17 December 2012

East Africa: Experts Back Eletronic Payment System

Kigali — Experts on Finance and Monetary affairs committee of the COMESA concluded their 18th meeting in Kigali last week where they backed the newly launched Regional Electronic Payment and Settlement System (REPSS) as the key to unlocking deeper intra-regional trade.

According to Sindiso Ngwenya, the COMESA Secretary General while intra-COMESA trade has grown from US$3.1billion at the time of the launch of the COMESA Free Trade Area in 2000 to US$18.8bn in 2011, traders still have to incur very high costs in clearing payments for transactions across COMESA member countries.

The experts revealed that the estimated cost of making payment for the import component of trade {which is mostly done through international correspondent banking relationships] amounted to US$444.3m in 2011 up from US$417m in 2010.

"If we can all subscribe to the REPSS, that cost can be drastically brought down to under 1% from the current 5% which will obviously result to more trade among members," remarked Rwanda's Claver Gatete whose country has already gone live on the system.

Under the REPSS, payments will be coordinated by COMESA Central Banks that will be inter-linked on the software being housed and run at the Mauritius Central Bank which has been also given the responsibility of working as the clearing house.

So far, only a few countries of COMESA's nineteen members' countries have gone live and during the summit in Kigali last week, members that have not yet activated the system were urged to rush and ease the cost of doing business for their members.

For instance, it was heard during the meeting that Rwanda which is interlinked on the system can only make a payment transaction in just one day with a trading partner in Mauritius because both countries are live on the REPSS.

It was noted that the new and urgent challenge for African states to address was the slow, inefficient and costly cross border trade payments systems where by a series of banks and domestic payments systems are typically linked together to move funds from one member country to another consequently consuming up to five days to transfer money resulting in increased charges that in extreme cases could reach 10% of the total trade deal.

"The absence of a reliable payment infrastructure within the COMESA region has indeed been hampering the further development of the common market," noted Mr. Ngwenya.

Had the REPPS system been operational in the year 2011, experts reckon that the region could have saved US$67million.

Another US$333.2million would have been saved under REPSS system as the new innovation doesn't require opening of letters of credit and other requirements listed under the documentary collections/open account trading.

Rwanda and Mauritius are already providing testimony of the REPSS system having gone live early October.

"This was made possible by cooperation from all our local commercial banks and as a result Rwanda can trade with any country with ease if they can adopt the system," revealed Governor Gatete.

Under REPSS, importers and exporters deal with their local commercial banks for documentation.

To make a payment an importer makes the relevant arrangements and commands through the commercial bank which sees through the payment to the exporter through the importers central bank.

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