The Cash Challenge in Africa: why payroll is more complex in Africa

Cash Challenge in African Payroll

Payroll is, by design, not the simplest of processes.

And in Africa’s budding economies in particular, immature financial infrastructures and a variety of region-specific hurdles make payroll payments that much harder for foreign employers.

It’s not only payroll that is affected, cross-border payments, currency exchange rate, and even compliance are thrown off course by local economies’ singularities.

This article will help you anticipate these issues and find payroll and payment solutions that best suit your company’s growth objectives.

Hurdle #1: The Cash Challenge in Africa

The most basic payroll activities in Africa are met with some unique challenges:

  1. 45% of the population aged 15+ in Sub-Saharan Africa did not have a bank account in 2021, according to the World Bank. This slow uptake has shaped the financial landscape so that cash payments remain the norm in Africa, accounting for up to 90% of transactions. As such, without access to rapid and safe bank transfers, salary payments must be made manually. This poses security risks, miscalculation risks, transparency issues, and takes up more of your employees’ time.

 

2. Many payroll managers have difficulty identifying employees for payment.
This is especially true in the case of those workers who hold unskilled or informal roles and are paid in cash.

 

3. Making payments to the right person can be more difficult than you expect.
It is normal for workers to send their brothers, cousins, or other family members to collect their pay. When relatives are involved, payroll teams have a hard time ensuring that the correct amounts are paid to the right employees. From there, your payroll employees must spend more time and company resources rectifying these mistakes.

Cryptocurrency and digital wallets

It’s interesting to note that while Africa is still struggling with cash in hand, it is also soaring in terms of novel payment methods.

A study by McKinsey indicates that Africa is not only part of the digital payment movement, but in some cases, the continent has also been at the forefront of it. The same study also states that revenues from the domestic e-payments business in Africa are anticipated to increase by roughly 20 percent annually and reach about $40 billion by 2025.

Ukheshe, a leading fintech enablement partner with an expanding footprint in key emerging markets globally, has contributed towards digital payment through its ingenious use of digital wallets. With a legacy in enterprise platform delivery of Banking as a Service, Ukheshe connects businesses with payment technologies that are scalable and can be built on already existing legacy infrastructure.

Striving for transformation and innovation in the payments industry Ukheshe creates and adapts services, like digital wallets, that are suited to the needs of each market.

A digital wallet, sometimes referred to as an e-wallet or mobile wallet, is a software-based application or tool that allows users to store, manage, and transact various forms of digital currency or financial assets securely. They operate on various devices such as smartphones and tablets, and use encryption techniques to ensure the security of the stored information and transactions.

Digital wallets work by leveraging a combination of software and encryption protocols to securely store and manage various forms of digital currency and financial assets. When a user sets up a digital wallet, it creates a unique identification or address associated with that wallet. This address serves as a virtual location where the user’s assets are stored on the blockchain or within the wallet’s secure database. When a user initiates a transaction, such as making a purchase online, the digital wallet uses cryptographic techniques to generate a unique digital signature. This signature serves as proof of authorisation for the transaction. This process ensures that only the owner of the wallet can access and authorise the movement of assets.

Digital wallets offer significant value and benefits in the realm of finance. They streamline transactions, providing a convenient and secure way to manage digital assets. Users can make online purchases, conduct peer-to-peer transfers, pay bills, and even store loyalty points and boarding passes, all within a single application. This versatility enhances the efficiency of financial interactions while also contributing to financial inclusion by overcoming traditional barriers.

Mark Dankworth, President of Business Development Middle East and Africa at Ukheshe, says that as regulated entities, banks play a critical role in processing funds, which then flow into digital wallets where fintechs are best positioned to provide digital services. “There is scope to offer even more functionality and convenience that answer specific market challenges and pain points, including bill payments, airtime top-ups, or public transport payments, among others. By providing incentives for users to keep their funds in these wallets and use them for digital payments, the adoption of digital payments can increase rapidly and reduce the reliance on cash on the continent.”

