Chronicle Editor
Sikhulekelani Moyo, [email protected]
AFRICAN Continental Free Trade Area (AfCFTA) Secretariat and the African Export and Import Bank (Afreximbank) have created the Pan-African Payment Settlement System (PAPSS), which allows for instantaneous cross-border payments in local currency.
This development will allow real-time settlements of intra-African trade and payments in African currencies across the continent.
In an article in the February newsletter, Zimtrade said PAPSS supports the AfCFTA accord and it formalises informal cross-border trade.
“Imagine a centralised platform for payments and settlements related to intra-African trade! Historically, conducting business in Africa has been a challenge because of issues with making and clearing cross-border payments.
“Payments are made in denominated foreign currencies, United States dollar, GBP or Euro and take a long time to process. Also, they are costly because the current financial system requires using correspondent banks,” reads the article.
“For this reason, the AfCFTA Secretariat and the Afreximbank created the Pan-African Payment Settlement System (PAPSS), which allows for instantaneous cross-border payments in local currency.”
The goal of this platform is to promote trade and commerce between corporate and retail clients.
By uniting central banks from across Africa, PAPSS seeks to address the existing challenges faced by African businesses and individuals in accessing efficient and cost-effective cross-border payment services.
Thus, revolutionise cross-border payments, making them faster, cheaper, and more secure than ever before.
“In terms of outlook, PAPSS will address the challenges and facilitate intra-African trade by providing an alternative to the current expensive and lengthy correspondent banking relationships, through a simple, low-cost, and risk-controlled instant payment clearing and settlement system.
“By using the system, corporates, small businesses, and individuals will have access to instant/near-instant payments for cross-border transactions without currency conversion hassles,” they said.
“The users of the system will also be able to fund their trade obligations as against the current fragmented client’s foreign exchange purchase model”.
For financial intermediaries (banks and payment service providers), the system simplifies the process and reduces the costs and complexities of foreign exchange for cross-border transactions between African markets.
Furthermore, for Governments and Central Banks, the system removes the dependencies on third currencies and correspondent banking thereby facilitating intra-African trade.
This eases pressure on current accounts and demands for foreign exchange liquidity.
Regarding rollout, PAPSS has steadily expanded its footprint in Africa, establishing itself in four regions.
“This network includes 13 central banks, with six in the West African Monetary Zone (Nigeria, Ghana, Guinea, Gambia, Liberia, and Sierra Leone), three in East Africa (Kenya, Rwanda, and Djibouti), three in Southern Africa (Zimbabwe, Zambia, and Malawi), and one in North Africa (Tunisia).
“This payment system brings together a network of central banks, commercial banks, payment service providers, and other financial intermediaries, fostering economic benefits by simplifying the payment landscape across the African continent,” read the article.
The overall aims of AfCFTA are to increase socioeconomic development, reduce poverty, and make Africa more competitive in the global economy.
On January 13, 2022, the AfCFTA took a major step towards its objective with the establishment of the PAPSS.
Bongani Ndlovu
Online Reporter