Ghana’s vice-president, Dr Mahamudu Bawumia, who is running for president in his country’s 7 December 2024 national elections, recently proposed that Africa adopt interoperable mobile money as the continent’s common currency. Dr Bawumia, who spoke at the Africa Prosperity Network (APN) Interoperability Symposium in Accra, Ghana, on Friday, 5 July 2024, believes this could be a game-changer in intra-Africa trade, which has seen little uptick despite the implementation of the African Continental Free Trade Area (AfCFTA). It was themed: ‘Scaling Up Interoperability — Using Mobile Money to Buy and Sell Across Africa.’
“Trade payments and relationships are currently hampered by inadequate settlement systems, which result in high costs, limited access, slow processing speeds, and a lack of transparency,” Graphic.com.gh, the website of Ghana’s state-owned newspaper, Daily Graphic, quoted Dr Bawumia as having observed, as he stressed the importance of developing efficient domestic payment systems, such as real-time gross settlement systems and national switches while also focusing on cross-border interoperability.
“Ghana was the first on the continent to introduce mobile money interoperability, not just among telcos but also between telcos and banks,” Ghana’s vice-president boasted while highlighting the significant boost it has given financial inclusion in the West African country.
“Making mobile money interoperable across borders would allow our citizens to trade seamlessly,” he said, acknowledging the difficulties that the West African Monetary Zone, for instance, has to overcome due to macroeconomic convergence challenges, in its quest to adopt a common currency, the Eco. “Without political will, it is not likely to be achieved. It takes a lot of effort to bring stakeholders together on a common platform,” he said.
Dr Bawumia proposed that Ghana and Nigeria be the nucleus for the momo common currency idea.
“Ghana and Nigeria, for example, can begin with mobile money interoperability between our countries. We should not wait for the whole continent,” adding: “If we are serious about it, we can achieve it. Let’s focus on scaling up mobile money at the continental level and help Africa prosper.”
Adding his voice to Dr Bawumia’s call, the Executive Chairman and Founder of the Africa Prosperity Network, Mr Gabby Asare Otchere-Darko, noted: “Mobile money has transformed how business is conducted across Africa,” illustrating: “In 2021, 50% of adults in Sub-Saharan Africa made or received a digital payment, up from 34% in 2017. By 2023, over 500 million consumers had registered for mobile money, with transaction values rising from $337 billion in 2018 to $1.2 trillion in 2022.”
“Imagine a young Ghanaian tailor whose clothes on Instagram can be bought by consumers in Zimbabwe using Zimbabwean dollars from their Econet mobile wallet, with the payment received in cedis. The technology exists; what is required is the will to make it happen,” Mr Otchere-Darko explained.
Intra-Africa trade
Intra-African trade has seen notable developments and challenges, especially with the implementation of the African Continental Free Trade Area (AfCFTA), which began in January 2021. The AfCFTA aims to create a single African market, enhancing trade by removing tariffs on 90% of goods, liberalising services, and addressing various non-tariff barriers. This initiative could potentially increase intra-African trade by 15-25% by 2040, translating to an increase of $50-$70 billion (Brookings).
Despite these efforts, intra-African trade remains relatively low compared to other regions, according to Brookings. Intra-African exports accounted for about 17.89% of total African exports in 2022, down from 18.22% in 2021. This is significantly lower than intra-regional trade levels in Europe (69%) and Asia (59%) (UN Economic Commission for Africa) (Brookings). One of the key benefits of the AfCFTA is its potential to boost the exchange of manufactured and processed goods within the continent, which currently make up a larger proportion of intra-African exports compared to those leaving the continent.
Challenges remain, such as inadequate infrastructure, complex customs procedures, and limited access to finance, particularly for small and medium-sized enterprises (SMEs)(Business News Africa). Additionally, infrastructure development has been mixed, with progress in roads and ICT but less so in rail transport and energy infrastructure(UN Economic Commission for Africa).
The AfCFTA also offers significant potential for agricultural trade. By 2040, it is projected to increase intra-African trade in agricultural products by 20-30%, benefiting sectors such as sugar, vegetables, fruit, nuts, beverages, and dairy products(Brookings).
Overall, while there are considerable challenges, the AfCFTA is seen as a transformative initiative that can significantly enhance intra-African trade and drive economic growth across the continent. Achieving its full potential will require concerted efforts to improve infrastructure, streamline trade processes, and support SMEs (Brookings) (Business News Africa).
Easing cross-border and transnational payments is one of the means to streamline trade processes to facilitate intra-continental trade. The use of different currencies by either the regional economic blocs or their countries presents a major challenge to intra-Africa trade. This makes the need for a common regional, trans-regional or continental common currencies compelling.
