On the 28th of September, 2021, the AfreximBank in conjunction with the African Continental Free Trade Area (AfCFTA) secretariat officially made the Pan-African Payment and Settlement System (PAPSS) available to be used by African businesses doing business on the continent. This follows 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 liberalized 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 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.
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. 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 minimizing risk and contributing to financial integration across the regions.
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 bank or payment service provider will then pay the transferred funds, in local currency, to the beneficiary. It is one of the five additional instruments that will support the operationalisation of the African Continental Free Trade Area (AfCFTA), the others being:
1) The Rules of origin, which would ensure that the products that are traded within the African market originate from within the continent to qualify them for tariff preferences;
2) An online portal for tariff negotiations, which is meant to facilitate the ongoing discussions between states, customs unions and the other regional economic groupings on the tariff liberalization;
3) An online mechanism for the monitoring, reporting and elimination of non-tariff barriers (NTBs); and
4) The African Trade Observatory, which will provide stakeholders with up-to-date and reliable trade data, as well as information about exporters and importers in African countries.