Intra-African trade? If only
Some weeks ago, I was on a Pan-African television show on Cameroon’s Afrique media TV to discuss Nigeria’s ratification of the AfCFTA treaty.
On the Zoom panel alongside me was a fiery African Studies PhD holder from Cameroon who insisted loudly that Major General Muhammadu Buhari’s long-awaited signature was the final step on the road to preparing for a glorious new future filled with African cooperation, free trade and continental prosperity.
I begged to differ, because in my opinion the simple fact of having signed the document meant nothing in Nigeria’s unique political context. Nigeria’s government, I pointed out, operates according to the absolute whims and caprices of whoever occupies Aso Rock at any specific time.
As such I argued, Nigeria has historically displayed little or no respect for the plethora of existing agreements and treaties it has with its neighbours.
Indeed Nigeria’s land borders remained closed to trade at the point of ratification – why would a continental free trade agreement be any different?
The exchange that ensued between the feisty Cameroonian and I could be the subject of an entire column on its own, but ironically, it was something we did not mention that forms the basis for this one.
It was in fact 2 weeks after this call when I found myself facing a personal emergency that it hit me – treaty or no treaty, the mechanics of Pan-African trade are still largely abstract and hypothetical because how on earth do you move money from one African country to another?
Assuming you are somehow able to overcome decades (centuries?) of Africa’s legendary inertia and turn this continent into one trading entity, what is the medium of trade you propose to utilise? Are you going to unify the continent into one giant economy using cross-border transactions denominated in US dollars that nobody particularly has? Are you going to do so using a continental monetary union like the Eurozone? Or perhaps will you brute-force your way through the problem using an impossibly complex maze of multilateral currency swap agreements? How exactly is Africa going to trade with itself?
Africa’s monetary Tower of Babel
I faced this problem practically last week when trying to move some money from Nigeria to a relative in Ghana. Bear in mind that Lagos is less than 460km from Accra and it takes significantly longer to travel from Lagos to Abuja or Kano, than from Lagos to Accra.
Both countries also share a long and multilayered economic and diplomatic relationship. In geopolitical terms, Ghana is quite possibly the closest thing to an eternal ally that Nigeria has on the entire planet. If you could make an international comparison, it would be like the relationship between the USA and Canada or the relationship between Belgium and the Netherlands.
Yet as I discovered to my dismay, there is currently no reliable way to send N65,000 in a straight line from Nigeria to a recipient Ghana. If you want to use the bank route, you must have a domiciliary account with dollars, euros, pounds, yen or some other “hard” currency inside it.
Assuming you are fortunate enough to be one of about 10 people in Nigeria who have such a thing, this route offers all the speed and flexibility of an oil tanker. Several fintech solutions loudly proclaim that they offer “Seamless and Easy Pan-African payments at the touch of a button!” but they are, for lack of a more polite term, lying through their teeth.
I ran through them one by one after receiving recommendations in response to a social media appeal. Something-Remit this, something-Money that, something-Cash-Pay-Send the other one – no dice.
In every single case, what these apps offered was a way to send (“hard currency”) payments from somewhere outside Africa to a specified set of African countries usually not exceeding five. In other words, none of these apps solved the problem of African cross-border payments and trade at all – they were just glorified foreign remittance pipelines, as if we haven’t had those for decades already.
The problem as I came to understand, was that there is simply no scenario where any kind of financial entity – bank or fintech organisation – takes on the giant risk of integrating Africa’s 42 different national currencies into one payment solution.
This is partly because the transaction volumes to justify such a risk currently do not exist, but
especially because – to put it very politely – Africa’s 42 national currencies are pretend-money. The Nigerian naira has no value outside of Nigeria because what evidence is there to a vendor in Nairobi that the naira is anything more than interesting Monopoly money?
The Zambian kwacha is not convertible to Nigerian naira, Ghanaian cedis or Kenyan shillings because the Zambian economy – like most African economies – is a standalone, wannabe-Wakanda island economy that is not integrated with its neighbours in any meaningful way.
The reason that Europe enjoyed world-leading levels of regional trade integration even before the Eurozone was that Europe’s economies genuinely interacted with each other, so it was possible for the Deutsch mark for example to have a value in French francs or Italian lira.
These currencies did not have to use the US dollar as a reference to find their respective values against each other.
What all of this means is that currently, except someone has a few hundred billion dollars that they are not using, and said USD funds can be parked across Africa’s 54 countries as cash float on a central transaction platform to enable convertibility, it is not possible to transact across borders in Africa at any meaningful scale.
Without a significant change in status quo, Africa’s currencies are effectively just 42 variants of toy money, recognised as money inside only one jurisdiction and completely worthless outside it; much like the fake money inside a child’s Monopoly board game set.
A regulatory solution or just isomorphic mimicry?
On paper, there is regulatory action at continental level to solve this intractable problem. The Pan-African Payment and Settlement System (PAPSS) is chaired by none other than CBN governor Godwin Emefiele.
Developed by the Africa Export Import Bank (Afreximbank) in partnership with the AfCFTA Secretariat and the AU, the goal of the PAPSS is to enable anyone anywhere in Africa to conduct a cross-border transaction in their local currency, while the counterparty receives a corresponding sum in their own local currency.
In theory, this would effectively remove the US dollar as Africa’s de-facto trading currency, which would remove a significant handbrake impeding the growth of Pan African trade.
In theory, this would sidestep the severe monetary and logistical shocks that would come with trying to impose a continental monetary union in a continent where central banks continue to be teleguided by politicians. It would also effectively provide a template for multilateral currency integration within the context of a binding agreement that most AU member states have already ratified.
In reality, as we know all too well on this continent, PAPSS is more likely to go the way of the long-awaited AU passport, which was supposedly meant to go into service from 2016. Like PAPSS, the supposed AU passport was an elegant theoretical solution to a real world pain point – movement of goods and economically productive people across the continent.
Instead of going into service however, it has ended up like so many other continental efforts in the past – all talk, zero implementation. All hat, zero cattle. All hot air, zero substance.
My colleague and fellow BusinessDay columnist Chris Akor accurately describes this phenomenon as ‘isomorphic mimicry’ – a state of affairs where African governments observe and copy the form of institutions across the Atlantic without embedding any of the processes that give those institutions teeth.
Without any real supranational policy grounding and legal substance, these pretend-edifices end up the same way Kwame Nkrumah’s infamous “United States of Africa” experiment ended up.
Is there a solution? Far be it from me to cosplay the angry African cynic without pointing at a way out, but in this case it isn’t that simple. It’s not so much that there isn’t a way out, as the fact that the potential way out is not fully developed yet – and will remain underdeveloped for some time to come.
My personal solution that eventually moved money 450km across 3 African borders was built on cryptocurrency. Is that a solution for an entire continent to adopt just yet?
Personally I don’t think so, but hey – this is Africa.