?? Prof. PLO Lumumba on Cross -Border Trade & Transforming Africa's Financial Landscape.
The Challenges of Cross-Border Trade in Africa
Renowned Pan-African politician and speaker, Prof. PLO Lumumba, recently delivered a powerful speech at the African Central Bank Conference 2023, passionately discussing the need for de-dollarization and the importance of Africa taking control of its economic destiny.
Prof. Lumumba highlighted that there are 33 different currencies in Africa, none of which are commonly used for cross-border trade. Instead, 80% of transactions rely on international currencies like the US Dollar and the Euro. This heavy reliance on foreign currencies has negative implications for African economies, as it hinders their ability to influence trade and financial policies, making them vulnerable to external shocks.
The African Continental Free Trade Area (AfCFTA) Agreement
The AfCFTA agreement, which went into effect in 2021, aims to lower some of the many trade barriers in Africa, such as high tariffs, cumbersome border procedures, divergent commercial regulations, and congested roads. By creating a vast trading area from Casablanca to Cape Town, encompassing 1.3 billion people, the AfCFTA would gradually eliminate tariffs on 90% of goods and reduce barriers to trade in services. Later stages would harmonize policies on investment, competition, e-commerce, and intellectual property rights.
A recent World Bank study estimates that the deal, if carried out in full, would raise real income by 9 percent and lift 50 million people out of extreme poverty by 2035.
Intra-African Payments and the Need for De-dollarization
As of 2017, only about 12 percent of intra-African payments were cleared within the continent, according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The rest are routed through overseas banks, mostly in Europe and North America. This results in an African currency being exchanged for dollars, pounds, or euros and then swapped a second time for a different African currency, adding an estimated $5 billion a year to the cost of intra-African currency transactions.
Prof. Lumumba called for a measured approach to central banking in Africa, emphasizing the need to learn from successful nations like China, India, the United Arab Emirates, and Singapore. He urged African central banks to work closely with regional organizations, such as the Southern African Development Community (SADC), East African Community, and the African Union, under the umbrella of Africa Agenda 2063. This collaboration would harmonize their economies and regulatory frameworks, facilitating seamless trade, supporting the AfCFTA, and fostering economic growth.
To reduce dependency on foreign currencies, Prof. Lumumba stressed the importance of de-dollarizing African economies. He suggested creating and adopting a unified African currency, which would help establish a strong and resilient financial system capable of competing with other global currencies. Furthermore, he proposed developing regional alternatives to international payment systems like SWIFT and IBAN that cater to Africa's unique needs.
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Digital Currencies and IntraSettle Solution
Prof. Lumumba also addressed the potential of digital currencies in transforming Africa's financial landscape. He proposed introducing regional digital currencies, such as the Eco in West Africa, which could become more functional, user-friendly, and appealing to younger generations. Central banks, political will, and proper regulation are essential in driving these changes and leveraging technology for significant strides in Africa's economic development.
A settlement system like IntraSettle could significantly improve intra-African trade and settlements in local currencies, leading to a more self-reliant and prosperous future for the African continent. By adopting the Payment Vs Payment method, FX settlement risk is significantly reduced, which would improve trust in local currencies for immediate settlement, thereby encouraging their use more extensively.
Conclusion: IntraSettle as a Game Changer for Africa
In conclusion, Prof. PLO Lumumba's speech highlights the urgent need for Africa to take decisive steps towards a more self-reliant and prosperous future, led by its central banks and other financial institutions. By working together, learning from the past, and prioritizing the unique needs and challenges of the continent, including addressing the reliance on SWIFT and IBAN, Africa can realize its full potential and secure a bright future for its people.
The successful implementation of the AfCFTA, combined with the development of innovative solutions like IntraSettle, will help pave the way for Africa to overcome trade barriers and bolster its economic growth. The integration of digital currencies and regional alternatives to international payment systems will empower the continent to take control of its financial destiny and create a more resilient and inclusive economy for all.
In the coming weeks, we will dive deeper into the major pain points in Africa's settlement systems and explore how a solution like IntraSettle could revolutionize the financial landscape. By addressing the challenges that the continent faces in the current global financial system and embracing regional cooperation and innovation, Africa can build a more robust and self-sufficient economy.