In the architecture of global trade, currencies are more than mere denominations; they are the lubricants and friction points of exchange. For decades, much of intra-African and regional trade has been mediated through hard currencies, especially the U.S. dollar. This dependency imposes hidden burdens: foreign exchange risk, conversion costs, and the scarcity of foreign reserves in many African states. At a time when regional blocs, such as the European Union, ASEAN, and MERCOSUR, have long sought deeper financial integration, Africa has lagged partly because the infrastructure for smooth cross-border payments in local currencies has remained underdeveloped.
In this context, the Common Market for Eastern and Southern Africa’s (COMESA) launch of a Digital Retail Payments Platform marks a crucial shift. By enabling trade to be settled directly in local currencies, COMESA aims to cut away a layer of friction in intra-regional commerce. The move is not just symbolic; it is strategic, aimed at catalysing the flow of goods and services across borders, particularly for smaller operators who have long borne the brunt of high transaction costs.
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Under the stewardship of the COMESA Clearing House (CCH), the regional payments infrastructure known as REPSS (Regional Payment and Settlement System) is being extended with a Digital Retail Payment Platform (DRPP). The DRPP is being piloted in selected corridors, starting with Malawi and Zambia, to allow real-time settlement of cross-border transactions in local currencies.
This development is underpinned by partnerships with digital financial service providers and a foreign-exchange service provider, though their identities have not been made public. The aim is to integrate national banking systems and digital payments rails so that a trader in, say, Zimbabwe can settle a purchase in Malawian kwacha without the need to route funds through the U.S. dollar or other intermediate currency.
COMESA’s 2023 Annual Report refers to this as a “proof of concept” for the digital retail instant inclusive payments platform, which local banks will have access to participate in the network. Meanwhile, the CCH describes the platform as central to its mission to bring secure, affordable, and inclusive cross-border payments to micro, small and medium enterprises, women entrepreneurs, and underserved communities.
Kenya’s Trade Minister Lee Kinyanjui has called the initiative a “game-changer,” emphasising that cross-border trade within COMESA can, for the first time, be settled directly in local currencies. The platform is designed to target transaction costs of under 3 percent of the value of a transaction.
Cutting the Gordian Knot: Benefits for Small Businesses and Trade
Small and medium enterprises (SMEs) are the lifeblood of COMESA economies: they represent approximately 80 percent of businesses and provide 60 percent of employment in member states. Yet these very enterprises often avoid cross-border trade because of the opaque, slow, and costly nature of foreign exchange conversion.
By eliminating or dramatically reducing the need for U.S. dollar routing, the COMESA platform reduces both direct and hidden costs. Traders will no longer need to maintain dollar accounts, chase forex at opaque rates, or navigate multiple correspondent banks. More importantly, the platform lowers currency risk: local currencies are often less volatile in relation to each other than against the dollar or euro.
Furthermore, the promise of transaction costs below 3 percent is significant. In current models, SMEs often face much higher effective costs due to spreads, fees, intermediary bank charges, and delays. If successfully maintained at under 3 percent, this platform may shift the calculus for many small exporters and importers who have long been deterred from regional trade.
Another benefit lies in liquidity and capital efficiency. Traders can keep funds in local currency and use them directly in trade, rather than holding hard currency reserves that may lie idle. Over time, this can free up working capital, reduce the drag of idle balances, and allow smaller actors to operate with leaner capital structures.
Challenges, Risks, and the Road Ahead
Despite its promise, the COMESA digital platform will not be a panacea. Its success depends on harmonising regulation, aligning liquidity across currency corridors, and ensuring robust risk management.
One risk is exchange rate volatility. Even within the region, currencies may swing due to asymmetric macroeconomic shocks. The platform’s operators will need to manage liquidity buffers and hedging mechanisms to protect participants from undue risk.
Another issue is technological integration. National banking systems, central banks, and oversight frameworks vary widely among COMESA members. Ensuring low-latency connectivity, data security, and interoperability will demand continuous investment and coordination.
In addition, forex supply constraints in certain member states may limit net settlement flows. Some economies struggle to maintain foreign reserves; this new system will require mechanisms, perhaps via regional financial institutions or reserve pooling, to smooth settlement imbalances.
Regulatory alignment is also essential. KYC (Know Your Customer), AML (Anti-Money Laundering), and digital payments oversight must converge across borders. Differences in supervisory regimes or legal restrictions on capital flows can undermine seamless operation.
Finally, trust and adoption are critical. SMEs and larger firms must believe the system is reliable, fair, and cost-effective. Early pilot success and public reporting on costs, downtime, and arbitration will be vital to building confidence.
Ripple Effects: Regional Integration and Beyond
If successfully scaled, the COMESA digital payments initiative could catalyse deeper regional trade integration. As transaction costs fall and currency barriers ease, trade in goods and services across Eastern and Southern Africa is likely to increase—not just between major economies but among smaller neighbours.
This would strengthen supply chains, foster specialisation, and allow regional comparative advantages to manifest more efficiently. It may also help insulate member states from external currency shocks, as trade becomes more endogenous and less dollar-dependent.
Moreover, such a system could inspire similar efforts in other African regional blocs. The African Continental Free Trade Area (AfCFTA), for instance, has long fretted over the payments infrastructure to support continent-wide trade. COMESA’s experience may serve as a blueprint or proof point for scaling local-currency settlement across Africa.
In parallel, central banks and digital currency experiments are gaining momentum elsewhere. For example, Morocco’s central bank has begun exploring the deployment of a central bank digital currency for cross-border payments. Such innovations could, in time, intersect or dovetail with regional payments systems like COMESA’s.
Metrics to Watch
To judge whether COMESA’s platform achieves its ambitions, certain metrics will matter. One is the adoption rate, the volume and value of transactions flowing through the DRPP. Another is the average transaction cost, which should ideally remain under 3 percent. Monitoring downtime/latency is also essential; real-time settlement is only meaningful if reliability is high.
Forex imbalances in settlement corridors must be tracked, along with liquidity buffers held by clearing entities. The growth in cross-border SME transactions, firms previously constrained firms, will serve as a proxy for inclusivity. Finally, reporting and transparency (auditability, dispute resolution records) will build trust.
A Quiet Revolution in African Trade
COMESA’s Digital Retail Payments Platform is not simply a technical upgrade; it represents a potential shift in how African businesses transact. By freeing trade from the exclusive dominion of foreign currencies, the bloc is attempting to realign incentives, reduce costs, and empower smaller players. If managed astutely, it could reshape the landscape of regional commerce, strengthen integration, and offer a model for continental evolution.
That said, success is not guaranteed. The platform will face liquidity, regulatory, and technological hurdles. Its capacity to prove reliability and deliver cost reductions swiftly will be critical to winning over sceptics. But the ambition is bold, and the opportunity is real: a more fluid, local-currency trade ecosystem across Eastern and Southern Africa.
