SWIFT’s African Regional Conference 2014 in Marrakech attracted more than 350 delegates from 45 countries for discussion about Africa: The Next Frontier with policy makers and senior bankers from across the continent. A packed exhibition hall with 15 solution providers offered additional opportunities for delegates to find out what is on offer across their continent.
In the welcome address, Gottfried Leibbrandt, Chief Executive, SWIFT, stressed the importance of Africa to SWIFT and of SWIFT’s unique role in African financial markets. “This is our21st ARC event, which like SWIFT itself, is I think proving a unique platform for the community in Africa. SWIFT is at the heart of the financial community in Africa. It is a particularly opportune time to be here, as we are doing more and more in Africa, and you are doing more with us. African growth is spectacular – 63% over the last four years – far outpacing overall message growth on SWIFT. This reflects the huge and fundamental shift transforming the world around us from west to east, from north to south. That is why we are growing our presence here.”
This is our 21st ARC event, which like SWIFT itself, is I think proving a unique platform for the community in Africa. SWIFT is at the heart of the financial community in Africa.
During three days of lively debate, several important themes emerged, including the push to add value in Africa for Africa, to use regional payment systems to boost financial inclusion, and practical steps to support the development of securities markets and growth of African corporates. A recurring idea was the critical role played by policy makers: to put in place the right regulatory frameworks, to support the early stages of market formation and to drive cross-border initiatives.
The keynote speaker, Moulay Hafid El Alamy, Minister for Industry & Commerce, Morocco, understands the importance of a government champion: he is the architect of the most ambitious industrial plan ever seen in Morocco. Recently presented to the King of Morocco, his ambitious 7-year growth and acceleration plan aims to create 500,000 new sustainable jobs by 2020 and significantly increase the share of industry in GDP to 23%, versus 14% today.
African countries are less and less interested in selling their riches in their raw state, and more and more interested in transforming those riches internally, thus creating jobs and inclusive growth.
El Alamy said that Africa is no longer the continent without hope but the continent of the future. “We have more than one billion people transforming into consumers. In 2013 [Africa] was ranked first by attractiveness for investment. We are creating internal demand and buying power, which is what China has done with much success.” Currently, he said that most banks, telecom operators and other businesses in Africa are too small to be on the radar. “Yet if you get organised and structure yourself with a pan-African presence, the radar starts beeping rather loudly.”
The Minister stressed that African countries know they have to add value to natural resources rather than relying on the export of raw materials. “African countries are less and less interested in selling their riches in their raw state, and more and more interested in transforming those riches internally, thus creating jobs and inclusive growth.”
This theme was taken up during the opening plenary session, ‘Africa: The next frontier – trade and expansion’, hosted by Christian Sarafidis, Head of Western Europe, Middle East & Africa, SWIFT. “Africa is the fastest growing region in the world. It has the right natural resources, the available farmland and the human capital. Now it is focusing on adding value within Africa and ensuring that the continent’s growth is inclusive. These are some of the key themes of this conference,” he said.
Need for transformative growth
Mina Baliamoune, Director of Research, African Centre for Economic Transformation, said that while Africa had seven of the top 10 fastest growing economies in the world, it had to learn the lessons from the 1970s, when there was a similar period of growth followed by two decades of disaster in economic terms. “We need economic transformation, not just growth. Transformation is growth in depth. This means we have to think in terms of diversification of production and exports, export competitiveness, productivity, technological upgrading, and human well-being. Doing this will make the growth sustainable and inclusive,” she said.
Lahcen Ben Halima, Director for Banking Supervision, Central Bank of Morocco, said that central banks have a major role to play in supporting these efforts. “In the first place, central banks play a vital role in ensuring financial stability and resilience so that these efforts can be sustained. Crucially, Africa’s central banks are increasingly working together to make sure that our banks are properly supervised and supported as they expand across Africa. This will also help to ensure a sustainable and safe growth path.”
Banks have to play a key role in supporting intra-African growth, by following corporate clients as they extend operations across the continent, said Mohamed Karim Mounir, Director General & Secretary General, Banque Centrale Populaire Group,. Moroccan banks have already pushed deep into the sub-Saharan region and now have more market share in some countries of the WAEMU zone than domestic or Western banks; three Moroccan banks share market dominance in Ivory Coast, for example, while BCP has operations in 23 countries with more plans for expansion.
