New payment system launched to boost African trade

. Platform to save $5bn in fees

The Africa Export-Import Bank (Afreximbank), in collaboration with African Union (AU), and African Continental Free Trade Area (AfCFTA), yesterday, officially launched the Pan-African Payment and Settlement System (PAPSS).

PAPSS is a cross-border financial market infrastructure enabling payment transactions across Africa, bridging trade challenges in a continent with over 41 known currencies.

The payment system is expected to save the continent billions of dollars in annual transaction costs and bolster shipments in the world’s largest free-trade zone, according to Ghana’s Vice President Mahamudu Bawumia.

He added that PAPSS will also facilitate intra-regional trade and payments by enabling the real-time transfer of funds from one African country to another.

Bawumia said: “This is an African solution to an African problem and it’s the most practical and most important achievement in payment-system integration on the African continent since independence from colonial rule. It’s the closest the continent has come to the benefits of a common currency.”

Hitherto, traders have had to settle payments via U.S. and European banks and the new system is expected to save the continent about $5 billion in offshore clearance and transaction costs, according to its developer, the African Export-Import Bank (Afrexinbank).

As a percentage of total trade, intra-African trade is expected to increase to 35% from 15% in five years with infrastructure provided by PAPSS as payments and settlements are resolved.

Reduce third currencies

Also speaking at the launch yesterday, in Accra, Ghana, the Governor, Central Bank of Nigeria (CBN), Godwin Emefiele, said PAPSS will simplify cross-border transactions and reduce third currencies (dollars, pounds and euro) for intra-African trade.

He described PAPPS as a milestone that reflects collective efforts in building an infrastructure that enhances payment gateway across West Africa.

Emefiele said: “For example, businesses can be assured of an efficient and reliable payment gateway that supports the instant flow of funds and relatively the use of safe payment channels that usually comes at a high cost to households and businesses.

“Prior to the launch of PAPSS, settlements for intra-Africa trade required a third currency and a non-African correspondent bank. This resulted in an estimated loss of close to $5 billion annually and undermined trade in Africa countries.

“The launch of PAPPS gives the fresh opportunity and aspiration for the African continent. It will simplify cross-border transactions, reduce third currencies for intra-African transactions and remove the need for correspondent banks and ultimately amplify intra-trade significantly.”

“As a percentage of total trade, intra-African trade is expected to increase to 35% from 15% in five years with infrastructure provided by PAPSS as payments and settlements are resolved.

“With the growing pace of digitisation in financial services which has been accelerated from the onset of the COVID-19 pandemic, PAPSS can serve as a viable platform for supporting e-commerce in Africa.”

Emefiele equally assured that CBN would continue to facilitate the widespread adoption, acceptance and implementation of PAPSS.

“CBN will ensure the financial institutions under its jurisdiction accept PAPSS and recommend it to businesses across Nigeria,” he said.

Chief Executive Officer of PAPSS, Mike Ogbalu, said the platform is a strategy towards Africa’s self-reliance, thereby closing the gap in sharing borders and prosperity.

He said: “Our progress on this journey has as its guiding light a clear shared vision and unity of purpose. But this, like every journey, also requires critical infrastructure to accelerate the fundamental elements that will underpin a prosperous continent.

“Governments, businesses, and individuals consume goods and services, which they obtain in exchange for value. The fundamental means by which value is exchanged or traded is through payments.

“The more efficient payment systems are, the higher the velocity of value exchange and consequently, the higher the volume and value of trade and our subsequent prosperity.”

On his part, the Secretary-General, AfCFTA, Wamkele Mene, while commending the initiative, also agreed that PAPSS would enable Africa to reduce reliance on third currencies and boost intra-Africa trade.

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