Redefining the Landscape of Payment Systems: Challenges and Opportunities for the African Payments Landscape World Bank Global Payment Systems Conference 2009 Cape Town, South Africa, 7 April 2009 1
PRESENTATION OUTLINE 1. INTRODUCTION 2. WHAT IS THE BANK DOING? 3. CHALLENGES 4. OPPORTUNITIES 5. CONCLUSION 2
1. INTRODUCTION settlement (payment) systems are key infrastructure of financial markets. Low development of many African countries financial markets, emerge from inefficient financial infrastructure including, settlement (payment) systems The establishment of sound and strong settlement systems, would contribute to the creation of regional financial markets, and underpin, faster economic growth in the Continent 3
2. WHAT IS THE BANK DOING? development of regional payment systems has been our strategic priority since 2000 s. Project to Reform Systems and Means of Payment in UEMOA Countries: Benin Burkina Côte Guinea Mali Niger Senegal Togo Faso d Ivoire Bissau Total Project Cost: US$ 34 million ADF Loan: US$ 10 million (2002 2009) Other Financiers: IDA (US$ 11 million); BCEAO (US$ 10 million); and Commercial Banks (US$ 3 million) 4
2. WHAT IS THE BANK DOING? in the UEMOA, there is good progress. Real-time Gross Settlement System (RTGS) High Volume Compensation System (Compensation) Interbank Card System (Electronic Money) Telecommunications Infrastructure 5
2. WHAT IS THE BANK DOING? and, more recently. West African Monetary Zone (WAMZ) Payment System Development Project (The Gambia, Guinea, and Sierra Leone) Total Project Cost: US$ 29 million Sierra Leone Gambia, The Ghana ADF Grant: US$ 23 million (2008 2011) Other Financiers: Central Banks of The Gambia, Guinea, and Sierra Leone (US$ 3 million); and Commercial Banks (US$ 3 million) Nigeria Guinea 6
2. WHAT IS THE BANK DOING? in WAMZ, soon, implementation will start. Real-time Gross Settlement System (RTGS) Automated Clearing House and Check Processing Banking Application Systems Upgrade, incorporating Scriptless Securities Settlement System Telecommunications and Power Facilities Upgrade 7
2. WHAT IS THE BANK DOING? the final outcome is full realization of ECOWAS operational system, the very essence of regional integration. West African Economic and Monetary Union (UEMOA) West African Monetary Zone (WAMZ) Subgroup Economic Community of West African States (ECOWAS) Pillar Regional Economic Communities (RECs) 8
2. WHAT IS THE BANK DOING? the Bank is paying closer attention to the development of African debt market, where growth show mixed results. MARKET DEPTH Debt Volume Breadth of Investor Base Secondary market trading Range of Instruments Size of the Economy High Low Deep / ST MZM Shallow / ST 9 GHS Deep / LT NGN BW P UGX Shallow / LT GOVERNMENT YIELD CURVE KES TZS 1 to 5-year > 5-year EGP MUR ZAR MA D
2. WHAT IS THE BANK DOING? the Bank will intervene through and effective tool. The African Financial Markets Initiative (AFMI) One main goal: Contribute to the development and deepening of Domestic Debt Markets in Africa A Cooperative Approach: African Central Banks and Central Banks Associations + Public / Private direct involvement Two separated but complementary components: 1. African Financial Markets Database (AFMD) 2. African Domestic Bond Fund (ADBF) 10
2. WHAT IS THE BANK DOING? The African Domestic Bond Fund (ADBF) Four Strategic Objectives: Reduce African countries dependency on foreign currency denominated debt Encourage the deepening of domestic bond markets through investments in longer dated assets Contribute to enlarge investor base in African domestic bond markets Create a permanent forum for discussion and provision of technical assistance on domestic bond market issues Two Defined Stages: STAGE 1 Enhancement of Domestic Bond Markets Infrastructure STAGE 2 Creation of an African Domestic Bond Fund Expand primary markets Invest in local currency denominated & create secondary markets government bonds Broaden investor base Funded by AfDB and Central Banks Enhance Payments systems Regulatory/supervisory frameworks Passively managed/ Return closely Promote regional initiatives correlated with an underlying index 11
2. WHAT IS THE BANK DOING? what the Bank has done so far under the ADBF. Enhancement of Domestic Bond Market Infrastructure: Mapping of current ongoing initiatives on Bond Market Development Identification of potential focus areas for multidisciplinary working groups (Secondary Markets, New Financial Instruments, Payment Systems, etc.) Creation of the African Domestic Bond Fund: Presentations to Central Banks, Ministries of Finance Short-term deliverables: Donor workshop to discuss findings of the mapping studies end of March Presentation at the Annual Meetings and proposal for the creation of multidisciplinary working groups 12
3. CHALLENGES:.current situation show mixed results on development of settlement systems to support growth of bond markets.. General Electronic Trading platform SADC COMESA AMU ECOWAS CEMAC RSA: Efficient settlement & Payment systems Yes RSA Project underway to have integrated system to link national securities Morocco Installation of the trading platform for the stock exchange for security, and management and settlement of trades Tunisia - creation of a platform for data management in the secondary market Yes (Nigeria & WAEMU) not Ghana Rudimentary payments systems BVMAC & DSX different trading systems but can both handle automatic and complex markets Identical depository are identical central systems 13
3. CHALLENGES:.progress on settlement systems at regional level is mixed. National Securities Markets linked and/or harmonized Regional SADC COMESA AMU ECOWAS CEMAC Underway Underway Underway (?) No No Payments Systems No No No Underway Yes CFA Zone Underway Yes CFA Zone 14
4. OPPORTUNITIES development of payment system infrastructure is still in its early days in several African economies and, there are several opportunities for working together to support countries efforts to. implement technical infrastructure, particularly, secure domestic networks, electronic payments/clearing systems, telecommunications, etc upgrade their regulatory frameworks to support electronic payment instruments, and systems enhance their risk management frameworks to address operational, systemic, and liquidity risks associated with the new infrastructure 15
4. OPPORTUNITIES...but this, also, necessitates collaboration in related areas, to jointly... undertake stocktaking of the current state of implementation of gross settlement, and the automated clearing systems across the RECs, as a basis for future collaborative work provide technical assistance, and capacity-building, across countries and RECs, where implementation of settlement systems is either ongoing or is planned Undertake assessments of settlement systems vulnerabilities in countries through the Financial Sector Assessment Program (FSAP) or similar instruments 16
5. CONCLUSION Several national initiatives are ongoing but ineffective in part due to limited coordination between actors, limited implementation and financial capacity Effective partnership of all stakeholders including governments, and private sector actors is key to advancing Africa payments systems development Therefore, there is need to progressively link, national payments systems and to move towards a single regional payments system Further, for Africa financial markets to became the engine for growth, there is need to develop region-wide securities market infrastructure 17
THANK YOU For further inquires, please contact: Charles Muthuthi Governance & Financial Reforms Department African Development Bank Tel.: (216) 71 10 23 98 c.muthuthi@afdb.org 18