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AfCFTA: How PAPSS’ll facilitate cross-border payments
24th February 2022The Pan-African payment and settlement System (PAPSS) platform was officially launched for commercial use on January 13, 2022, in Ghana following operational roll-out of the platform on September 28, 2021.
The Afreximbank, in conjunction with the African Continental Free Trade Area (AfCFTA) secretariat have officially made PAPSS available to be used by African businesses on the continent. This followed a successful pilot phase in the countries of the West African Monetary Zone (WAMZ)- Nigeria, Ghana, Liberia, Sierra Leone, The Gambia and Guinea (Conakry).
PAPSS is a pan-African payments and settlement infrastructure for intra-African commerce that was developed by the AfCFTA in collaboration with Afreximbank, to facilitate instant cross-border payments and address the informality of cross-border trade within Africa.
While the PAPSS governing council chaired by Nigeria’s Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, and the PAPSS management board chaired by Benedict Oramah have expressed optimism on the prospects of the platform for Africa, a clearer understanding of the system could generate buy-in from traders and investors in Africa.
The CBN has urged financial institutions in Nigeria to accept the cross-border payments and settlement system, stating that PAPSS would help in the growth of e-commerce and can reduce the losses financial institutions make when they have to settle intra-African transactions with third currencies like the dollar.
The CBN hopes that financial institutions and businesses that wish to take advantage of PAPSS will adhere to its guidelines on the operations of PAPSS in Nigeria which was released on October 11, 2021.
In Africa, various barriers plague the payment systems of countries such as lack of infrastructure, regulatory requirements and others. With the PAPSS, these barriers can fall away and if implemented properly, it can revolutionise the way the continent trades.
The Secretary-General of the AfCFTA, Wamekele Mene, said PAPSS will enable Africa to reduce reliance on third currencies and more importantly, it has the potential to significantly boost intra-Africa trade.
The reduction of reliance on hard currencies (such as the USD, GBP, EUR) is a core value proposition of PAPSS, as transactions initiated in the local currency of the origin country will be received in the local currency of the beneficiary country within Africa (currently limited to Afrexim member countries). Also, it involves Real-Time Gross Settlement (RTGS), which enables instant payments.
The introduction of the PAPSS will also mean other African countries will hold and demand other African currencies, which will increase demand for the more industrial and output-driven nations. Everyone anticipates the initiative will address other trade impediments, such as ports congestion, poor infrastructure and high transportation costs, as they are equally imperative.
However, one of the problems which had hindered intra-African trade for a long time has been the reliance on third currencies- US dollars, Euros and the British Pounds for the clearing and settlement of cross-border payments and transactions which in turn leads to high costs and long transaction times. At the moment, 42 currencies are being spent on the continent and only a few of these currencies have any value outside the countries where they are legal tender. This situation has persisted due to the weak and volatile nature of these legal tenders.
The PAPSS serves as the clearing, processing and settlement agent in the transaction. In the end, it means that only the deficit between the two countries will be settled using the US dollar, Euros or the British Pounds. Whether for shopping, transferring money, paying salaries, dealing in stocks and shares or making high-value business transactions, the PAPSS real-time infrastructure provides a reliable, cost-effective answer for instant payments. It enables efficient flow of money securely across African borders, thereby minimising risk and contributing to financial integration across the regions.
The PAPSS works through a process whereby a trader or business issues a payment instruction to their local bank or payment service provider, then the bank or the payment service provider sends the instructions to PAPSS. After which, PAPSS validates the payment instruction and upon successful validation, PAPSS will forward the instruction to the beneficiary’s bank or payment service provider. The beneficiary bank or payment service provider will then pay the transferred funds, in local currency, to the beneficiary.
According to Afreximbank’s President, Oramah, the PAPSS has been designed to domesticate intra-regional payments thereby saving the continent more than US$5billion in payment transaction costs per annum, formalise a significant proportion of the estimated US $50billion of informal intra-African trade and above all, contribute in boosting intra-African trade.
Managing Director/Regional Executive, Ecobank Nigeria, Patrick Akinwuntan described PAPSS as a critical enabler for intra Africa trade. He said the new payment method will serve as a backbone through which all the countries in Africa are able to actualise transactions done within the free trade area, adding that it will also create employment, wealth and deliver values to exporters on the continent.
“This common payment platform will enable Africa move intra trade from the current 16percent, representing $70 billion to the range of 50-55percent in the next two to three years. This is huge because we could be talking about $300 billion intra African trade close to 15percent of Africa’s GDP. Besides, PAPSS will also eliminate payment delays, third party currencies as well as benefit households, small businesses, and financial institutions. This is positive developments for intra Africa trade. It is a step in the right direction. It will promote cross border trade for African exporters, liberalise payments and will deliver payment that delivers value. Africa is here for real business. Africa is ready. Let’s go for it,” he said.
Mike Ogbalu, Chief Executive Officer, PAPSS emphasised that the payment system was not designed to compete with or replace existing payment systems. He said it would facilitate the connectivity level that brings all payments systems together into one network that is interoperable, efficient and affordable. “PAPSS is designed to make our currencies regain value to domesticate intra-Africa payments in this journey toward African prosperity. This is done while providing the superhighway which connects others to reach every part of this continent as we seek to create the Africa that we want.”
According to Jani Ibrahim, second deputy president of NACCIMA, PAPSS initiated by Afrexim is a welcome development to further facilitate the growth of AfCFTA. It will particularly support MSMEs development rapidly across the Continent. We remain optimistic for its adoption across board.”
The Consulate General of Ghana to Lagos, Samata Bukari said “the continent needs a common currency, it must not be the dollar, to boost the intra trade.”