Home Transaction Banking Mauritius Solves Africa’s Cross-Border Payment Friction
Author: John Njiraini | Photos: Shutterstock
The island nation sets out to eliminate high fees and multi-day delays for African cross-border transactions.
This article appears in the October issue of Global Finance Magazine.
In a fragmented landscape, aggregation matters. This philosophy underpins Mauritius’s quest to become the epicenter of cross-border payments in Africa, where layers of friction and an inability to converge have impeded deeper economic integration.
By building frictionless systems anchored in regulation, technology, and market dynamics, Mauritius, a small, upper-middle-income island nation of just 1.26 million people, is redefining payments in Africa and shifting the narrative for a continent long bound to Western capital in international payments.
“Through trust, Mauritius has become a hub for digital finance,” said Shane Mungur, senior associate at Mauritius-based law firm BLC Robert & Associates.
The reality of cross-border payments in Africa is that businesses and entrepreneurs must route transactions through correspondent banks in Europe and the U.S., paying fees as high as 7.1%, compared with a global average of about 2.8%. Worse, transactions can take as long as seven days to complete.
Mauritius’s effort to demonstrate that seamless payments in Africa are feasible is part of the nation’s ambitious transition to what it terms a “future-ready economic” model. This includes shifting the economy from dependence on sugarcane production and textiles and apparel to a new framework with the financial sector as the heartbeat. It has also meant shifting the focus of its search for a competitive edge from regional and bilateral trade treaties, legal and regulatory reforms, tax incentives, and the speedy incorporation of companies to cutting-edge innovation.
“Mauritius remains relevant and attractive as payment ecosystems evolve,” said Sharmilla Bhima, a partner at Mauritius-based law firm Appleby. Expanding its international financial center’s scope to cover cross-border payments is based on a conviction that Africa’s economy can only transform and become truly resilient if money can move across borders efficiently, securely, transparently, and affordably.
In recent years, more than $80 billion in Africa-bound investments have been structured through Mauritius. More than 450 private equity funds are now domiciled there, deploying capital across the continent.
“Mauritius is a jurisdiction that serves as a gateway for businesses seeking to participate in Africa’s growing economic integration,” Bhima said.
Africa’s cross-border payments market is ballooning. Valued at $329 billion last year, it is projected to hit the $1 trillion mark in the next decade. Fragmentation nevertheless remains a barrier to unleashing the benefits of cross-border payments, cutting against the growth of trade, investment, entrepreneurship, financial inclusion, and economic integration.
Plans for a common currency to replace more than 40 local currencies remain a pipe dream while multiple regulatory regimes, limited interoperability, weak transparency, and dependence on intermediary currencies make friction a constant.
The continent continues to depend on hard currencies that are in short supply, increase conversion costs, and tie up working capital. Yet, the success of the African Continental Free Trade Area , the continent’s most ambit…