Lesetja Kganyago: Africa is rising - seizing the opportunity
Address by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at the
SWIFT Regional Conference, Cape Town, 5 May 2015.
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Chairperson, distinguished delegates, ladies and gentlemen;
It is an honour for me to welcome you all to Cape Town, South Africa on this occasion of the
SWIFT Regional Conference.
"Africa is rising - Seizing the Opportunity" this is the theme for this year's conference. I think
that you will agree that this theme is appropriate, as Africa is blessed with abundant
resources and although we face several challenges, these are far outweighed by the many
opportunities that the continent offers.
We acknowledge that taking advantage of these opportunities require strong political will and
pan-African cooperation, however, the numerous regional integration initiatives taking place
all over the continent are testimony that this is indeed possible.
This is the 22nd SWIFT African Regional Conference (ARC) and the delegates include policy
makers, industry leaders and the broader financial community from across the African
continent. The typical African Regional Conference attracts up to 500 delegates from around
40 countries, and is a unique forum for networking, education, discussion, and debate - all
within a collaborative environment.
I believe that discussions in the next three day will focus, inter alia, on how intra- Africa trade
and economic growth can be boosted, a look at how the African securities markets are
evolving and the growth plans of African corporates as they expand across the continent.
The conference will also focus on leveraging the role of technology innovations in Africa to
benefit the financial industry and support sustainable growth objectives of the continent.
From the payment system environment, we are aware that intra-Africa payments have in the
past mostly been facilitated through correspondent banking arrangements, as has been the
standard for cross border payments globally. In practice, intra-Africa payments are effected
through correspondent banking relationships with banking partners normally located within
the USA or in Europe. Most of these correspondent banking arrangements are still used
extensively today, but are proving to be inadequate and inefficient. Across the continent,
several regions have launched initiatives to facilitate more efficient transacting mechanisms
within their respective regions. The advantage of these initiatives is that transacting parties
now have more control over their payments, within the region.
Concerns have been raised about the general reduction in correspondent banking
relationships, and related financial services globally. The drivers of the reduction in
correspondent banking relationships are not clear, but we surmise that regulations relating to
AML/CFT and the increase in the number of cross-border money remittance or transfer
companies could be contributing factors to this declining trend.
In the case of the money remittance companies, it can be argued that global banks may have
concerns about the high risks of uncertainty in facilitating transactions with
unknown/nonvetted clients, especially those in EMDE's1, in terms of the AML/CFT2 rules. This raises the
potential for fines and reputational risks for these banks and therefore reduces the appetite
for exposure to specific jurisdictions by banks participating in this environment. There are
also potential downsides to decreased cross-border transactions. For example, it is a
wellknown fact that money remittances attract high costs, and it is therefore likely that small
companies would be more affected by the reduction in global correspondent activity. In both
instances, it would be the poor and smaller commercial entities that would be most
vulnerable if correspondent banking activities are not replaced by more efficient and reliable
alternatives.
Regional solutions, implemented in the payment system environment, will go a long way to
address constraints that may be introduced by the reduction of correspondent banking
services, as well as to bring overall efficiencies in the execution of intra-regional cross border
payments.
I would now like to share with you developments relating to three of these regional initiatives
as examples. In 2000, five countries of West Africa (Gambia, Ghana, Guinea, Nigeria and
Sierra Leone) established the West African Monetary Zone (WAMZ). At the same time they
also set-up the West African Monetary Institute (WAMI). Liberia joined in 2010. The objective
of the countries was to establish the West African Monetary Zone (WAMZ) as a monetary
and customs union with a common currency. Initially they proposed to introduce a Single
Currency in 2003, but subsequently agreed to launch the new single currency in 2015. As
these countries are represented at this conference, you will benefit from updates on progress
made with this initiative.
The main objectives of WAMZ were agreed as:
• the promotion of trade integration in the region;
• trade and financial facilitation;
• harmonisation of legislation and statistics; and
• payment systems and macroeconomic convergence.
The WAMI was established as the main body responsible of the creation of the Common
West African Central Bank and the Single Currency of the WAMZ.
In east Africa, the East African Community (EAC) has been established as a regional
intergovernmental organisation of the Republics of Burundi, Kenya, Rwanda, the United
Republic of Tanzania, and the Republic of Uganda. The vision of the EAC is to foster a
prosperous, competitive, secure, stable and politically united East Africa. Their mission is to
widen and deepen economic, political, social and cultural integration in order to improve the
quality of life of the people of East Africa through increased competitiveness, value added
production, trade and investments.
