# The promise and pitfalls of making payments in Africa Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2018-04-21 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Managing Currency Risk and Payments in Africa: Challenges Meta Description: Learn about the obstacles and rewards of managing currency risk and making payments in Africa, and how to find the right partner for your business. URL: https://financedigest.com/the-promise-and-pitfalls-of-making-payments-in-africahtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/nat-davison-1736842824948-compressed.jpg) **Nat Davison, Partner,** Frontierpay Most conversations about doing business in Africa will include words such as “challenges,” “instability” and “risk.” The same three words are often applied to managing currency risk and making payments throughout the continent. Costly transmission fees, unestablished banking systems, [central bank](https://www.financedigest.com/marketmind-rba-shock-hike-starts-huge-week-for-central-banks.html "Marketmind: RBA shock hike starts huge week for central banks") restrictions and market volatility are all obstacles keeping treasury managers and payroll teams up at night. [![Nat Davison, Partner, Frontierpay](http://www.financedigest.com/wp-content/uploads/2018/04/nat-davison-450x338.jpg)](http://www.financedigest.com/wp-content/uploads/2018/04/nat-davison.jpg) Nat Davison, Partner, Frontierpay That said, Africa also has a lot to offer from a payments perspective. The continent is becoming a hub of new [payments technology, same-day payments are possible in countries such as Nigeria and there is a booming mobile payments landscape](https://www.financedigest.com/5-predictions-for-payments-landscape-in-2022-and-our-reflections-on-2021.html "5 Predictions for Payments Landscape in 2022 and our reflections on 2021"). In short, while there is some volatility, if payroll teams are aware of the potential pitfalls and how best to avoid them, there are plenty of rewards to be reaped in the continent. **Finding the right supplier** When looking at currency markets, risk is a constant. Before even considering how currency fluctuations could affect your business though, you first need to gain access to any of Africa’s local currencies; a process which isn’t always as straightforward as it might sound. In an ideal world, a single supplier would be able to meet most, if not all, of a business’ currency requirements. The reality though, is that many high street [banks have a limited or restricted offering and are unable to provide a solution that covers multiple African nations](https://www.financedigest.com/swiss-national-bank-raises-rates-says-bank-crisis-stopped.html "Swiss National Bank raises rates, says bank crisis stopped"). It’s important, therefore, when [preparing to do business](https://www.financedigest.com/the-importance-of-upskilling-to-prepare-for-business-automation.html "The importance of upskilling to prepare for business automation") in the continent, to find a partner who can cover as many currencies as possible. Not only will this help to smooth internal processes, but it will also enable more effective currency hedging. [Companies often try to get around liquidity](https://www.financedigest.com/companies-are-empowered-to-retain-control-with-alternative-routes-to-liquidity.html "Companies are empowered to retain control with alternative routes to liquidity") limitations in Africa by making payments in US dollars instead. The problem in doing so is that unless the beneficiary [bank account](https://www.financedigest.com/now-is-the-time-for-banks-to-introduce-intelligent-account-analysis.html "Now Is the Time for Banks to Introduce Intelligent Account Analysis") is denominated in USD, the payment will be converted to the local currency before crediting at an arbitrary and more than likely unfavourable rate of exchange. Furthermore, it’s impossible to pay a supplier or employee a fixed amount using this system. **Currency volatility** Markets can be fickle beasts and to use even a commonly [traded currency](https://www.financedigest.com/currency-trading-in-a-spin-after-polish-explosion.html "Currency trading in a spin after Polish explosion") such as the South African rand can require a thick skin and heightened awareness of risk. Last year, the currency dropped 7.5 per cent in the last four days of March, only to [rise by the same amount in a nine-day stretch in April](https://www.financedigest.com/italy-cpi-rises-again-in-april-amid-energy-prices-volatility.html "Italy CPI rises again in April amid energy prices volatility"). Shifts of this nature are more than capable of affecting your payment [costs and can hit with little warning](https://www.financedigest.com/boohoo-warns-on-outlook-blaming-higher-returns-and-pandemic-costs.html "Boohoo warns on outlook, blaming higher returns and pandemic costs"). On the flip-side, anyone with the nerve to have played the rand over the long term will have seen a downward slide of more than 50 per cent in its value between 2011 and 2015, only for it to rise by 13 per cent in 2016 and outperform every EM currency except Brazil’s real and [Russia’s rouble](https://www.financedigest.com/renault-to-offload-its-stake-in-lada-maker-for-one-rouble-russia-says.html "Renault to offload its stake in Lada maker for one rouble, Russia says"). To remove a degree of the uncertainty from trading the rand, I would advise anyone who hopes to do business with South Africa to have an understanding of the carry trade; a strategy that involves borrowing a currency with a low interest rate in order to fund the purchase of another