Hurdle #2: Transparency, AML & KYC

All across the world, companies are required to abide by AML and KYC standards to ward off money laundering and fraud dangers. Ensuring compliance in international transactions in a majorly cash-based region such as Africa is made more difficult because of the cash economy most African countries have. 

This is because cash-based transfers are commonplace but hard to keep track of, making your company less transparent financially.

As such, many African nations should be regarded as having a high risk of non-compliance with AML and KYC regulations. Consequently, companies should pay even more attention to AML and KYC compliance in African countries.

Hurdle #3: Immature banking infrastructure

While there are some definite outliers such as South Africa and Nigeria, most African economies have still-budding banking infrastructures. For payroll and payments in general, this developing status can mean that:

  1. Local banks have fewer branches than what would be considered practical
  2. Employees don’t have access to ATMs
  3. Transaction time is slow, spanning over a few days or weeks

Evidently, this volatile system is not ideal for employers looking for a reliable way to pay their workers.

Hurdle #4: The cost of cross-border payments

$5 billion.

This is the amount that Africans pay in charges for money transfers and trades done through correspondent banks, according to Afreximbank (Africa Import Export Bank).

The cost of cross-border payments can be extreme in Africa, for several reasons.

Chief of them is the need to convert to and from US dollars – this automatically brings up the cost of the transaction. For example, Ghana depends on commerce in US dollars and other foreign currencies because its Cedi prevents it from accepting adjacent Nigeria’s Naira.

These costs can go even further up if the transaction happens between the banks of 2 countries that don’t convert to the same currency. Some anglophone African countries for example, will convert their local currency to US dollars. Francophone African countries may, instead, convert to Euros, further complicating the process and bringing up costs.

Hurdle #5: Currency fluctuations

African currencies tend to be volatile. Take the Nigerian Naira for instance: in 2019, the exchange rate was N298/$1. In 2021, it was N366/$1, by end of 2022, the Naira’s value went further down, with the exchange rate increasing to N433/$1. On June 5th of 2023, the Naira was valued at N456/$1 and then skyrocketed to a whopping N769/$1 on June 19.

All these changes lead to significant inconsistencies when making payments from country to country, further complicating the process.

Hurdle #6: Complexities of compliance

Africa is an intricate mix of countries and cultures, each with its unique set of laws governing labor, taxation, and currency exchange regulations.

As an organization operating internationally, you may find compliance with local regulations to be a difficult and resource-intensive process – especially given the developing nature of the financial landscape in many African countries.

Unfortunately, anything less than 100% compliance could get you sanctioned by the local authorities. Sanctions include hefty fines and a damaged employer reputation.

How can you overcome these hurdles?

Faced with the complexity of financial transactions in Africa, the safest and most beneficial solution for your business would be to outsource payroll and cross-border payments to an expert.

This way, you can rest at ease knowing that you are at no risk of non-compliance, and that you are not paying extreme charges for banking transactions in the continent.

Africa HR Solutions can be the payroll and payment partner you need in Africa. Present in over 50 African countries, our well-established network of partners and knowledge of each country make payroll and cross-border payments a breeze.

Ready to find out more about our payroll and cross-border payment services? Get in touch with one of our team members today!

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GRANT GERAGHTY - Africa HR Team

GRANT GERAGHTY

HEAD OF CLIENT RELATIONSHIP

Grant Geraghty is the longest-serving member of the Africa HR team. This resident subject matter expert and client champion is responsible for gaining a deep understanding of our clients’ unique HR needs in Africa and providing tailored solutions that align with their business objectives. Grant collaborates closely with our clients to ensure that their requirements are properly implemented, providing ongoing support and guidance throughout the process.

Grant brings a wealth of experience to his role, having served as Africa HR’s longest-serving employee. He holds a Bachelor of Commerce degree, with a major in Economics and Business Finance, from the University of Natal in South Africa. Additionally, he has completed a certification program in Payroll and Tax Administration from the University of Cape Town, further enhancing his expertise in HR operations and compliance.

His commitment to delivering exceptional service and his extensive knowledge of HR in Africa make him an invaluable member of the Africa HR team.

