M-Pesa in Southern and Eastern African countries, MoMo in Nigeria, among others. All that is required is a simple phone and a functioning GSM line. The service comes in handy, when it comes to transactions that do not involve large volumes of funds. For instance, paying for groceries, and services of artisans, among other petty stuff. Nevertheless, the success of any cashless project depends heavily on the availability of strong internet facilities. That is an area in which Africa is still playing catch-up to the rest of the world.
DataReportal last year (2022), reported that Africa had around 570 million internet users in 2022 (13% of the global total), a number that has more than doubled compared to 2015. There were 122.5 million internet users in Nigeria for instance, at the start of 2023 when internet penetration stood at 55.4%, according to the same report. This is followed by 76 million in Egypt. In the southern part of Africa, DataReportal also has it that, there were 43.48 million internet users in South Africa at the start of 2023 when the internet penetration rate stood at 72.3 percent. This is followed by Zimbabwe which had 5.74 million internet users and an internet penetration rate of 35%. Zambia stands at 21%, with a total of 4.3 million internet users. And, Namibia, with an internet penetration rate of 53%, translates to 1.37 million internet users.
Illustration depicting Internet usage Credit: Premium Times NG
The idea of a cashless African Continental Free Trade Area is a no-brainer , considering the huge risk involved in having to move physical cash around the continent. Even if the burden it constitutes [in terms of weight] is not going to be an issue, what about the risk of getting attacked by cross-border highway bandits, or terrorist groups operating in parts of the continent? The above scenario could constitute a key factor militating against the achievement of the aims and objectives of AfCFTA, if cashless policy is not fully embraced. But a cashless African economy will see transactions being initiated and completed in real-time , thereby saving time, lives, and energy.
There is no doubt that the number of unbanked Africans is on the high side, leading to a low level of financial inclusion. No wonder, the focus of the “Second Africa Cashless Payment Systems Conference” held in Abuja Nigeria in November 2022 identified cashless policy as being very crucial in achieving a secured, affordable, and accessible payment systems and services to help expand financial inclusion, foster development, and support financial stability in Africa.
A report by Kingsley Igho, captioned; “Africa’s quest for a cashless economy gains momentum”, highlights the various drives by different countries on the continent towards the agenda of a Cashless economy. From Kenya to Egypt, Rwanda, Tanzania, Nigeria, and Liberia among others, efforts are in top gear towards birthing a cashless Pan-African economy. Africa as an emerging market represents a very fertile ground for mobile money service providers to tap into. This, therefore, accounts for why, Sub-Saharan Africa becomes a very attractive investment proposition, and developed market for mobile money transactions in 2020, accounting for two-thirds of global mobile money transactions in 2020, per CNBC AFRICA report.
But recent experience in Nigeria, one of the three biggest economies within the AfCFTA zone, during the currency redesign policy of the Central Bank earlier in the year shows that a lot needs to be done regarding investment in FMIs. Imagine a situation where someone needs to transfer funds to a friend, a business partner, or pay for goods and services; due to technological glitches, the payer’s account gets debited, but the payee’s account never gets credited, until, perhaps, the initiator of the transaction visits the banking hall, and fills some form manually before the failed transaction could either be completed or reversed. That would have defeated the whole essence of going cashless, so as to facilitate real-time trading. Another report said, “ePayment channels in Nigeria fail stress tests despite banks’ ₦901 billion profit.” But following the recent cash crunch in the country, occasioned by currency redesign by the country’s apex bank, the Central Bank Governor, Mr. Godwin Emefiele, promised an improvement in service delivery through aggressive investment in FMIs, with a view to improving service delivery.
Rwanda and Kenya, to the contrary, have been two of the continent’s global success stories in the drives towards cashlessness through mobile money transactions , with the Smart Rwanda Master Plan, and M-Pesa, respectively. It (the success story) also spread to neighbouring Uganda but to a lesser extent. Sweet as these stories in Kenya and Rwanda are, the same could not be said of other African countries, like Nigeria, for instance, due to a very low level of investment in FMIs. How the AfCFTA fares in the face of such an acutely militating factor against Africa’s going cashless would depend on how much investment has been put into enhancing access to financial services, with a particular reference to the electronic transfer of funds. This has to be a collaborative effort between the public and the private sectors with governments making the environment conducive for the Fintech firms to thrive. To corroborate this view, a report by Vox has it that, “M-Pesa’s seemingly magical success wasn’t a product of M-Pesa alone. It was a combination of the right technology, at the right time, rolled out in the right way, with the right decisions from the Kenyan government to allow the system without applying onerous regulations or high government fees on every transaction.”
Source: World Bank
While there are encouraging signals, as to the willingness of governments across the continent to evolve into cashless economies, it would be safe to infer that a lot of investment in FMIs and Information and Communications Technology [ICT] still needs to be done at national levels. There is also the need to focus on synergising, synchronising, and integrating the various countries’ efforts into the existing platform of PAPSS, for AfCFTA to run seamlessly on a machine of cashlessness. This is why the news of the “Memorandum of Understanding” (MoU) recently signed by officials of Smart Africa – a Rwandan digital solution service provider, represented by its Director-General and Chief Executive Officer, Lacina Kone, and the African Continental Free Trade Area (AfCFTA) represented by the General-secretary, His Excellency Wamkele Keabetswe Mene, is a welcome development. It is a right step in the right direction, as it would boost financial inclusion in Africa. In addition, the choice of Smart Africa going by their track record in the delivery of digital solutions in Rwanda, is not misplaced. With that kind of initiative, hopefully, the member countries of AfCFTA will key into it by investing more or encouraging the Fintech companies in the (organised) private sector to invest more in FMIs for a seamless transition to a cashless era.
Adebayo Abubakar is a Nigerian journalist. You can reach him via email, marxbayour@gmail.com