Reduced transfer costs to boost Rwanda's trade in COMESA region
After substantiating its intention of increasing trade within the Central African countries like the Congo Brazzaville and Gabon, Rwanda continues the quest to increase her exports in other regions of the continent, a desire that led to launch of the Regional Payment and Settlement System (REPSS), in order to facilitate trade within the Common Market for Eastern and Southern Africa (COMESA).
Amb. Claver Gatete, the Governor of the National Bank of Rwanda (BNR), says that REPSS platform presents a solution to some of the major hindrances that have in the past limited trade between COMESA member states.
"I cannot say that all the hindrances that exist for Rwandans to better trade with the rest of the countries are solved but I can proudly note that among the more pressing one was the cost of making cross-border payments which I believe this platform is going to solve the moment all traders get accustomed with it," explains Mr. Gatete.
The move for quick action was driven by the need to be among the first in not only going live but also benefiting from the regional payments platform or REPSS that aims at easing trade in both COMESA and non COMESA countries.
"The basic driving force is creating more opportunities for Rwandan business people to always be among the first to enjoy any developments within the region. We want to reap as much as there is to this payment platform in favor of easing trade," Mr. Gatete further explains.
Rwanda's imports and exports from the COMESA market amount to US$415million and $83million respectively which is 4.98% and 0.91% each of totals in the region. This in itself is a challenge looking at the difference between the imports and the exports where the imports value is 80% higher.
Prior to the development of REPSS, trade between countries in the COMESA and beyond was not necessarily disastrous but neither was it an easy ride mainly if matters concerning payments were to be considered. For instance the correspondent bank system which required payments to go through a bank in Europe presented inconvenience. Besides the process being inconveniencing, long and cumbersome owing to a need for such documents as the letters of credit, it also was costly since almost 6% of the value of one's transfer would be spent only in the payment process. With the REPSS in function, the cost of transferring money is going to go as low as 0.25% of the value of the transferred money.
The transactions within the REPSS have a guaranteed promptness for the exporter to receive the payment at the latest by the next day following the one on which the importer's deposits the required amount at the local central bank.
The director of payments at BNR John Karamuka says that safety is the core principle upon which the entire platform is built. "When the trader's money gets at the local Central bank in this case BNR, it notifies the COMESA clearing house which then forwards the command for payment to the settlement bank of Mauritius. This then at the end of each day settles the balances for the different central bank, making payments to the central bank of the country in which the receiver of the money is situated."Also important to note is that documents like the confirmation of letters of credit will no longer be needed for payments to be made in this process, thus bringing the costs much lower.
To emphasize the issue of safety, the Vice governor of BNR, Monique Nsanzabaganwa noted that the platform will use the swift system which is the safest payments system in the world.
She noted that the fact that the transactions will be made between the central banks gives back up in regards to the safety of the platform.
For Rwanda, payments to the central bank will not require the trader to go to the central bank but rather will be made through the local banks following a stable Rwanda Integrated Payment Processing System (RIPPS) which is already operational in the country.
"With the RIPPS in place, inter-operationability between BNR and the local commercial bank of one's choice is high and thus issues of delays while depositing the money at the central bank will not be realized," Gatete offered. Also, the initial currencies that are going to be used while transacting on the REPSS platform will be in either Euros or United States Dollars(US$) but plans to develop the system in order to use local currencies is among the future plans.
Rwanda's trade with other COMESA bloc members has been taking an upward trend where the imports increased from $265million in 2007 to $415million by 2010 while the exports also grew to $83million from $56million during the same period. This presents an increase of 57 and 48% respectively. However, there still prevails more room for improvement mainly on the export side. Meanwhile the boat is in the sail for the Rwandan traders to benefit from the new platform but also for the central bank to ensure that the promises made to facilitate cross-border payments through REPSS are not violated by weaknesses of such partners as commercial banks.
"A good look at the consumption habits for instance those of food in the COMESA countries, they are more similar to those in Rwanda and thus a business potential for Rwandans to export and feed a good portion of people in this market," Anastasie Karekezi, a cross border trader says.
"To this end, having a simplified means of making and receiving payments is an added advantage to the development of this trade," Karekezi further explains.
However, payment through the commercial banks despite being advantageous risks to pose a challenge of delays and in some cases overcharges.
"Commercial banks are still doing badly in customer care and also there might be extra charges imposed by individual banks for matters of profitability from these services," Karekezi noted.
Besides Rwanda, REPSS went live in Mauritius, Sudan and Swaziland on October 3.
A similar platform for the East African Community (EAC) member countries is in the last stages of development where Gatete says that the payment structure is now undergoing testing.
Unlike REPSS, the one for EAC will begin with transactions being made in local currencies a fact that is believed to have potential to reduce money lost through switching currencies across the borders. This will later on be supplemented by the common currency which is also underway.
COMESA comprises of 19 countries including D.R. Congo, Zambia, Zimbabwe, Madagascar, Malawi, Egypt, Seychelles, Sudan and Swaziland, Rwanda among others. The total population of this market is 413 million people. Intra-regional trade in COMESA stood at $17.4billion in 2010 whilst cross border payment costs stood at around $600million annually through the correspondent banking system.