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EAC cross-border transactions hit record $2bn
What you need to know:
- The cross-border payments suggest a surge intra-regional trade, which in turn compelled traders to adopt the platform for convenience.
Traders transacted a record $2.015 billion through the East African Payment and Settlement System (EAPS) in the 12 months to June 2024, defying the rising costs of using the platform.
The cross-border payments suggest a surge intra-regional trade, which in turn compelled traders to adopt the platform for convenience.
Data reported by the central banks in Kenya, Uganda and Tanzania shows that the total value of transactions going through the regional payments system rose 40 percent in the last fiscal year, crossing the $2 billion mark for the first time.
This was despite a surge in transaction costs across most remittance corridors in the region, with the average cost of sending $200 from one country to another rising from 17.05 percent in September 2023 to 25.4 percent in June last year.
The EAPS, launched in 2014 to ease cross-border settlements within the bloc, has recorded minimal participation by traders, with only four countries currently using it, as old challenges stall its progress.
“The usual legacy challenges and frictions of cross border payments using channels such as correspondent banking have continued to create the need for more transparent, efficient, and less costly payment rails at the regional and the African continental level,” noted Central Bank of Kenya..
Tanzania, which remains the most expensive country to send money from, posted the sharpest growth in EAPS transactions value, but remains the second-smallest participant in the system, after Rwanda.
In the year to June 2024, the Bank of Tanzania recorded transactions totalling $261 million (Tsh657 billion) through the EAPS system, an 80 percent rise from the $145 million (Tsh364 billion) posted in June 2023.
Over the same period, transaction costs for such cross-border payments from Tanzania hit a record 55 percent for transactions with Kenya and Uganda, while the cost of sending the same amount to Rwanda rose to 36 percent from 20 percent a year earlier.
Uganda recorded an 18 percent increase in EAPS transactions, from $519 million (Ush1.91 trillion) in 2023 to $610 million (Ush2.45 trillion), largely driven by transactions in the Ugandan and Kenyan currencies.
Kenya remains the dominant player in the system, with its transactions over period crossing the $1 billion mark for the first time to hit $1.144 billion, a 47 percent rise from the $777 million recorded in the year to June 2023.
But both Kenya and Tanzania recorded a drop in the volume of transactions going through the system, an indication that more traders opted to settle their deals outside the banking system as the costs soared.
In total, deals transacted through the EAPS in Kenya and Tanzania declined by 7,685 to 47,929 in the year to June from 55,614 a year earlier. This means that fewer transactions with higher values were made through the system last year compared to 2023.
At $2 billion, it means that about 14 percent of the intra-EAC trade is now transacted on the EAPS, yet only four partners– Kenya, Uganda, Tanzania, and Rwanda – currently participate in the system.
Burundi, South Sudan, Somalia, and the Democratic Republic of Congo are yet to join the system, but their trade with partner states in the region has been improving since their entry in the bloc.
Overall, intra-EAC trade in the 12 months to June 2024 hit a record $14.3 billion, an 18.9 percent increment from the $12 billion posted over the same period a year earlier.
The rise was partly due to the entry of Somalia to the bloc in 2023, which added to the tally of the intra-regional trade statistics.
The EAC secretariat is till rallying partner states to join the payment system to boost trade within the region but also to advance the steps towards the launch of the East African Monetary Union in the bloc.
“Uptake of the East African Payment System (EAPS) has been very low,” said the EAC Secretary-General Veronica Nduva at a forum last September.
“As a result, most banks in the region still use foreign correspondent banks to effect regional cross border payments.Our aspiration as a region is to make cross-border payments faster, safer, cheaper, transparent and more integrated in order to facilitate trade and financial inclusion in the region,” she said.
