Africa reportedly loses approximately $5 billion each year, not through corruption or crumbling infrastructure, but through foreign exchange charges imposed when conducting trade within its own borders. The staggering figure represents money that African businesses surrender simply for moving funds between African countries via Western financial intermediaries.
Picture this scenario: a Ghanaian entrepreneur purchasing goods from a South African supplier can’t transfer money directly from Accra to Johannesburg. Instead, her payment must detour through banks in New York or London before reaching its African destination. Each leg of this journey chips away at profits through transaction fees, while the continent’s hard-earned foreign reserves quietly flow outward to economies beyond its shores.
Dr. Tsotetsi Makong, Director for Coordination and Programmes at the African Continental Free Trade Area Secretariat in Accra, described this financial architecture as one of the silent injustices plaguing continental trade. Speaking at the 2nd International Conference on Environment, Social, Governance and Sustainable Development of Africa in Accra, he revealed that AfCFTA is developing a protocol on digital trade to reclaim Africa’s financial sovereignty.
The trade official explained that the continent’s payment infrastructure currently forces African businesses to pay external entities for facilitating transactions between themselves. This arrangement has created an environment where the costs of doing business across African borders remain prohibitively high, despite the geographical proximity of trading partners.
At the heart of AfCFTA’s solution sits a continental payment system designed to enable businesses across member states to trade using their local currencies. Such a framework would effectively eliminate unnecessary Western banking intermediaries from intra-African transactions. A Kenyan importer could pay a Nigerian exporter directly, without their money taking a costly transcontinental detour.
Makong emphasized that African countries must consolidate their resources to attract large-scale investments, noting that no single nation can achieve sustainable development in isolation. He pointed out that artificial borders created during colonial times have fragmented the continent, making individual markets appear too small for major investors.
The proposed digital trade protocol, if fully implemented, could fundamentally transform how commerce flows across the continent. It aligns perfectly with AfCFTA’s broader vision of creating a unified African market, where goods, services and capital move freely across borders. The initiative promises to make intra-African trade not just cheaper, but significantly faster and more efficient.
Beyond forex transaction costs, the initiative addresses deeper structural issues within African trade. Currently, African businesses often lack trust mechanisms for verifying potential trading partners across borders. Without credible institutions to conduct due diligence, many potentially lucrative intra-African transactions simply never materialize.
The Pan-African Payment and Settlement System, which enables transactions in local currencies, has already onboarded over 90 banks and approximately 200,000 users, with around $3.5 billion in trade requests showcased on the platform. These early numbers suggest strong demand for alternatives to the current system.
The $5 billion annual loss figure takes on additional significance when viewed against Africa’s broader economic challenges. The continent already struggles with a trade finance gap estimated at roughly $100 billion annually. Plugging the forex leak could free up resources for productive investments in infrastructure, industrialization and job creation.
Some observers believe the digital trade protocol represents more than just a payment system. It signals Africa’s determination to assert control over its own economic infrastructure and reduce dependence on external financial systems that weren’t designed with African interests in mind. The initiative challenges decades of inherited financial architecture that has systematically disadvantaged intra-African commerce.
However, success hinges on widespread adoption across member states. All 54 African countries have signed the AfCFTA agreement, though implementation timelines vary considerably. The real test will be whether businesses embrace these new payment channels and whether governments provide the necessary regulatory support to make them work seamlessly.
The stakes extend beyond immediate cost savings. A functioning continental payment system could catalyze the emergence of truly pan-African businesses capable of operating across multiple countries without the friction that currently hampers cross-border expansion. It might also encourage diaspora communities to invest more actively in African ventures, knowing that moving money around the continent won’t involve punitive transaction costs.
As Africa positions itself for greater integration into global value chains, reducing internal trade friction becomes essential. The continent can’t compete effectively on the world stage while its businesses remain hamstrung by inefficient payment systems that drain resources before goods ever change hands.
Source: newsghana.com.gh
