The Pan African Payment and Settlement System (PAPSS) is set to transform the continent’s financial landscape, experts have said, amid revelations that Africa would save US$5bn annually in transaction costs.
The platform was developed by Afreximbank, which acts as the main Settlement Agent in partnership with participating African Central banks.
The implementation of the infrastructure is taking place in collaboration with the AfCFTA Secretariat with the endorsement of the African Union.
The commercial launch of the local currency settlement system was done in Accra, Ghana last week amid indications the platform would unlock intra-African cross border transactions through the provision of a single payment infrastructure that cuts through the existing challenges of local currency exchange and ensures instant payment of funds.
Afreximbank President Benedict Oramah described the settlement system as a “revolutionary and pathbreaking system that will transform Africa’s financial landscape and promote continental trade and financial integration”.
“Beyond making payments more efficient, the Pan-African payment and settlement system will begin to strengthen African currencies and enhance their regional convertibility. PAPSS will also serve as an added tool for monetary policy, management for most African countries,” he said.
The Cairo-headquartered bank will set aside a US$3bn overdraft facility to African central banks and other direct participants.
This facility will avail resources to the central banks for settlements and clearing while bringing stability and predictability to external payment flows and current account management, Oramah said.
He said a functioning payment infrastructure that can integrate the disparate payment systems across the 55 countries on the continent, improve payment flows and reduce transaction costs would become central to the growth of intra-African trade.
There are 42 national currencies on the continent and access to hard currencies required to transact across borders is limited and intra-regional payments take 2 to 14 days to complete.
Under PAPSS, payment will be completed within two minutes.
PAPSS chief executive Mike Ogbalu said a prosperous continent is a trading continent and one that builds and retains wealth from its goods and services.
The more efficient payment systems are, the higher the velocity of value exchange and consequently, the higher the volume and value of trade and subsequent prosperity, he said.
“At a continental level, establishing an efficient payment infrastructure that will facilitate transactions from Cape Town to Cairo and from Dakar to Dar es Salaam will go a long way to eliminate the artificial borders that have divided the continent and robbed us of our shared prosperity,” Ogbalu said.
He said the existing payment systems at national and sub-regional levels lacked interoperability and was fragmented hence cannot stimulate pan-African economic development and intra-African trade at the pace required to significantly increase the percentage of trade among African countries.
AfCFTA Secretariat secretary general Wamkele Mene said: “This project is a pioneering effort at achieving a pan African payments and settlements system which will enable Africa to reduce reliance on third currencies, and more importantly, it has the potential to significantly boost intra-Africa trade.”
The PAPSS was piloted successfully in six countries that make up the West African Monetary Zone—Nigeria, The Gambia, Sierra Leone, Guinea, Liberia and Ghana. It will be used in other regions of the continent.