Africa’s Journey to A Common Currency
The quest for a common currency in Africa has a long history, marked by various regional initiatives and significant challenges.
Early Initiatives and Regional Efforts
Initial Discussions and Regional Organizations (1960s-1990s)
The idea of a common currency in Africa gained traction after the establishment of regional economic communities such as the Economic Community of West African States (ECOWAS) in 1975 and the Southern African Development Community (SADC) in 1980. These organizations aimed to enhance economic integration and cooperation among member states.
1991 Abuja Treaty
The 1991 Abuja Treaty, which laid the groundwork for the African Economic Community (AEC), proposed the creation of a common currency as a long-term goal. This treaty emphasised the need for regional economic integration as a precursor to continental unity.
1999 Sirte Declaration
The 1999 Sirte Declaration by the African Union (AU) accelerated the timeline for establishing African institutions, including a central bank and a common currency. This declaration highlighted the desire to counteract economic fragmentation and bolster regional integration, inspired partly by the successful launch of the euro (Brookings).
Specific Regional Currency Projects
CFA Franc Zone
The CFA franc, used in 14 countries mainly in West and Central Africa, is one of the most notable examples of a regional currency. Tied to the euro, it has provided relative monetary stability but also faced criticism for being a relic of colonial influence and limiting economic autonomy (Brookings).
West African Monetary Zone (WAMZ) and the Eco
ECOWAS has been working towards a common currency called the “Eco” for its 15 member states. Originally slated for introduction in 2020, the launch has been delayed multiple times due to challenges in achieving macroeconomic convergence and the impact of the COVID-19 pandemic. The Eco aims to simplify trade and economic policies across West Africa, but significant hurdles remain, including economic disparities and political resistance(Brookings).
East African Sheafra (SHEAFRA)
The East African Community (EAC) has also made strides towards a common currency with the proposed East African Sheafra. This initiative aims to enhance economic stability and integration among its member states by harmonizing monetary policies and reducing exchange rate uncertainties. However, it faces challenges such as economic disparities and the need for substantial policy alignment(The Ankole Times).
Challenges and Considerations
Economic Disparities
One of the major challenges in establishing a common currency in Africa is the economic disparity among member states. Differences in economic structure, fiscal discipline, and macroeconomic stability complicate the creation of a unified monetary policy that suits all member countries (Brookings).
Sovereignty and Political Will
The adoption of a common currency requires member states to relinquish some degree of national sovereignty, which can be a contentious issue. Ensuring strong political commitment and public support is crucial for the success of such initiatives (Brookings).
Lessons from the Eurozone
The eurozone experience highlights the importance of strong institutions and a clear vision for regional integration. Despite the euro’s challenges, the political commitment to a united Europe played a key role in its implementation. Similar dedication and robust institutions are necessary for Africa’s common currency projects to succeed (Brookings).
Current Status and Future Prospects
While progress has been made, significant obstacles remain before a continent-wide or even region-wide common currency can be realised. The ongoing efforts in West and East Africa demonstrate a strong commitment to regional integration, but achieving the necessary economic and political conditions will be crucial for the eventual success of these initiatives.
By addressing economic disparities, strengthening political commitment, and drawing lessons from other monetary unions, Africa can make strides towards achieving a common currency that fosters economic stability and integration across the continent.
Mobile Money to The Rescue?
Mobile money transactions in Africa have experienced remarkable growth, reaching a total value of $1.4 trillion in 2023. This represents a 14% increase from the previous year, highlighting the expanding role of mobile financial services on the continent. Sub-Saharan Africa, in particular, has been a significant driver of this growth, accounting for nearly three-quarters of the world’s mobile money accounts(Broadcast Media Africa).
In West Africa, countries like Nigeria, Ghana, and Senegal have been at the forefront of this expansion. These nations collectively accounted for over a third of the newly registered and active mobile money accounts globally in 2023. The region’s growth has been fuelled by both mobile network operators (MNOs) and non-MNO mobile money providers, which have increased competition and market penetration (Broadcast Media Africa) (McKinsey & Company).
Moreover, Nigeria has seen substantial progress in digital payment services, with access to mobile money increasing from 21.6% of adults in 2010 to 70% in 2020. This growth has been supported by government initiatives such as the issuance of mobile money licenses and the launch of a domestic card service to reduce reliance on international card networks (GSMA).
The GSMA’s State of the Industry Report on Mobile Money highlights that the region remains a key player in the global mobile money ecosystem, with the number of registered accounts in West Africa doubling over the past decade (Broadcast Media Africa |) (GSMA).