Private companies must partner with government to help drive growth, added Mounir, talking about the importance of public/private partnerships (PPP). In Morocco, PPPs have been instrumental in recent economic developments. “Public/private partnerships have gone far beyond what we envisaged when we started talking about them back in the 1990s. Over the last 6 years, $10bn has been injected into these partnerships. This strategy has seen the creation of industrial zones, including in the automotive and aeronautical sectors, and these have doubled in size through successful PPP strategies.”
Alain Raes, Chief Executive, EMEA & APAC, SWIFT, agreed with the potential for growth and reiterated the importance of infrastructure in facilitating and supporting local and regional growth. “We’ve seen the great numbers – and there is still room for exponential growth. The multiplying – or limiting – factor will be the strength and robustness of infrastructure, whether that is physical infrastructure, telecommunications or financial markets. It is this connectedness that will provide the critical artery to feed sustained growth in Africa.”
Driving corporate growth
On the corporate panel, speakers said the opportunities presented by pan-African growth are helping to encourage a new approach and to support the take-up of SWIFT by African corporates. The role of standards such as ISO 20022 is increasingly part of the discussion. The session was moderated by François Ameguide, Regional Country Manager, Africa South, SWIFT.
Grace Anim-Yeboah, Head of Cash Management, Barclays Africa, noted that in sub-Saharan Africa from 2012-2014, it is expected that consumer goods will generate $400bn of revenue and that this is a huge opportunity for corporates. This is driving the use of SWIFT, and not just by the biggest multinationals. “Corporates are expanding their footprint to new parts of Africa that they would not have previously gone to. The use of SWIFT is driven primarily by multi-national corps, but also by some regional companies. The rate of corporates moving onto SWIFT may be lower than elsewhere, but the transaction volume growth [once they are on] is amazing. And this depth of utilisation is very important. There are huge opportunities and we haven’t even hit the tip of the iceberg yet. We need to improve the efficiency of operations and the partnership between the banks and SWIFT is critical,” she said.
Giving the corporate perspective, Driss Naim, Head of Treasury, OCP, said OCP’s adoption of SWIFT was part of a major project in the company’s treasury operations and a wider corporate project to “dematerialise transactions” of all kinds. He said OCP’s objective was to meet international standards in all areas, including risk management, governance, etc, and to simplify communication as well as automate processes.
“Every bank offers its own solutions to its corporates so to get secure, standardised, multi-bank communication a change of approach was needed,” he said. “We chose SWIFT because it covers everything; it is always up, it is secure, and it offers end-to-end coverage with all of our partners. Payments are now processed on an ongoing basis with no more paper or manual processing and the integration of files into our system works smoothly in a standardised way. We had our challenges, of course, given the massive scale of the project, it took a lot of work internally to pull it off and everyone had many new things to learn.”
The adoption of international standards can be an instrument of change, said Robert Schneider, Head of Corporates & 3SKey EMEA, SWIFT, enabling greater efficiencies and risk reduction, at the same time as opening up possibilities for new products and services. Sometimes, regulations or market changes are the initial stimulus for adoption, but once this step is taken, the business advantage is there to be capitalised on. “Regulations have driven take-up of new standards, such as ISO 20022, especially in Europe with initiatives like the introduction of the Single European Payment Area (SEPA), but once the ecosystem exists corporates and banks can quickly realise the opportunities they unlock.”
Ismail Douiri, General Manager, Attijariwafa, agreed that standards can be a catalyst for deriving greater value from use of SWIFT. “First comes the adoption of the channel; this used to be costly at SWIFT but the introduction of cloud-based offerings [such as Lite2] has reduced this barrier. The next step is the adoption of some basic message types. Next come payments, then intra-day payments – national or international. Standards are not a driver for adoption, but they may be a driver for greater use,” he said.
Reaching the unbanked
Regional integration is seen as the main driver of inclusive growth in Africa – so can it play a similarly positive role for financial inclusion? In a fascinating panel, speakers looked at the progress being made to boost financial inclusion and whether regional harmonisation projects – and regional payments systems – could be extended to low value payments to support that objective.
Zakia Hazzaz, Director Development & Partnerships, Al Barid Bank, started with remittances because Al Barid Bank plays a major role in this space and Morocco is a big recipient of remittances from overseas. “The key is to transform this cash so that it helps to increase the financial inclusion of recipient families. The objective is that the families receiving the money receive it into a bank account. In our mobile banking service the client pays based on usage and the multi-operator services adapt to all environments and even the most basic of phones. The results have been excellent and the parallel is clear – access to financial services, using affordable, accessible technology, improves the position of the recipient.”
