This article was contributed to by Yele Oyekola, CEO and co-founder of Duplo.
Africa’s trade and commerce landscape is undergoing a significant transformation, driven by economic integration, technological advancement, and the rise of digital finance. These shifts are creating new opportunities and challenges for businesses across the continent, particularly in how they make and receive payments.
From the establishment of the African Continental Free Trade Area (AfCFTA) to the emergence of a new multipolar world order influenced by the United States and China, global trade patterns are shifting in ways that African businesses can leverage. As Africa positions itself as a major player in global trade, effectively navigating the complexities of business payments has become critical for success.
Africa’s evolving trade landscape
Business-to-business (B2B) trade in Africa is characterised by a blend of intra-continental commerce and exchanges with the rest of the world, each with distinct patterns and key players.
Key players in international B2B trade
In B2B trade between Africa and the global market, the continent’s “Big Six” exporting nations play a significant role, with South Africa, Egypt, and Morocco leading the pack – accounting for approximately 60 percent of extra-African exports. These countries boast well-established trade relationships and relatively advanced financial infrastructures, facilitating international transactions. Their robust economies serve as gateways for global businesses looking to engage with African markets.
Drivers of intra-African trade
Within the continent, a different set of countries drive B2B trade. South Africa remains a dominant force, along with its Southern African Development Community (SADC) neighbors like Namibia, Botswana, and Zambia. West African powerhouses such as Nigeria, Ghana, and Côte d’Ivoire are also prominent, alongside the Democratic Republic of Congo (DRC), Tanzania, and Mali. This diverse group reflects the growing importance of regional trade blocs and cross-border commerce within Africa.
Interestingly, intra-African trade is twice as likely to involve value-added products and manufactured goods compared to extra-African trade. This highlights the potential for intra-continental trade to drive industrialisation and economic diversification.
Challenges in business payments
Despite the promising trade environment, businesses face several challenges in navigating payments across Africa, which can impede the flow of goods and services.
1. Fragmented financial systems:
Africa consists of 54 countries, each with its own currency, regulatory framework, and banking infrastructure. This diversity leads to complexities in currency conversions and compliance with varying legal requirements. Many African payment systems are also not interoperable, meaning they cannot seamlessly process transactions across borders. This fragmentation results in reliance on multiple intermediaries, increasing the risk of errors and delays.
2. Currency volatility:
Many African currencies are susceptible to significant fluctuations due to economic instability, inflation, and political factors. This volatility makes it challenging to predict costs and manage cash flows.This then leads to limited availability of foreign currency, which can delay transactions and make it difficult to pay international suppliers.
3. High transaction costs:
Due to the fragmentation of financial infrastructures across borders, many banks and financial institutions are involved in a transaction and this can lead to exorbitant costs for cross border transfers.
4. Political and economic instability:
Political unrest can lead to international sanctions that restrict financial transactions. Nigeria for example is now on the grey list.
Strategies for navigating business payments
As the payment landscape in Africa evolves, businesses must adopt effective strategies to navigate this complex environment.
1. Develop Pan-African growth strategies
While pan-African growth strategies may not be immediately necessary for all businesses, the evolving cross-border B2B payments landscape makes it imperative to plan for the future. By investing in advanced payment platforms and developing strategies that anticipate expansion across the continent, African businesses can position themselves for long-term success. These strategies will enhance competitiveness and resilience, contributing to the broader goal of economic integration and ensuring readiness to thrive in a unified and dynamic African market.
2. Leverage digital payment solutions
Businesses should embrace digital payment platforms that offer faster, more cost-effective, and transparent transactions. These platforms can help reduce transaction costs, improve cash flow management, and enhance customer satisfaction. For example, Duplo provides payment, spend, and vendor management solutions that enable businesses in Africa to make and receive instant local and international payments, saving costs and time while streamlining transactions.
3. Understand regulatory environments
It is crucial for businesses to have a thorough understanding of the regulatory environments in the markets they operate in. Engaging with local experts, legal advisors, and compliance specialists can help navigate regulatory hurdles and avoid potential pitfalls. Staying informed about changes in laws and regulations ensures that businesses remain compliant and can adapt quickly to new requirements.
4. Promote financial education
Investing in financial education for teams is essential, particularly in understanding the dynamics of cross-border payments. Training on currency management, regulatory compliance, and the use of digital payment platforms can empower employees to manage payments more effectively. This knowledge can lead to better decision-making and increased efficiency in handling international transactions.
Conclusion
As Africa’s trade landscape continues to evolve, the ability to navigate business payments effectively will be a critical factor for success. While challenges remain, the rise of digital payment platforms, regional payment systems, and innovative technologies offer promising solutions. By adopting the right strategies and leveraging emerging tools, businesses can position themselves to thrive in Africa’s dynamic trade environment. The future of business payments in Africa points toward increased efficiency, lower costs, and greater inclusivity, paving the way for more robust economic growth across the continent.
For more information and context on the state of cross-border B2B Payments in Africa and Its Impact on Trade, please check out Duplo’s latest report.
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Yele Oyekola is the co-founder and Chief Executive Officer of Duplo, a leading provider of payment, spend, and vendor management solutions for African businesses. He has vast experience of building and scaling financial services across Africa, having founded and worked for multiple financial services companies, including banks and asset management companies.
