• PAPSS to save Africa $5bn annually – Report

    Implementation of the African Continental Free Trade Area (AfCFTA) received a boost last week with the commercial launch of the Pan-African Payment and Settlement System (PAPSS) in Ghana.

    The platform established by African Export-Import Bank (Afreximbank) in conjunction with AfCFTA secretariat aims at saving Africa more than US$5 billion annually in payment transaction costs, while it plays an increasingly significant role in accelerating intra-African trade, the bank said.

    The collaboration had officially made the PAPSS available for African businesses operating on the continent on September 28, 2021. This followed a successful pilot phase in the countries of the West African Monetary Zone (WAMZ- Nigeria, Ghana, Liberia, Sierra Leone, The Gambia and Guinea (Conakry).

    The AfCFTA aims to bring together the 54 African countries to trade under a single market with liberalised tariffs and the elimination of the non-tariff barriers to cross-border trading.

    However, one of the problems which had hindered intra-African trade for a long time has been the reliance on third currencies- US dollars, Euros and the British Pounds for the clearing and settlement of cross-border payments and transactions which in turn leads to high costs and long transaction times.

    At the moment, 42 currencies are being spent on the continent and only a few of these currencies have any value outside the countries where they are legal tender. This situation has persisted due to the weak and volatile nature of these legal tenders.

    Before the PAPSS, a buyer in Nigeria who intends to buy goods from a seller in Botswana, for instance, will be required to pay the seller in a third currency from outside the continent- either US dollar, the Euros or the British Pounds, pay the extra charges to have the agreed sum processed and sent to the seller in Botswana and have to wait several days for transactions to clear.

    Aside from time constraints, the process of currency conversation adds to the cost of doing business and in reality, the money has to leave Africa before being sent back to Botswana. This had been the practice until the introduction of the PAPSS. The platform has been conceptualised as a tool to address this by significantly reducing the constraints being experienced in African regional trade payments.

    With the operationalisation of the PAPSS, the same business would only pay in Nigerian Naira for the goods, while the seller will receive Botswana Pula. The PAPSS serves as the clearing, processing and settlement agent in the transaction. In the end, it means that only the deficit between the two countries will be settled using the US dollar, Euros or the British Pounds.

    According to Afreximbank, whether for shopping, transferring money, paying salaries, dealing in stocks and shares or making high-value business transactions, the PAPSS real-time infrastructure provides a reliable, cost-effective answer for instant payments. It enables the efficient flow of money securely across African borders, thereby minimising risk and contributing to financial integration across the regions.

    In his remarks, President and Chairman of the Board of Directors of Afreximbank, Prof. Benedict Oramah, said, “We are eager to build upon the African Continental Free Trade Area’s creation of a single market throughout Africa, and PAPSS provides the state-of-the-art financial market infrastructure connecting African markets to each other, thereby enabling instant cross-border payments in respective local African currencies for cross-border trade.

    “Afreximbank as the main Settlement Agent for PAPSS, provides settlement guarantees on the payment system and overdraft facilities to all settlement agents, in partnership with Africa’s participating central banks.

    “PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade.”

    On his part, the AfCFTA Secretary General, Wamkele Mene appreciated the role and commitment of the continent’s Heads of States and Governments through the African Union, saying that their strong political will, continues to be the bedrock of progress towards a full implementation of AfCFTA that has now been strongly boosted with the commercial launch of the PAPSS.

    In his presentation, PAPSS CEO Mr. Mike Ogbalu emphasized that the payment system is not designed to compete with or replace existing payment systems, but to facilitate the connectivity level that brings all payments systems together into one network that is interoperable, efficient and affordable.
    He said, “PAPSS is designed to make our currencies regain value to domesticate intra-Africa payments in this journey towards African prosperity, while providing the superhighway which connects others to reach every part of this continent as we seek to create the Africa that We Want.”

    How it works

    The PAPSS works through a process whereby a trader or business issues a payment instruction to their local bank or payment service provider, then the bank or the payment service provider sends the instructions to PAPSS. After which, PAPSS validates the payment instruction and upon successful validation, PAPSS will forward the instruction to the beneficiary’s bank or payment service provider.

    The beneficiary’s bank or payment service provider will then pay the transferred funds, in local currency, to the beneficiary.

    To facilitate instant payments across African borders in local currency, PAPSS will support three core processes namely; Instant payment; whereby participants will no longer need to convert local currencies into hard currencies. Compliance, legal and sanctions checks are performed instantly within the system within 120 seconds; Pre-funding; whereby PAPSS guarantee the availability of funds to complete the originator’s transaction before effecting the movement of debits and credits between participants’ accounts; and Net settlement; whereby PAPSS determines net position in local currency for all participating central banks at the end of each day.

    PAPSS is also set to deliver harmonisation across the continent through its comprehensive legal, regulatory and operational framework comprising standardised rules, formats and governance arrangements, harmonised Know-Your-Customer and Anti-Money Laundering procedures, payment confirmation and settlement finality. A precondition for participation in PAPSS is compliance with its set rules and standards.

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