AfDB Approves US$ 23 Million Grant for West African Monetary Zone Payment System Development Project
Tunis, 9 July 2008 – Efforts by the West African Monetary Institute (WAMI) to promote the creation of a single currency in the sub-region by standardizing the payment systems in The Gambia, Guinea and Sierra Leone, received strong support on Wednesday in Tunis where the Board of Directors of the African Development Fund (ADF), the concessional window of the African Development Bank (AfDB) Group, approved a grant of 14 million Units of Account (UA*), equivalent to US$ 23 million to finance part of the West African Monetary Zone (WAMZ) Payment System Development Project.
The project is an important regional financial infrastructural requirement for actualizing the WAMZ by upgrading the payment systems in the three countries to the same level as those in Ghana and Nigeria, with a view to facilitating the harmonization of the payment systems in five of the six member countries of WAMZ.
The main component of the project is the development of Real Time Gross Settlement (RTGS), a large value funds transfer system whereby financial intermediaries can settle inter-bank transfers continuously and in real time for their own account as well as the accounts of their customers in the three countries. The implementation of RTGS is expected to enhance the establishment of a West African Central Bank (WACB), which will, in turn, implement a regional RTGS system that will link the national RTGSs in its member countries in a "system of systems".
The zonal RTGS will facilitate the efficient and safe transfer of funds among WAMZ member countries thereby stimulating trade in goods and services and the free movement of capital within the Zone. It will also interface with SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) for sending and receiving payment messages. Apart from the RTGS, the project will assist the three countries to automate cheque processing, clearing house operations, the purchase and sale of government securities, and the upgrade of the backbone IT systems of their Central Banks.
The potential direct beneficiaries of the project include the central banks of the three countries, the commercial banks and other financial institutions, and government revenue agencies such as tax authorities and customs agencies. However, given the expected improvements in the efficiency of payments processing and funds transfers in the countries, the ultimate beneficiaries will be businesses and banking services users.
The efficiency and reliability to be brought to financial intermediation as a result of the upgrade of the national payment systems in the three countries would also encourage more people to move into the formal financial system. The project will also create an enabling environment for the private sector. As a regional public good, it will enhance integration and financial governance.
The estimated cost of the project is UA 17.56 million. The ADF grant accounts for 79.7% of the total cost. The central banks of the three countries will, together contribute UA 1.62 million or 9.2% of the project cost in local currency, while the estimated contribution of the commercial banks in the three countries is UA 1.9 million or 11.1%. The commercial banks’ contribution represents the investments that they will require to make in their respective offices in order for the new payment systems to operate effectively.
WAMZ was created in 2000 by The Gambia, Ghana, Guinea Nigeria, Sierra Leone, with the primary objective of promoting economic integration and trade in the zone. The goal was to create a single economic space in the Zone by December 2009 through the establishment of a monetary union and the adoption of a single currency. The establishment of WAMZ was in line with the broader goal of creating a single monetary zone in the whole of West Africa as proposed in the ECOWAS Monetary Cooperation Program (EMCP) adopted in 1987.
* 1 UA = US$ 1.644 = GMD 35.2396 = GNF 8283.20 = SLL 1.6445 in April 2008