In a major step towards simplifying trading across the African continent, the Africa Export-Import Bank (Afreximbank) has added 11 African central banks to its Pan-African Payment and Settlement System (PAPSS), with plans to onboard the rest by the end of next year.
PAPSS is designed to streamline cross-border transactions, reduce costs, and promote intra-African trade. The system is expected to improve the efficiency of trading across the continent and unlock the potential of intra-African trade which currently accounts for only 15 per cent of total trade on the continent.
In an interview with CNBC Africa, John Bosco Sebabi, the deputy CEO of PAPSS, commented on the importance of easy payments for efficient trade, saying, “Trade goes well where payments can be made easily”.
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The current routing of African payments through Europe or the United States is not only time-consuming and expensive, but also limits the continent’s ability to realize its full potential in terms of trade. The Afreximbank estimates that the cost of these third-party transactions amounts to $5 billion annually in fees and compliance costs. It noted that PAPSS aims to address these challenges by providing a direct, efficient, and cost-effective payment system that will facilitate trade and encourage intra-African trade. By eliminating the need for a third-party currency, PAPSS will also increase the use of local currencies and promote financial stability.
The PAPSS system includes a variety of participants, each playing a crucial role in its operation. Central banks act as regulators and clearance agents, providing oversight and ensuring the smooth functioning of the system. Commercial banks and fintech companies facilitate payments, while payment service providers ensure that businesses and customers can use the system to send and receive payments. Together, these participants create a robust and efficient system that will boost intra-African trade and benefit the continent as a whole.
In his comments, Sebabi stressed that PAPSS is not designed to exclude the U.S. dollar, but rather to make payments easier and more efficient for businesses and individuals.
“The issue here is not the exclusion of the U.S dollar but to be able to ease this. For those in Zimbabwe or Rwanda, for example, PAPSS will debit their accounts in Zim dollars, credit their accounts in Rwanda francs and then the central banks work it out in any currency convenient to them,’’ he said.
The deputy CEO of PAPSS noted that the system is already in use by 81 commercial banks in West Africa, which highlights its potential for advancing intra-African trade. He also pointed out that so far, 81 commercial banks have been integrated, mostly from the West African monetary zone.