Parties seal deal on cross-border payments system

Tapiwanashe Mangwiro

The Pan African Payment and Settlement System (PAPSS) and the African Stock Exchanges Association (ASEA) signed an agreement to enhance collaboration and cooperation in promoting cross-border payments of capital markets infrastructure in Africa.

In a statement PAPSS said the agreement was reached during the ASEA 2023 Building African Financial Markets Seminar held in Victoria Falls, Zimbabwe, which brought together Stock Exchanges and capital markets stakeholders from across Africa to discuss ways to deepen integration and connectivity of African capital markets.

“For a long time, investors doing business in Africa have struggled with making and settling cross-border payments. “Payments take a long time to complete, are expensive since the existing environment necessitates the use of correspondent banks outside of the continent, and are done in foreign currencies (USD or Euro),” the statement read.

It was because of this that the African Export and Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) Secretariat developed PAPSS, which enables instant cross-border payment in local currency.

PAPSS added that, “Through the umbrella of ASEA, with 9 exchanges and a combined market capitalisation of US$1,5 trillion, PAPSS provides an opportunity as the payment system to further enhance the African Exchanges Linkage Project (AELP), a flagship project of ASEA to facilitate cross-border trading of securities in Africa.”

PAPSS has started a period of fast deployment of its system throughout all African nations, having already gone live in the countries comprising the West African Monetary Zone (WAMZ), namely Nigeria, Ghana, Liberia, Gambia, and Guinea.

Zimbabwe, Zambia, and Djibouti have recently joined the network and will soon be operational.

“This partnership with ASEA will also facilitate the deployment of PAPSS across the ASEA member nations,” the statement stated.

Economist Dr. Prosper Chitambara said that in 2020, the World Bank found that the implementation of the zone could boost African exports by US$560 billion and generate US$450 billion more in income by 2035.

“Out of the US$450 billion, US$292 billion would come from easier trade facilitation, including reduced red tape, the simplification of customs procedures and greater integration into global supply chains,” he said.

Another economist Prof. Tony Hawkins said, “The introduction of PAPSS provides Africa with greater capacity to conduct cross-border transactions and expand the scale of both active and latent opportunities for enhanced intra-African trade.”

He added that volatilities of currencies, the cost and risk of holding liquidity in African currencies, and the relative small volumes of the transactions, imply that an African nation sending money to another therefore has to first exchange its currency to the dollar and then swap back to the currency of the receiving country to complete a transaction.

“This has been very costly to Africa, with an estimated incremental cost US$5 billion per year in inter-African trade,” he concluded.

Commenting on the signing, the chief executive of PAPSS, Mr. Mike Ogbalu III, said, “PAPSS supports a wide variety of use cases, including cross-border retail and trade transactions for individuals and corporations and cross-border investments with the African Stock Exchanges.

“Consequently, working with ASEA, which pioneered the AELP with cross-border securities trading as a central tenet, is a significant step towards the rollout of PAPSS throughout the continent.”

According to the chief executive, this partnership is a demonstration of the continent’s commitment to driving trade flows and economic growth across Africa and through this collaboration, they aim to create a reliable and efficient payment system that will enable investors to easily trade across different stock exchanges on the continent.

“Our immediate task is to create a workforce between PAPSS and ASEA as soon as possible to identify ways to facilitate the transfer of funds across ASEA member African stock exchanges.

“To that end, I’d like to extend an invitation to the relevant capital markets stakeholders to join us in this ground-breaking venture for the African business and investment communities,” he added.

Banker Raymond Mushore noted that the continent should push for fintech to lead this development as more countries sign up. He also added that the continent should also lead the fight against money laundering as the pie gets bigger.

Mushore said, “As fintech players innovate and solve the problem of inter-African cross-border payments, it is important that a high level of compliance with Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regulations is adopted to build and sustain the confidence of regulators and the general public.”

He added that a key admonition of regulators to fintechs in Africa is that as we scale up and move volumes of transactions previously associated with traditional banks, we must raise our compliance standards in tandem with our size and systemic importance.

PAPSS is unwavering in its dedication to fostering the growth of a thriving payment ecosystem and encouraging the development of new solutions for the economic advancement of the African continent and its people.