BY SENYI FATHI AND KWEKU ADOBOLI
As Africa navigates its digital revolution, the imperatives of interoperability in mobile networks with roaming services, on the one hand, and payment systems, on the other, are coming to the fore. These twin pillars have the potential to reshape the continent’s economic landscape, breaking down barriers in communication and financial transactions, if done at a Pan African scale. It is a crucial low-hanging fruit for the success of the African Continental Free Trade Area (AfCFTA).
In the pursuit of free movement of people, goods, and capital, a key aspect often overlooked but equally vital is the seamless integration of communication and payment systems. The ability to effortlessly place calls and execute payments on the go underpins the essence of free trade and movement, fostering an environment conducive to economic growth and regional integration.
Mobile Telephony Roaming:
The First Pillar of Interoperability
The concept of mobile telephony roaming, as the first pillar of interoperability, has evolved significantly. The European model, where roaming charges are virtually non-existent, stands in stark contrast to the situation in many African countries.
Exorbitant rates for calls and data often impede communication and, by extension, business efficiency. However, recent years have seen some progress.
A bilateral free international roaming agreement, due to be implemented on March 1st 2024, will cap data roaming charges between Togo and Ghana at FCFA 1.6 per MB. Currently, roaming charges can reach up to FCFA 8,400 per MB.
Although in 2019, the African Telecommunications Union reported a notable reduction in roaming charges within several African regional blocks, Africans still spend more than their global counterparts, thus creating business growth bottlenecks.
Payment Systems:
The Second Pillar of Interoperability
Payment systems interoperability is vital. The vision is for seamless financial transactions across African borders, mirroring the ease of mobile communication in Europe. Currently, cross-border payments in Africa are often hindered by high costs and inefficiencies. According to the World Bank, the average cost of sending $200 across borders in Sub-Saharan Africa was about 8.2% in 2020, higher than the global average of 6.8%. JP
Morgan says global banks can save $120bIn a year in transaction costs, not including FX costs using multi-currency Central Bank Digital Coins (mCBDCs). Whilst Afrexim Bank calculates Africa spends S5billion a year in FX Transaction fees to correspondent banks in London, New York and Amsterdam. The opportunity for African finance institutions to collaborate to reduce these costs, whilst greatly increasing their profitability and influence, must be promoted.
The Data Challenge
The data cost challenge is profound. A 2021 study by the Alliance for Affordable Internet revealed that the average cost of 1GB of mobile data in Africa is 7.12% of the average monthly income, compared to just 2.22% in the Americas. These costs not only impede communication but also affect the growth of the digital economy.
Bridging the Divide
Travel has evolved from the days of carrying multiple currencies or relying on expensive dollars. Credit cards have simplified transactions, but high transaction fees remain a barrier. Similarly, inconsistent mobile connectivity across countries adds to the complexity, with roaming charges (especially data) often being prohibitively expensive.
Europe’s approach to abolishing SMS charges two decades ago to foster communication and business mobility is a model worth emulating. It demonstrates the transformative impact of reducing communication barriers on regional economic activity.
The Path Forward
The path to achieving interoperability in Africa involves a multi-faceted approach. Governments, regulatory bodies, and industry players need to collaborate to create conducive environments for interoperability in both mobile telephony and payment systems.
For mobile networks, this means harmonising policies and regulations to reduce roaming charges and improve connectivity across borders. Initiatives like the Smart Africa Alliance, which aims to create a single digital market in Africa by 2030, are steps in the right direction. These efforts must be accelerated and expanded to cover more countries and regions within the continent.
In terms of payment systems, the focus should be on creating a unified payment infrastructure that allows for easy and cost-effective cross-border transactions. The recent launch of the Pan-African Payment and Settlement System (PAPSS) by the African Export-Import Bank is a landmark development in this regard. PAPSS is designed to enable instant cross-border payments in local currencies, significantly reducing transaction costs and time.
Moreover, the private sector has a crucial role to play. Companies like M-Pesa in East Africa, MTN MoMo in West Africa, Orange Money in Francophone Africa among others continue to revolutionise mobile money services, demonstrating the potential of innovative financial technologies in enhancing financial inclusion and facilitating transactions. Expanding such services across the continent and ensuring their interoperability with other systems is essential.