This is currently a domestic only offering, said Hassaz, so the next phase will be to make this available for international transfers, so that Al Barid’s clients can receive or send overseas remittances via their mobile account.
John Karamuka, Director of Payment Systems, National Bank of Rwanda, was clear on the crucial role that government can play in supporting financial inclusion initiatives but stressed that by partnering with the private sector, more has been achieved than if the government had worked alone. “Rwanda has a vision 2020, which alongside the move to a knowledge economy, includes a target for financial inclusion. The President is driving delivery of this but government policy is to put the private sector at the heart of the process. When Visa wanted to launch mVisa in an African country the timing was perfect for us. mVisa is interoperable so users can make payments from one bank to another over any mobile network. Banks are providing micro loans to people in remote areas and government benefits – such as pensions to farmers – are being provided through mVisa. This is extending financial services to rural areas and generating cost efficiencies for government too. I don’t think we could have achieved what we have done in the last two years without the partnership with Visa.”
The panel was asked if harmonisation of low value payments would help financial inclusion or if there was a danger that trying to work across borders may slow down developments at a national or local level. Kosta Peric, Deputy Director, Financial Services for the Poor Initiative, Bill & Melinda Gates Foundation said it would help, but argued that there needs to be a government, policy maker or regulator to act as catalyst to drive the necessary private sector collaboration. In the West African Economic and Monetary Union (WAEMU) region in West Africa – which has already established a common accounting system, a regional stock and exchange and the legal and regulatory framework for a regional banking system – Peric noted that there are high levels of mobile phone usage in the eight member countries but much lower levels of bank accounts. This presents an obvious opportunity, however, there needs to be collaboration between multiple players, including mobile phone companies, technology companies and banks, because one alone would not have the capacity to create a pan-regional low value payment system from a technology or cost perspective.
“Here, the policy maker’s role is very important – they are the only ones who can bring these actors together, persuade them to share the costs as well as the benefits. Central banks could have a driving role, for example; they could create a neutral, SWIFT-like entity to provide services and act as a standards body,” said Peric.
Souleymane Diarrassouba, Directeur General, Groupe Banque Atlantique, agreed that the pan regional benefits would be significant but said achieving a single market were proving elusive and that this clearly slowed down any achievement of other goals. “We have the benefit of having existing institutions but reforms towards a single market need to be accelerated. Achieving interoperability between different countries in the region is another step again.”
Efforts to deepen securities markets
Securities markets are growing fast in Africa, but lack depth and liquidity. Moderated by Ian Bessarabia, Business Development and Country Manager, SWIFT, the securities session asked what can be done to improve market access, deepen liquidity, and make the markets more efficient?
The need to improve processes, technology and services, was one of the first points to be raised. According to Iddrisu Mahama, Managing Director, EDC Stockbrokers, investors want more information about the stocks they are buying – so are looking for better price discovery – but also want to ensure that risk is mitigated during the settlement phase. “Access to various African markets and diversified products is a key benefit for brokers to offer to their clients, but reducing settlement risk by increasing automation is critical to improving investor confidence and reducing costs,” he said.
Stephen Tetteh, CEO, Ghana Central Securities Depository, said that there have been a lot of advances in the settlement process in Africa but there are many more enhancements to make, including dematerialisation and the legal processes around beneficial ownership. Importantly, he stressed that Africa must improve several key areas that make markets attractive to investors, including liquidity, cost and regulations, and said that recent actions in Ghana aimed to address these issues. “In January we merged the two CSDs in Ghana – one operated by the stock exchange and one for government securities; our market was too small to justify the cost of two infrastructures, all it did was add transaction costs for the investors.”
The country is about to sign an agreement with a single platform provider so that operations for equity, corporate and government banks can be migrated onto the same platform. The deadline for this is the end of the year. “Investors are very excited,” said Tetteh. “It will reduce the cost of transactions but will also bring innovation. For example, government securities already settle on delivery versus payment, so this capability can be brought to other products and asset classes.”
However, Mohamed Benbouadi, Director and Head of Middle East, Africa & Eurasia, Sales & Relationship Management, Euroclear, said that while this kind of development is very positive, there is much more to be done. “What we are missing on the panel is what we are missing in the markets: involvement of regulators and policy makers – this is what is required to develop a deep local market. Regulators need to give incentives to encourage the development of the market. For example, the Minister of Finance in Russia made Russia a ‘European’ market [in trading terms]. This reduced the cost of trading for international investors by 150 basis points. It unleashed tremendous market growth. We need policy makers to help us to develop deep, efficient, local currency bond markets.”