The Treaty for the establishment of the East African Community was signed on 30 November
1999 and come into force on 7 July 2000. The Republic of Rwanda and the Republic of
Burundi became full members of the community with effect from 1 July 2007.
From a payment system perspective, the region has achieved the goal of implementing an
integrated payment infrastructure to facilitate the ease of flow of payments among the
participating member counties known as the East Africa Payment System (EAPS). The
EAPS is a secure, effective and efficient funds transfer system that enhances efficiency and
safety of payments and settlement within the EAC region. The systems operates on a real
time gross settlement basis by utilising the linkage between the various partner states' Real
Time Gross Settlement (RTGS) systems using SWIFT (Society for Worldwide Interbank
Financial Telecommunication) messaging network for safe and secure delivery of payment
and settlement messages to each other. The EAPS also facilitates cross border transactions
that is essential for boosting intra-regional trade among the East African countries. Some of
the benefits of EAPS:
• real time funds transfers, safe and efficient transfer of large value payments
• finality and irrevocability of payments
increased accessibility as EAPS is available in all the commercial banks' branch
•
networks, and
• same-day settlement.
This initiative is indeed a success that is worth celebrating.
The Southern African Development Community (SADC) was established as a development
coordinating conference (SADCC) in 1980 and transformed into a development community in
1992. It is an inter-governmental organisation whose goal is to promote sustainable and
equitable economic growth and socio-economic development through efficient productive
systems, deeper co-operation and integration, good governance and durable peace and
security among fifteen Southern African member-states. In the process of driving its
development objectives, the region adopted a Regional Indicative Strategic Development
Plan. In support of this plan, central banks within the region working in collaboration with the
banking community launched a payment system integration project that culminated in the
implementation of the SADC Integrated Regional Electronic Settlement System (SIRESS).
According to the latest data, the implementation of the SIRESS system has resulted in 43 per
cent of eligible intra-SADC cross-border South African Rand payments for the participating
nine countries being settled through accounts that regional banks hold on the SIRESS
system, instead of via the normal cross-border correspondent banking system. At this
relatively 'early' stage of SIRESS (implemented July 2013), the high percentage of
crossborder transactions being settled via the SIRESS system in real time is significant, and it
could in future have an even more significant impact on correspondent banking activity within
the SADC region. I take great pride in being able to share with you that SIRESS has reached
the ZAR 1 trillion settlement mark in the last week of April 2015.
We also recognise that the emergence of regional solutions such as SIRESS, requires
regional authorities to resolve possible concerns that may arise from regulatory requirements
within their business process flows to ensure that matters such as AML/CFT and exchange
controls, where they exist, are taken care of.
It is my hope that the development of these initiatives will lay a solid foundation for facilitating
trade and investment in Africa. Leveraging of current infrastructure, efficient securities market
solutions and future infrastructure solutions may contribute to facilitating the ease of
investment in the continent. The regional initiatives are also paving the way for the
achievement of the integration agenda of the whole continent and I hope that in undertaking
the separate regional initiatives, open standards are adopted to facilitate the ultimate
integration of these regional infrastructures. What Africa needs is to get the various regional
systems to interact with each other so that settlement can take place seamlessly across the
region.
I also note that with the aim of leveraging the hands-on experience with projects in Africa,
one session in this conference will look at the rapid growth of the regional payment systems
and how lessons learnt from these projects could be replicated in other regions. The
regulatory session should explore how, taking a proactive stance in coping with new financial
regulations, moving quickly to adopt global best practice in the various fields of compliance
and addressing of issues relating to regulatory capital requirements can lead to competitive
advantages.
It is also with interest that I gather that for the first time, the 2015 ARC will host an African
round of the SWIFT Innotribe start-up challenge. Innotribe is a laudable initiative that offers
an opportunity for bringing innovative ideas to the fore and fostering discussions that would
enable practical solutions to emerge out of those ideas. The start-up challenge will bring
together young African financial technology companies from across the continent, introducing
them to venture capitalists and investors. The winners will proceed and compete in the grand
finale at the Sibos 2015 conference scheduled later this year in Singapore. Our continent will
surely reap benefits from these initiatives and I encourage you to ensure that you are part of
the growing ARC community in 2015, and that your industry discussion will be fruitful.
It is clear from the programme that the organisers have put together a full and well thought
out programme. I hope you will benefit from this 22nd ARC and in this spirit I wish you well
as you share experiences and meet new colleagues.
Thank you