Mobile Money Interoperability in Africa
Mobile money interoperability in Africa is advancing rapidly, driven by strategic partnerships and technological innovations. Interoperability allows seamless transactions across different mobile money platforms and financial services, enhancing financial inclusion and economic integration across the continent.
One notable initiative is Mowali, a joint venture between Orange and MTN, which aims to enable interoperable payments across Africa. Mowali allows money to circulate freely between mobile money accounts from any operator, simplifying transactions for consumers and merchants. This initiative supports the broader goal of increasing financial inclusion and fostering economic development by making mobile money a universal means of payment in Africa (Newsroom Groupe Orange) (GSMA).
Moreover, the interoperability between mobile money platforms and traditional card networks is improving. This integration enables users to link their mobile wallets to card networks like Visa and Mastercard, facilitating international transactions and bridging the gap between local financial inclusion and global financial access. Such interoperability means that users can make direct payments from their mobile wallets to global merchants, enhancing the utility of mobile money services (Capital News).
In addition, technological solutions like Ghana’s cloud-based interoperability system demonstrate the complexity and potential of these integrations. These systems are designed to support seamless transactions across various financial platforms, further promoting the adoption and use of mobile money services across the continent (HPS Worldwide).
Overall, mobile money interoperability is set to revolutionize the financial landscape in Africa, making financial services more accessible and convenient for millions of users.
Advantages And Disadvantages of Mobile Money Interoperability
Mobile money interoperability in Africa presents a range of advantages and disadvantages, impacting users, service providers, and the broader financial ecosystem.
Advantages:
Cost Reduction: Interoperability reduces the cost of transactions across different mobile money networks, eliminating the need for third-party providers and thereby making transfers cheaper for users (Asaase Radio).
Increased Accessibility: It allows users to send and receive money across different mobile money platforms, increasing the convenience and reach of financial services. This is especially beneficial in regions where different providers dominate different markets (GSMA).
Enhanced Financial Inclusion: By facilitating easier access to various financial services, interoperability can drive greater financial inclusion. More people can participate in the digital economy, gaining access to services like international remittances, payrolls, and merchant payments (GSMA).
Economic Growth: Greater financial fluidity can stimulate economic activities by making it easier for businesses to transact and grow. It supports the broader economic goals of increasing productivity and trade across the continent (Asaase Radio) (GSMA).
Disadvantages:
Implementation Costs: Setting up and maintaining interoperable systems can be expensive. It requires robust infrastructure and significant investment, which may be a barrier for some mobile money providers (HPS Worldwide).
Security Risks: Interoperability introduces new security challenges. The integration of various systems can create vulnerabilities that need to be carefully managed to prevent fraud and ensure data protection (HPS Worldwide).
Operational Complexity: Ensuring seamless interoperability involves complex coordination among different providers and regulatory bodies. This complexity can lead to delays and operational inefficiencies, impacting the overall user experience (Asaase Radio).
Market Competition: Smaller mobile money operators may struggle to compete with larger, established players who have the resources to implement and benefit from interoperable systems. This could lead to reduced market competition over time (GSMA).
Feasibility Of Mobile Money as A Common Currency For Africa
Using interoperable mobile money as a common currency in Africa presents a promising but challenging prospect. The primary feasibility factors include:
Market Readiness: While some African countries, such as Kenya and Tanzania, have made significant strides in mobile money interoperability, the readiness and adoption levels vary widely across the continent. Ensuring widespread and equitable access to interoperable services is essential (TechCabal).
Economic Integration: For mobile money to function as a common currency, there needs to be a high degree of economic integration and stability among participating countries. This includes aligning monetary policies and addressing cross-border transaction issues (Digital Frontiers Institute).
Policy and Governance: Strong governance and policy frameworks are crucial to support the interoperability of mobile money systems and protect users. Collaborative efforts among African nations, supported by international organizations, can help build the necessary infrastructure and regulatory environment (CSIS).
Analysis
From the above, while interoperable mobile money has the potential to act as a common currency and drive financial inclusion in Africa, it requires overcoming significant technical, regulatory, and economic challenges. Continued efforts to enhance infrastructure, harmonise regulations, and ensure security are essential to realising this vision. If it becomes a reality, intra-Africa trade will see an exponential increase within months. This would mean more African countries doing business with each other easily since interoperable mobile money would ease transnational transactions once the necessary infrastructure is in place. This would strengthen Africa’s global standing in terms of trade since multiple countries could easily collaborate to do business with foreign partners without the hurdles presented by different currencies, their relative value and convertibility.
