PAN AFRICAN PAYMENT SYSTEM TO TRANSFORM BANKING IN AFRICA
WORDS: LESLEY VAN DUFFELEN
A significant increase in intra-African trade as well as savings of up to US$5 billion dollars annually (the cost of currency convertibility) is en route in Africa after the commercial launch of the Pan African Payments and Settlements System (PAPSS).
PAPSS makes it possible to pay for goods and services across the continent in any one of the national currencies almost instantly. This will transform Africa’s financial landscape and promote continental trade and financial integration.
Officially launching the commercial operations of PAPSS, at a high-profile function in Accra Ghana, vice president of the Republic of Ghana, Dr Mahamudu Bawumia, called on African Central Banks to connect payments to the system.
For Banks across the continent to benefit from the full potential of PAPSS, central bank governors need to accelerate the process of making sure that their respective national switches are connected to PAPSS, he stressed.
The system makes it possible for a South African chocolate manufacturer to buy Ghanaian cocoa butter using Rands to buy Cedis; a Senegalese to buy critical pharmaceuticals from Egypt using the CFA Franc to buy Egyptian Pound or even for airlines to convert monies stuck in various African countries to into their national currencies.
Among its benefits, the system would contribute to strengthening African currencies, make intra-African trade attractive thus creating employment, give African contractors in participating in infrastructure projects the edge and reduce
the foreign currency burden of the projects as well as improve liquidity in local stock exchanges.
Developed by the African Export-Import Bank (Afreximbank) and piloted in the West African Monetary Zone, PAPSS will now be rolled-out to all other African Union member states. Afreximbank will acts as the main settlement agent in partnership with participating African Central Banks.
Prof. Benedict O. Oramah, president of Afreximbank, said that, as trading under the African Continental Free Trade Agreement (AfCFTA) gained momentum, a functioning payment infrastructure that could integrate the disparate payment systems across the continent’s 55 countries, improve payment flows and reduce transaction costs, would become central to the growth of intra-African trade.
There are 42 national currencies on the continent. However, limited access to hard currencies required to transact across borders and current payment arrangements cost the continent about US$5 billion annually with intra-regional payments taking two to 14 days to complete.
“Why should we pay US$5 billion annually, more than the nominal GDP of more than 25 African countries, in clearing charges to non-African banks for Africa-to-Africa transactions?” asked Oramah, adding that PAPSS would begin to address these absurdities.
Wamkele Mene, Secretary General, AfCFTA Secretariat said that the payment and settlement system, a critical financial tool for boosting intra-Africa trade, would benefit SMMEs, young entrepreneurs and those trading across borders in Africa.
“After Afreximbank and the AfCFTA Secretariat have provided Heads of States with a progress report on PAPSS when they convene next month, it is our intention to rapidly roll out the platform across the entire continent,” he said.
PAPSS would form the foundation of a single monetary system for the continent and underpin an increase in intra African trade from the current 15% to 35% over the next five years, said African Development Bank, Vice President: Private Sector Infrastructure and Industrialisation Complex Solomon Quaynor.
Beyond making payments more efficient, the system will begin to strengthen African currencies and enhance their regional convertibility. It will also serve as an added tool for monetary policy management for most African countries.
To this end, Afreximbank plans to back the payment system with a $3 billion overdraft facility to African central banks and other direct participants. This facility will avail resources to central banks for settlements and clearing while bringing stability and predictability to external payment flows and current account management.
The Bank, through its Trade Facilitation Programme, is forging relationships with at least 500 African commercial banks, providing them with Confirmed Letters of Credit which it intends to grow from over US $2 billion currently to US$8 billion. This would represent the largest banking relationship ever forged by any financial institution on the continent. Presently over 480 banks have come on board.
It is also assisting central banks to upgrade and improve their payment infrastructure to meet the requirements of PAPSS. To-date, six central banks in West Africa have been assisted. As the system is rolled out to other regions, Afreximbank will work with the AfDB and others to enable all necessary upgrades.