This is a very important message, said Sunil Benimadhu, Chief Executive, Stock Exchange of Mauritius, the countries in Africa need to take a holistic approach in how they develop the financial markets. “Policy makers in Africa have not yet understood the fundamental role that capital markets can play in developing their economy and sustaining economic growth. For example, they need to privatise their companies and grow the bond markets. This will reduce the cost of capital for private companies and reduce the cost of borrowing for governments. This is why ASEA is working closely with the AfDB to support the development of local currency bond markets.”
Regionalisation: where are we?
Our second regionalisation panel took a different angle, with moderator Sido Bestani, Head of Mena & Turkey, SWIFT, asking how far projects have progressed since last year’s ARC.
Jocelyn Aku Azoma, Deputy Director, Payments System Directorate, Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), reminded everyone about why efficient payment systems are crucial to achieving African goals. “It’s a virtuous circle; efficient payment systems facilitate intra-regional trade and business. Risk management and efficiency – payments systems are important for regional exchanges; they facilitate and reduce risk.”
The most advanced regional platform is SIRESS in the Southern African Development Community. “We have settled up to ZAR 400 billion on the system to date, and we believe that currently only about 20% of the settlements that could be processed through the system are in fact being processed,” said Tim Masela, Head National Payment System Department, South African Reserve Bank. “There are 43 commercial banks live on the system and four central banks. We are working on what should and should not be on the system. Our next objectives are to remove misconceptions, build confidence in regional integration, test the concept and further and address issues on a smaller scale. Simpler issues regarding time zones are being handled but still need refining. Liquidity management and moving liquidity are also being handled.”
In the East African Community (EAC) there is much further still to go. Burundi has still to implement an RTGS, and so far the East African Payments System has Kenya, Uganda and Tanzania RTGS’ linked up. “The East African Community has three challenges: “Capacity, capacity, capacity!” said Stephen Mwaura, Head of Payments, Central Bank of Kenya. “Policy making capacity – how do we speed it up? Technical capacity – what systems should we integrate? We have different software providers in each country. Within central banks we have problems with technical knowledge capacity to work out how to solve technical issues.”
Moving multiple countries forward, on different systems, is a problem faced by all regional projects. Twum Ohene-Obeng, Deputy Director, West African Monetary Institute, said that in the West African Monetary Zone, they are scheduled to finish onboarding Liberia in October, then six countries in WAMZ will have live RTGSs. “The infrastructure is ready but the single currency is not,” said Ohene-Obeng. “Interoperability between the six member countries has been achieved though. We won’t sweep currencies but will nominate one settlement currency for all countries. That’s the next phase.”
In SADC, Ravi Shunmugam, Head of Payments, First National Bank, is keen for SIRESS to get up to full speed. “For things to work and be cost effective we have to have economies of scale. We need to get as many commercial banks and currencies on board as we can quickly and get x-border traffic on SIRESS as soon as possible. SADC/SIRESS move in LVP – the more and more you move customers onto electronic payments, the more growth you will generate. And we need more enabling regulation to deal with the cost layers.”
Looking to the future, getting the regional systems talking to each other will be crucial in unleashing cross-border trade within Africa. “We need a tri-party agreement between SADC, COMESSA and EAC,” said Masela. “We need to work on adoption of open standards that will enable further integration and interoperability later on…Ideally we should build infrastructures that work for us so that I don’t have to travel to another country to visit my neighbours.”
Challenges & benefits of automation
On the technology panel, moderated by Francis Vanbever, Chief Financial Officer, SWIFT, Victor Oyango, Group Manager, Cash Management Operations, Ecobank, highlighted the operational challenges that come with rapid expansion. “We have grown from seven to 35 countries over last seven or so years, mainly through acquisition. Integrating these [banks] has many challenges. We are one bank with standard policies, processes, one standard core banking system, one central operating system out of Accra, Ghana. So, for example, data extraction – moving data from an acquired legacy system to our core banking system – is a big challenge.”
Data management can also be an issue when meeting regulatory requirements, added Oyango. “Dealing across many geographical areas creates challenges in relation to different regulatory environments and data collection requirements for different purposes. We have had to diversify our standardised process to fine tune regulatory requirements in each country.”