KEVINA TAKOORDYAL Africa HR Team

KEVINA TAKOORDYAL

HEAD OF OPERATIONS

Kevina Takoordyal has a BA Hons Business Management from the University of Glamorgan, UK, with MBA in leadership and Innovation, MBA General, PMP Certified, and Agile Scrum Master. She currently works as the Head of Operations at Africa HR Solutions Ltd with more than 20 years of proven leadership capabilities in Operations, Business Development, People Management, Process Optimization, and Project Management in the Financial Services, BPO, Banking Industry, and Heath Care Industry. In Senior leadership roles with an international footprint across Europe working and extensive Pan- African experience from a compliance, finance, and operations angle, Kevina comes across with a panoply of cross-functional skills. Kevina also serves on a few Boards, Non-Independent Executive at MioD and for NGOs on a voluntary basis, a coach and mentor to aspiring female leaders across Africa and Mauritius.

Kevina is a firm believer in Servant Leadership with a strong focus and commitment to uplifting others, with the ability to deliver through a highly engaged – diverse team, and works towards consistently synergistic value creation. While being a focused and adaptive thinker and Kevina is actively participating in panel discussions on Innovation, CX, Digital transformation.

Kevina serves as Project Assessor for the National Youth upskilling program. She has been recognized as Global Talent in a few companies, Ceridian, and International SOS Ltd whereby she has been awarded a few scholarships and had the opportunity to be mentored by Senior Vice President in the US. Award Winner in various fields and at a national level and recognized including Super Achiever Leader Award in Africa in 2016, Awarded Africa Women Leader 2018.

VILOSHNA PACKIRY POULLE​

VILOSHNA PACKIRY POULLE

Head of Finance & Business Support

Viloshna is an experienced finance professional with 18 years of expertise in strategic financial planning, financial analysis, cash flow management, systems and controls implementation, financial reporting, and continuous process improvements. She currently serves as Head of Finance & Business Support, where she has successfully automated and leveraged the financial reporting system capabilities to ensure efficient company operations.

Viloshna’s background includes senior roles in a multinational pharmaceutical company and a large listed Mauritian conglomerate. Her meticulous attention to detail and strategic thinking have streamlined financial processes, making her a valuable addition to any finance team. Viloshna is a qualified finance professional with an FCCA qualification and an MBA, bringing valuable expertise to any organization.

In her current role, Viloshna leads the company’s Treasury and Payments function, including the fulfillment of the company’s cross-border payments into Africa. With her strong educational background and extensive experience, Viloshna consistently demonstrates her ability to optimize financial operations, minimize risks, and improve profitability. Her expertise in financial reporting and process improvements make her a valuable asset to any organization.

MARK DU PREEZ​

MARK DU PREEZ

Head of Legal & Compliance

A qualified lawyer who joined Africa HR Solutions in July 2020, Mark Du Preez has experience working in private practice for a reputable law firm in South Africa. He also played commercially focused roles at a leading private bank, wealth management company, and outsourcing firm in South Africa and Mauritius.

Mark has played a pivotal role in Africa HR Solution’s risk mitigation strategy, which positively impacted P&L performance over the years.

He currently leads the Partnerships function of the company including relationships and oversight with in-country partners (ICPs) across Africa.

Alex Daruty - Africa HR Team

ALEX DARUTY

Head of Commercial

Alex has more than 15 years of experience in the global, strategic development of both enterprise and consumer brands in categories including technology, transport, enterprise software, entertainment, and travel.

With experience in roles on both agency and corporate side, he has worked across international brands and has led the development and execution of multi-discipline campaigns across EMEA, NORAM and Asia Pacific.

His focus is on driving meaningful business impact through brand differentiation and building high-functioning, digitally oriented, and analytically driven capabilities. He is motivated by working with, and developing dynamic people, teams, and organizations.

He leads, manages, develops and mentors the Key Account Management department, including line management responsibility for the team of Key Account Managers and Key Account Administrator who represent the Company as the primary communication link between all relevant stakeholders, including clients, third party in-country partners and internal functions.

Originally from Mauritius, he holds bachelor’s degrees in International Business, Finance and Management from the University of Nevada, Reno.