The rollout of the of the Pan African Payment and Settlement System (PAPSS) could save the African continent at least US$5bn annually in payment transactional cost.
The platform, developed by Afreximbank, which is the main settlement agent in partnership with participating central banks, will be used to for the processing, clearing and settling of intra African trade and commerce payments , leveraging on the infrastructure to enable instant cross-border payments in local currencies between African markets.
The development is expected to boost African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) that came into force early this year as it would simplify cross border transactions and reduces hard currency dependency.
ACFTA Secretariat secretary general Wamkele Mene said the introduction of PAPSS provides Africa with greater capacity to conduct cross border transactions thereby ushering in a new phase in the African economic trajectory.
“If you are in Kenya and you are transacting with somebody in Nigeria you first have to convert the Kenyan shillings into the US dollar you then transfer the funds, your counterpart in Nigeria receives US dollars then they convert the US dollar to a Nigerian naira. I can imagine when this is happening throughout the continent, it comes to about US$5bn on the cost of currency convertibility in our continent.
“So this payments and settlements system, when you are transacting under AfCFTA you will be able to use this digital platform to reduce the cost of currency convertibility and to ensure efficiency of your transaction as they receive the funds instantaneously, no time lag and will receive and transact in their local currency,” said Mene who was in Zimbabwe last week where he met President Emmerson Mnangagwa.
He said Afreximbank is mobilising US$1bn trade finance funds so that those who are exporting under the AfCFTA get the support that they require to develop finance institutions.
The AfCFTA boss said this is an example of the practical steps being taken to ensure that AfCFTA becomes a trading instrument that even the small to medium enterprise can benefit from.
“It is a very important innovation to make our small to medium enterprises more competitive because you are reducing administrative burden and will make Africa more competitive and efficient. These are some of the pointers of tools that are going to be at traders’ disposal so that they can trade seamlessly under this agreement.
“We spoke about what we call the Africa trade gateway which is a digital tool that will have marketing information, due diligence information that will be provided by the market about a particular business sector you want to do business with,” Mene said.
The payment settlement system is being tested in six countries which include Nigeria, Liberia and Sierra Leone among others.
The move to boost trade comes at a time when the government’s National Development Strategy has some of the objectives which are aligned to African Union’s Agenda 2063.
Mene said AfCFTA offers export opportunities outside the SADC region and the trade bloc has a market of 1.3bn people and a combined gross domestic product of US$3.4tn.