Project mBridge
Experimenting with a Multi-CBDC Platform for cross-border payments
The mBridge project, under the Bank for International Settlements (BIS), is a pioneering platform uniting Central Bank Digital Currencies (CBDCs) across four nations for instant, cost-effective cross-border settlements. Developed in partnership with the BIS Innovation Hub, Hong Kong Monetary Authority, Bank of Thailand, People’s Bank of China, and Central Bank of the UAE, mBridge enables real-time payment vs payment (PvP) transactions in diverse financial activities such as insurance, corporate bonds, wealth management, and e-commerce.
This innovation enhances liquidity, increases credit availability, and fosters financial innovation, thereby strengthening the resilience and dynamism of economies globally. According to the BIS, systems like mBridge have become necessary “because the [correspondent banking] payment systems underpinning cross-border financial flows have not kept up with rapid growth in global economic integration.” In 2020, for nearly $23.5 trillion in cross-border transaction flows, transaction charges amounted to 0.5%, or $120 billion.
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Afrexim Bank’s Pan African Payment and Settlement System (PAPSS) demonstrates that Africa has been ahead of the curve in attempting to reduce the transaction costs of cross-border transactions. Trade between African countries accounts for only 13% of all African trade, and yet Africans currently lose more than $5billion a whopping 7% of our 2020 intra-Africa trade volume – a year in foreign currency transactions to Western correspondent banking systems, on intra-African trade because we cannot trade directly between each other without round tripping to New York, London, or Paris for US Dollars or Euros. The functionality and capacity of PAPSS must continue to expand, increasing interoperability and de-dollarising our economies.
Challenges and Opportunities
The journey towards full interoperability in Africa faces several challenges, including diverse regulatory environments, varying levels of technological advancement, and concerns about data security and privacy. Overcoming these challenges requires sustained commitment from all stakeholders, including governments, regulatory authorities, telecom operators, financial institutions, and technology providers.
However, the opportunities presented by interoperability are immense. For businesses, it means reduced operational costs, increased efficiency, and access to broader markets, notwithstanding non-trade barriers. For consumers, it translates to more accessible services and products, enhanced convenience, and improved economic participation. This would be the first step to achieving true free movement of people, whether or not our colonial borders remain.
Strategic Imperative
The dual focus on interoperability in mobile telephony and payment systems is not just a technical necessity but a strategic imperative for Africa’s economic growth. It holds the key to unlocking the continent’s digital potential, fostering regional integration, and realising the vision of AfCFTA. As Africa embraces its digital future, the importance of seamless communication and financial transactions across borders becomes paramount. A holistic approach to interoperability lays the foundation for a more connected, prosperous, and competitive continent.
By reducing the barriers in communication and financial transactions, Africa can significantly enhance its attractiveness as a business destination, encourage entrepreneurship, and drive socio-economic development. After leapfrogging the telephone divide into the digital space, Africa has recorded the most accelerated mobile phone penetration in the world. This should speak to the potential of our economies with harmonised interoperability, where African prosperity begins.
The Origins of Mobile Money: Driven by Necessity and African Ingenuity
Reflecting on my boarding school days in a remote part of Benue state, Nigeria, I recall the challenge of being far from home, especially during sparse visiting days. As high schoolers without bank accounts, receiving money from our parents was a hurdle.
We devised a workaround. Our parents would purchase and send us recharge card codes worth N1000 or N500. We would then journey into town, trading these codes with phone booth operators for cash, albeit at a slightly reduced value.
This simple yet effective method bridged the gap, connecting us with much-needed funds from home.
Francis Y. Brown runs an animation studio (AnimaxFYB Studios) from Ghana, with talent from Nigeria and Kenya, financing from South Africa and script writers from North Africa. Brown pays his workers, who mostly work remotely, and who sometimes have to travel to meet scriptwriters, without necessarily travelling from the studio in Ghana.
Discussing the bottlenecks he faces, Brown says: “There are three things to consider: roaming charges for calls, roaming charges for data, and payments to those I work with from across the continent. Compared to a European production studio, most of my profits for such a Pan-African project are spent on these three elements. This makes me very uncompetitive compared to my American and European counterparts, not least because of talent.”
Francis Y. Brown’s plight in managing a Pan-African animation studio underscores the challenges faced by continental businesses. The excessive costs of roaming, both for calls and data, coupled with the complexities of making cross-border payments, significantly dent the competitiveness of African enterprises compared to their European counterparts.
Business Impact:
- High roaming charges for calls and data across Ghana, Nigeria, Kenya, and South Africa inflate operational costs.
- Inefficient cross-border payment systems increase expenses and complexities in transactions with remote workers and collaborators.
- The studio’s competitiveness is undermined globally due to these systemic digital and financial barriers, despite having equivalent talent and creative capabilities.