Has AfCFTA surmounted hurdle with PAPSS implementation?
“Let’s make the African market, the market of Africans.
Advertisement
Produce in Africa, transform in Africa and consume in Africa.
Let’s produce what we need and let’s consume what we produce instead of importing”― H.E. Thomas Sankara, President of Burkina Faso.
The AfCFTA aims to connect 55 African countries with a combined GDP of $3.4 trillion and has the potential to boost African exports by $560 billion and increase Africa’s income by $450 billion by 2035.
One of the major challenges is establishing a common payment system due to the diverse currencies and payment systems used across the continent.
To address this, the Pan African Payment and Settlement System (PAPSS) was created in collaboration with the African Export-Import Bank.
PAPSS works with central banks, commercial banks, payment service providers, and fintech organisations to offer a payment and settlement service.
While PAPSS is a significant step, there are other challenges to overcome, such as fragmented financial infrastructure, limited digital penetration and financial inclusion, currency conversion complexities, regulatory and compliance hurdles, cybersecurity concerns, and integration with existing systems.
Other Trending Stories
The competitiveness of some African economies is also a concern that may affect their inability to benefit from the AfCFTA’s trade opportunities.
What is PAPPS?
The Pan-African Payment and Settlement System is a platform that facilitates trade and payments within Africa.
It allows African countries to settle transactions using their local currencies instead of foreign currencies such as US Dollar, British Pound, or Euro.
By reducing transaction costs and currency risks associated with cross-border trade, PAPSS promotes the use of African currencies in trade settlements.
Additionally, the platform helps minimise risk and fosters financial integration across the regions.
Benefits
•Reduction in demand for foreign currency and its intended benefits:
PAPSS is a secure and efficient payment system that aims to streamline trade transactions in Africa, reducing the reliance on hard currencies such as the US dollar.
This will simplify cross-border trade in Africa and address the challenge of acquiring hard currency for SMEs.
It supports over 40 African currencies and is expected to reduce currency depreciation and inflation.
The PAPSS under AfCFTA brings significant benefits to the African banking sector and promotes economic growth in the region.
• Greater transparency and control: PAPSS is a system that enables instant transactions across Africa, providing central banks with improved transparency and control.
By implementing PAPSS, Africa can expect to benefit from the AfCFTA.
Advertisement
It is intended to collaborate with existing regional and national payment systems, aiming to integrate African economies for the benefit of all.
•Ease of payments
PAPSS provides a standardized payment infrastructure across African countries participating in AfCFTA. It promotes interoperability, making it easier to conduct transactions.
•Lower cost
PAPSS can contribute to cost reduction in trade activities by offering a single platform for payment and settlement, businesses can avoid multiple currency conversions and associated fees.
This can result in lower transaction costs, making trade more affordable and attractive for businesses within the AfCFTA.
•Financial inclusion
Advertisement
PAPSS has the potential to enhance financial inclusion within the AfCFTA region, enabling individuals and businesses to participate more actively in regional trade.
It can also play a vital role in strengthening economic integration among African countries, leading to increased intra-African trade and job creation.
•Implementation challenge:
The implementation of PAPSS across multiple African countries is complex and requires coordination, cooperation and investment from participating nations.
It must navigate through various regulatory frameworks and compliance requirements, as well as varying levels of technological infrastructure, regulatory frameworks, and financial systems in different countries.
Advertisement
• Limited access and adoption
PAPSS may face limited access and adoption in regions with low digital penetration and inadequate financial infrastructure.
In areas where internet connectivity and technological literacy are low, businesses and individuals may struggle to utilise the system effectively.
• Currency conversion
African countries use different currencies, and fluctuations in exchange rates can impact the cost and efficiency of transactions.
PAPSS needs to address currency conversion challenges to ensure cost-effective transactions.
• Dependency on a single system
As PAPSS becomes a central payment and settlement system within the AfCFTA, there is a risk of over-reliance on a single system.
Any disruptions or failures in the PAPSS infrastructure could have a significant impact on cross-border trade and financial activities.
Diversification and contingency plans should be considered to mitigate risks of over-reliance on PAPSS.
Conclusion
PAPSS contributes to the goals of the AfCFTA by facilitating trade, reducing costs, promoting financial inclusion and fostering economic integration.
To overcome implementation challenges, there should be a focus on capacity building, infrastructure development, financial inclusion initiatives, transparent exchange rates, currency hedging solutions, regular monitoring, maintenance, and upgrading of infrastructure, collaboration with cybersecurity experts and adherence to international best practices are needed.
E-mail: Bazumah@ecobank.com
The writer is a banker at Ecobank Ghana PLC.
E-mail: Bazumah@ecobank.com