A month since the Russian invasion of Ukraine, one of the effects of Western sanctions on Russia is the negative effects it has had on the Russian economy, especially it service sector which showed its reliance on the Western finance systems and many others.
This should come as a lesson to the Global south especially Africa, which has created the need to build alternative systems of finance to enable the African Continental Free Trade Area and other economic unions in Africa to flourish.
This comes after sanctions were imposed on Russia by the West is pushing global firms to consider the nature of their business with Russian clients. One major theme of the sanctions were global finance firms shutting off Russia, including Visa and MasterCard announcing that they halted operations in Russia forcing several Russian banks to look for alternative means to push transactions.
A total of seven Russian banks will be excluded from the SWIFT financial-messaging system, including; VTB Bank PJSC, Bank Rossiya, Bank Otkritie, Novikombank, Promsvyazbank PJSC, Sovcombank PJSC and VEB.RF
Prince Nwafuru, Nairametrics columnist and International Trade Lawyer warns that Africa needs a level of economic independence, citing that proposed plans including PAPSS should be accompanied by deliberate policy to industrialize and create value chains on the continent.
This should be a wake-up call for African leaders that reliance on western capacity for trade can be taken anytime from us, and also the need for further integration of the Pan-African Payment and Settlement System (PAPSS), which is expected to eliminate the need for dollars in intra-African trade.
Nwafuru, also a partner at the Law Suite LLP, a Lagos based commercial law firm says that the introduction of the Pan-African Payment and Settlement System (PAPSS) will help Africa to actualize the dream of an integrated market.
“Beyond the fear of sanctions, African countries are going to face the impact of the ongoing war in Ukraine for several other reasons. For one, most African countries are import-dependent and are subject to the vagaries in the international market occasioned by the war.
“On the issue of sanction, it goes without saying that any African countries that that is seen to be sympathetic to Russia may face a very cold treatment from the West. Even China is playing safe in this regard despite being the second biggest economy in the world,” he said.
He warns that PAPSS alone will not do the magic if Africa continues to rely on importations and finished products and services from outside the continent to drive its economy.
He said, “To give us that level of economic independence, PAPSS should be accompanied by deliberate policy to industrialize and create value chains on the continent”
He urged that one critical lesson from the ongoing conflict is that Africa will continue to be the proverbial grass that suffers when two elephants fight unless we start addressing our problems internally.
“I cannot emphasize enough the need for African focused solution that makes us less dependent on the West. While no region or continent can exist in isolation, our challenges appear more peculiar and obvious because of the factors I have identified earlier,” he said.
Africa must learn that deliberate policy direction must be taken to properly insulate itself, in the worst-case scenario, the implementation of the AfCFTA and Pan-African Payment and Settlement System (PAPSS) are good measures, but will also require extra oversight and supporting functions to facilitate open sky agreements and tariff-free trade.
Earlier this year, Secretary-General of AfCFTA, H.E Wamkele Mene said the Pan-African Payment & Settlement System (PAPSS) is expected to boost intra-African trade and save the continent $5 billion annually, adding that it would boost intra-Africa trade as cross-border payments will become less reliant on third currencies. Implementation of such policies is beneficial towards placing Africa away from external control of financial systems.