with a higher rate. **Payment risk** As a result of the combined political and currency volatility in the region, knowledge and experience of South Africa’s local markets are key to successfully negotiating the pitfalls that could [cost you time and money](https://www.financedigest.com/netflixs-gaming-foray-will-cost-time-and-money-wall-st.html "Netflix’s gaming foray will cost time and money – Wall St"). Where possible, work with partners who can demonstrate a strong track record and broad network within the region, to speed up the delivery of payments and avoid overblown fees. Some banks and payment partners may be able to deliver funds to Nigeria, for example, but not all will have [access to local banking systems](https://www.financedigest.com/telehealth-monitoring-to-rule-the-the-transseptal-access-systems-market.html "Telehealth monitoring to rule the The Transseptal Access Systems Market"). Having this capability would open up the possibility of naira [crediting bank](https://www.financedigest.com/analysis-powerful-swiss-central-bank-faces-reform-calls-in-wake-of-credit-suisse-rescue.html "Analysis-Powerful Swiss central bank faces reform calls in wake of Credit Suisse rescue") accounts within hours rather than days. Pricing is affected in the same way. A deeper knowledge of local market conditions, parallel markets and FX volatility will allow you access to much more favourable [currency rates](https://www.financedigest.com/currency-exchange-how-to-find-the-best-rates.html "Currency Exchange: How to Find the Best Rates") and the most efficient processes available within the rapidly developing continent. [Banking requirements](https://www.financedigest.com/how-to-fulfil-the-digital-transformation-requirement-in-banking.html "How to fulfil the Digital Transformation Requirement in Banking") are also fluid, with differing beneficiary data needed in different countries – in stark contrast with the EU and Single European Payment Area. Specialist [experience when it comes to making payments](https://www.financedigest.com/how-netflix-justeat-and-uber-raised-the-bar-for-the-payments-experience.html "How Netflix, JustEat and Uber raised the bar for the payments experience") in less-developed regions, such as Mozambique or Lesotho, will help to avoid lengthy delays, payment rejections and administration charges. **Volatility in Chinese economy** Africa’s prosperity increasingly depends on China. Over the past 20 years, China has become its largest trading partner and a significant source of investment and lending, [paving the way](https://www.financedigest.com/soft-lending-and-inflation-data-pave-way-for-smaller-ecb-hike.html "Soft lending and inflation data pave way for smaller ECB hike") for deep economic ties between the two countries. As a result, recent [signs of a slowdown](https://www.financedigest.com/adecco-sees-signs-of-a-hiring-slowdown-at-start-of-2023.html "Adecco sees signs of a hiring slowdown at start of 2023") in the Chinese economy are likely to be a very bad omen for Africa, which is massively dependent on China to not only purchase its natural resources, but also to upgrade its decaying national infrastructure. Ultimately, a [slowing China](https://www.financedigest.com/swiss-gold-exports-to-china-slow-but-shipments-to-turkey-surge.html "Swiss gold exports to China slow but shipments to Turkey surge") will hinder Africa’s ability to grow. However, as a decelerated China is looking ever more like an inevitability than a possibility, any [business with exposure to Africa must ensure they are monitoring the landscape in China](https://www.financedigest.com/how-china-became-big-business-for-twitter-from-blocking-to-blue-checks.html "How China became big business for Twitter, from blocking to blue checks") just as closely. **In conclusion** As a [market to do business](https://www.financedigest.com/marketing-communications-is-a-business-critical-pillar-now-and-in-a-post-pandemic-future.html "Marketing Communications is a business-critical pillar now – and in a post pandemic future") in, Africa is gathering global interest. Widespread urbanisation is fostering large cities in which to set up shop and readily available workforces to recruit from. New consumer markets, such as a growing middle class, are presenting previously untold opportunities to trade and the region is seeing [strong growth](https://www.financedigest.com/lego-posts-strong-growth-on-robust-demand-new-store-openings.html "Lego posts strong growth on robust demand, new store openings"), both economically and from a perspective of technological innovation. However, for any new business, [success on the currency and payments front needs](https://www.financedigest.com/cfos-need-to-embrace-todays-technology-for-tomorrows-success.html "CFOs need to embrace today’s technology for tomorrow’s success ") to be an immediate concern. Failure to manage [currency risk](https://www.financedigest.com/evergrande-jitters-pull-risk-currencies-lower-dollar-gains-on-safety-bid.html "Evergrande jitters pull risk currencies lower, dollar gains on safety bid") can fundamentally jeopardise your business, while holes in your liquidity provision may even leave you unable to pay suppliers or employees. Familiarise yourself with your required currencies and the local banking infrastructure, and [invest time](https://www.financedigest.com/a-guide-to-luxury-property-investment-in-the-time-of-covid-19.html "A guide to luxury property investment in the time of COVID-19") in finding a partner with the knowledge to keep any potential risk under control. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---