Regulations should not restrict innovation, however, said Gezahegn Dugassa, Director, Banking Products and Technology Innovation, Awash International Bank. “Regulation does not necessarily have a negative impact on innovation. The biggest challenge is to keep up; because things keep changing, we sometimes don’t even understand what we can and cannot do. But innovation is not necessarily about new and fancy – it’s about challenging the status quo. Are we using the right functionalities?”
Speaking as a regulator, Ignace Nganga, Directeur des Systèmes et Moyens de Paiement, Banque des Etats de l’Afrique Centrale (BEAC), agreed that innovation and regulation should be complementary and not competing. “Constant dialogue is necessary between the regulator and market participants. There are three fundamental principles of system governance guiding both disciplines: efficiency; responsibility; transparency. We need ways of making payments that are practical and implementable and regulation needs to be understandable and implementable.”
Javier Pérez-Tasso, Chief Marketing Officer, SWIFT, talked about what SWIFT has been doing to marry innovation with the SWIFT community’s needs, and to meet the new requirements of markets like Africa, including integration and connectivity. “We are bridging the gap from the SWIFT interface to the back office application by offering integration technology combined with services. To address connectivity issues, we have launched a new technology, being presented here in the workshops, Alliance Connect Everywhere, which uses mobile and 3G/4G; this should increase reliability and reduce costs.”
Tackling financial crime
Banks worldwide face ever more onerous regulations and higher expectations and stiffer penalties from regulators. Moderated by Thierry Chilosi, Head of Banking Initiatives, EMEA, SWIFT, a key theme to emerge during this session was that a community approach can help to meet new regulations including sanctions, anti-money laundering (AML) and counter-terrorist financing (CFT).
Dipo Fatokun, Director, Banking and Payments System Department, Central Bank of Nigeria (CBN), said that as part of the country’s Payments Vision 2020, the CBN has as one objective to transform the country into a financial hub by 2020. “We have established a financial policy regulation department with a unit for AML and CFT. [But] churning out policies alone is not enough you need to back it up with surveillance and monitoring. We also need to comply with extra-territorial demands such as FATF. We invest in constant training of our staff but there’s no silver bullet, of course.”
Some panellists underscored that this is a learning curve for everyone. “The compliance function is relatively recent in Morocco,” noted Said Berbale, Director, Legal & Compliance, BCP. “The first laws were implemented in 2003 after a terrorist attack; AML followed in 2007. In 2004 we saw the very important development of a unit on financial crime reporting directly to the President. Banks in Morocco have always been a driving force that leads other sectors in setting best practices – our system is capable of tracking abnormal or irregular transactions. Compliance is not a competitive area; we have a bank association and a Compliance Commission to exchange best practice in the fight against financial crime. There is a huge amount of collaboration both within the industry and between industries.”
Harry Newman, Head of Banking & Markets Initiatives, SWIFT, picked up on the theme of collaboration, noting that SWIFT is launching an increasing number of products in this area. “There are many areas where you are all having the same problems and it makes no sense to deal with those at the edge. It’s better to find a central solution, so SWIFT is working in those areas to develop solutions for the community.
The perils of negative action and the power of community response were raised by Daniel Agamah, Group Head, Business Support, Zenith Bank. “In Feb 2012, Ghana was put on the watch list by the Financial Action Task Force. The danger of non-compliance became very evident and it involved a lot of hidden cost. That led to collaboration between the regulator and the regulated. Financial crime thrives in a system without proper corporate governance and without ethical conduct. I think that collaboration is necessary. The FATF exclusion forced us to collaborate.” Following rapid action by the Ghanaian government, the Central Bank of Ghana and the Ghana banking industry, the country has since been removed from the FATF watch list.
Rounding off the conference, Rob Green, Head of Payments Market Infrastructure in Banking Group Treasury, FirstRand Bank, and SWIFT Board Member for Africa, highlighted the increasingly important role that Africa plays in SWIFT’s business and said that this is reflected in how SWIFT is developing its strategy. “Looking at the priorities that are emerging as we develop our 2020 strategy – it’s clear that the key areas are all very relevant for Africa: real time payments, international P2P, financial crime; corporates; securities. These demonstrate the relevance of SWIFT in Africa.”
Raes took up this point. “Africa is an engine of growth for SWIFT. We are now in a place that as a cooperative society, we are seen as part of the fabric of Africa’s financial system by regulators, policy makers and senior members of the financial sector. Don’t be surprised to see SWIFT expanding in Africa. The only way that we can fully support the community is to build our presence here, and this is our plan.”