RISK MANAGEMENT | 11 December 2023 FX Solutions for Africa in 2024 Absa | Corporate and Investment Banking > Insights and Events > FX Solutions for Africa in 2024 Gerald Katsenga Head of Global Markets Corporate Sales Absa Regional Operations SHARE As the African Continental Free Trade Area takes effect, what trends will drive trade flows in Africa in the coming months? Two trends will drive foreign exchange (forex or FX) flows in Africa in 2024, says Gerald Katsenga, Head of Global Markets, Corporate Sales: Absa Regional Operations at Absa CIB. These are direct trade and direct travel. Direct payments through PAPSS “One of the major barriers to the growth of the African Continental Free Trade Area (AfCFTA) is the integration of the continent’s payment systems,” he says. “Zambia and Tanzania are good examples of how cross-border trade can work well in Africa. Zambia is landlocked, so it has to export its goods via Tanzania, through the port at Dar es Salaam. To facilitate this, the two countries have established a bilateral arrangement at the Tunduma-Nakonde border post. When the Zambian goods arrive, they transact in Zambian kwacha and Tanzania’s central bank settles the trades with the central bank in Zambia.” That, on a micro scale, is what the AfCFTA’s Pan-African Payment and Settlement System (PAPSS) aims to achieve at a continent-wide level. “PAPSS is looking to end the situation where, if you and your neighbour don’t have a bilateral agreement like Zambia and Tanzania do, all your trades are handled through SWIFT,” Katsenga explains. “Your money will go to a bank outside the continent, where it’s converted into a third-party currency like US dollars or euros, and then into your neighbour’s currency before it comes back into Africa.” That’s how intra-African trades are typically handled, despite the delays, inefficiencies and increased costs. “Africa spends about USD5 billion per year on those trades,” Katsenga says. “If PAPSS succeeds, we’ll keep all of that dollar liquidity on our continent." Relief from the dollar drought “Dedollarisation is a priority for many countries because of the hard currency liquidity crises. that we’ve seen in markets like Kenya, Nigeria and Ghana,” Katsenga says. “China, for its own reasons, is also aggressively pushing to replace SWIFT with its own CIPS [Cross-Border Interbank Payment System].” In 2023 Ghana sought to ease its dollar dependency by striking an oil-for-gold deal with the Middle East. “One of the key things that drains sub-Saharan Africa’s hard currency liquidity is our hefty import bill for oil,” Katsenga explains. “Ghana required its large gold miners to sell 20% of their refined gold to the central bank, and then used that gold to purchase oil from the Middle East. That deal has reduced the demand for hard currency and has relieved some of the country’s deepening dollar liquidity crisis.” Open borders, open trade Meanwhile, at the end of October 2023 Kenyan President William Ruto announced an end to visa requirements for all African visitors to the country. Days later Rwandan President Paul Kagame followed suit, and by early 2024 African travellers will not require a visa when they visit Kenya, Rwanda, Benin, Seychelles or The Gambia. More countries across the continent are expected to make similar announcements. As a frequent flyer with many stamps in his passport, Katsenga welcomed the news. “Africa’s share of global GDP is about 2.8%,” he says. “Africa’s share of global trade is about 3%, and its share of global passenger traffic is about 2.4%. Those low numbers are in part due to the visa requirements, which have curtailed intraregional tourist traffic.” The problem, Katsenga says, is not the curtailment of tourism in the traditional sense. “When African countries do tourism, they typically target visitors from outside the continent,” he says. “But they are now realising that intracontinental tourism brings with it intracontinental trade. That’s how intraregional trade grew in Europe. The moment you visit a foreign country, you see opportunities for trade and synergies.” In April 2023, South African budget airline Airlink began daily flights between Johannesburg and Nairobi. “That’s in addition to the direct flights that Kenya Airways already offers between Nairobi and Cape Town,” he says. “And with the removal of visa requirements, those flights are full. Imagine, then, what travel and trade in Africa would look like if more countries relaxed their visa requirements.” Gerald KatsengaHead of Global Markets Corporate Sales Absa Regional Operations https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles RISK MANAGEMENT Financial planning and portfolio construction re-imagined Despite having an incredibly advanced banking and financial services sector, the South African investment landscape is inefficient when it comes to trading costs and advice fees. This impacts returns for investors as it weighs on long term investment performance. Read more RISK MANAGEMENT Elections, the Rand and the Year Ahead What does 2024 hold in store for the rand? We examine the outlook for the currency and its emerging market peers Read more Podcasts The Foreign Exchange Outlook for 2024 What trends will determine the value of the rand in 2024? In this episode of Coffee Break Commerce, we look ahead at what’s in store for the currency.