AfCFTA-backed intra-African payment launched
A new system incorporating 12 banks in Africa has been launched to enable payment transactions and alleviate trade issues across the continent.
The African Continental Free Trade Area (AfCFTA) Secretariat, African Export-Import (Afrexim) Bank, and other partners launched the Pan-African Payment and Settlement System (PAPSS) on Thursday in a bid to boost the intra-African trade.
The move followed the successful piloting of the system in the six West African Monetary Zone countries including Ghana, Nigeria, The Gambia, Liberia, Guinea, and Sierra Leone.
Launching the system, Ghanaian Vice President Mahamudu Bawumia said the PAPSS would end Africa's dependence on third-party currencies to pay for transactions on the continent and help drive the intra-African trade to stimulate industrialization and promote sustainable and inclusive economic growth in Africa.
"This is an African solution for an African problem. It is the most practical and most important achievement in payment system integration on the continent since independence from colonial rule. This is the closest we have come as a continent towards the vision of issuing a common currency," he added.
The vice president lauded the vision of the AfCFTA secretariat and the Afrexim Bank in developing the system, saying it would benefit micro, small, and medium-scale enterprises, manufacturers, and exporters in the continent-wide trade zone of 1.2 billion people.
Bawumia urged the central banks across the continent to develop their national switches to facilitate the ease of access to the payment system and ensure seamless transfer of funds.
Wamkele Mene, the secretary-general of AfCFTA, said, "The commercial roll-out of the PAPSS today is timely and will boost intra-African trade significantly by making cross-border payments less reliant on third currencies. It will save the continent up to five billion U.S. dollars annually."
"With the implementation of AfCFTA, we shall see an increase in trade transactions in Africa. This development will, in turn, create the greater demand for cost-effective payment services, underpinning the important nexus between PAPSS and implementation of AfCFTA," he added.
Analysts expect African traders, especially those in West Africa, to take advantage of the platform as it will remove some trade obstacles.
Mr. Oramah, who is based in Cairo, Egypt, explains the hurdles faced by African traders in personal terms: “I want to transfer money to Nigeria from Egypt. It goes through a corresponding bank in a country outside of Africa before it arrives in Nigeria. I pay charges before the person in Nigeria gets it.
“And it takes time. Sometimes it takes weeks. So, we [Afreximbank] calculated how much that costs the continent—forget about the time—it costs Africans $5 billion yearly.
“Also, if I am in Egypt, and I want to watch my favorite Nollywood movies, I probably have to remit in US dollars. But the PAPSS changes that for you. All you need do is pay the Nigerian producer in Nigerian Naira.”
“I paid $30 as transfer fee, $35 as SWIFT charges and another $100 bank charges,” Mr. Adele told Africa Renewal. SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, a global network that processes international payments.
Mr. Adele did not attempt to use financial services companies such as Western Union or MoneyGram because the “exchange rate for those companies is just bad.”
The other option would have been to fly to Lagos, a three-hour journey, carrying the physical cash along. “I have done that a few times,” he said, “but it is not cost-effective unless it’s a huge amount, and it is risky.”
Traders across Africa experience similar ordeal paying for goods or services across borders. In the process they lose valuable time and money.
The CEO of PAPSS Mike Ogbalu says that during the piloting phase in West Africa, bank accounts in different countries were debited and credited within 10 seconds. He has assured of a robust technology that can handle large transactions.
How PAPSS works
Sending money using the PAPSS is a five-step process:
- The first step is when an individual issues a payment instruction to their local bank or payment service provider.
- Second, the bank or the payment service provider sends the instructions to PAPSS.
- Third, PAPSS validates the payment instruction.
- Fourth, upon successful validation, PAPSS will forward the instruction to the beneficiary’s bank or payment service provider.
- Lastly, the bank or payment service provide pays the transferred funds, in local currency, to the beneficiary.
In announcing the roll-out of PAPSS, Afreximbank says that by “simplifying cross-border transactions and reducing the dependency on hard currencies for these transactions, PAPSS is set to boost intra-African trade significantly.” Intra-African trade is currently at a meagerly 17 per cent.The PAPSS is also expected to lead to increases in value addition to products, jobs creation and more earnings for traders. Wamkele Mene, the Secretary-General of AfCFTA Secretariat, said PAPSS will lead to efficient cross-border trade transactions and put Africa on a new economic trajectory."There are 42 currencies in Africa. We want to make sure that a trader in Ghana can transfer Ghanaian cedi to a counterpart in Kenya who will receive Kenyan shillings," Mr. Mene told Africa Renewal.
Mr. Adele agrees that PAPSS will help his business. “If I can take the Leones to a bank here [in Sierra Leone] and pay for printing products in Nigeria, and the money is instantly deposited in the beneficiary’s account in Nigeria, that would be extraordinary,” he says.Until briefed by Africa Renewal, Mr. Adele was not aware of the PAPSS, underscoring the communication challenge of raising intra-African traders’ awareness about the platform.
Mr. Oramah notes, however, that a campaign is underway to market and promote the PAPSS, hoping that by the end of the year African traders will be informed enough to use the system.