The Pan-African Payments and Settlement System (PAPSS) launched Thursday, January 13, in Ghana, leaders say, will provide African traders a faster and safer mode of payment, among other things. The new system allows a buyer in one African country to make a payment in his or her national currency and a seller in another country receives payment in his or her own national currency, effectively eliminating the need for third party currencies such as the US dollar to complete trade within the continent. Ade Ayeyemi, CEO Ecobank Group, noted that instant payment is critical as it enables people in Africa “to be able to transact across the continent without the need to say, ‘where do I get the currency to buy from?” For the very first time, traders will be able to pay and receive payment in their local currencies, thereby removing the cost of acquiring “hard currencies.” Its virtual launch, held under the theme: “Connecting Payments, Accelerating Africa’s trade,” came following a “successful pilot” in six countries – Gambia, Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. Payment infrastructure always existed but on the national and sub-regional levels, they lacked crucial ingredients such as interoperability. The system has been piloted and tested and “proved to work,” using African currencies, said Mike Ogbalu, the CEO of PAPSS. The journey started in 2016 with various engagements to understand existing regional payment systems’ pros and cons and how best to approach the establishment of a continental payment infrastructure. In July 2019, African leaders endorsed PAPSS as a key instrument for the implementation of the AfCFTA agreement. By and large, the new payment and settlement system is seen as an enabler of the AfCFTA agreement, a flagship project of the African Union’s long-term development strategy for transforming the continent into a global powerhouse of the future. In order to enable instant payments across African borders in local currency, the new system supports three core processes: instant payment, pre-funding and net settlement. The PAPSS has, for long, been envisaged as a very important pillar for the implementation of the AfCFTA as it was developed to facilitate payments and formalize the huge informal cross-border trading activities on the continent. Dennis Karera, the East African Business Council (EABC) focal point on the AfCFTA, told The New Times that the new system comes to address challenges of making payments across African borders, adding value through a common African market infrastructure for all stakeholders, from governments, banks and payment providers, to corporates, small enterprises and individuals. “Commercial banks, payment service providers and other financial intermediaries connecting to PAPSS are expected to benefit from: a simplified process that reduces the costs and complexities of foreign exchange for cross-border transactions between African markets; providing an instant and secure cross-border payment capability to their customers across Africa; and a platform that enables innovation in cross-border trade and access to new African markets including Rwanda,” Karera said. Financial intermediaries, commercial banks, fintech companies and payment service providers who facilitate cross-border payments for their clients, he said, will benefit from: no longer requiring multiple correspondent banking relationships in order to perform cross-border payments within the region; faster and more efficient customer service; and a platform for innovation and creativity, increasing access to markets, among others. According to Karera, large and small businesses, as well as individuals whose payments and remittances are being processed through PAPSS will benefit from: instant or near instant payments across African borders without converting to different currencies; improved working capital through payment certainty and faster transactions; as well as access to various payment facilitating options for millions of Africans including those previously underserved (SMEs and cross border traders). An African solution to an African problem Ghanaian Vice President Mahamudu Bawumia said: PAPSS is an African solution to an African problem. It is the most practical and most important achievement in payment system integration on the African continent since independence from colonial rule.” Bawumia requested central banks across the continent to connect their respective national switches directly to the new system so as to ensure seamless transfer of funds. Last July, the AfCFTA Secretary General, Wamkele Mene, noted that there are 42 currencies in Africa and an annual loss of $5 billion is incurred as the cost of converting currencies on the continent for the purpose of trading. The new payments system gets rid of that loss. The project will as well formalize the unrecorded trade due to prevalence of informal cross-border trade on the continent. The biggest beneficiaries will be SMEs doing cross border trade, said Ghana’s Minister of Finance, Ken Ofori-Atta, who put informal cross border trade estimates in Africa at $50 billion, annually. “This volume of un recorded trade is huge by every standard,” he said. As a percentage of total trade, Ofori-Atta noted, intra-Africa trade is expected to increase to 35 per cent, from 15 per cent, over a five year period with infrastructure provided by PAPSS as payment bottlenecks are resolved. According to Mohammed Ali, Director in charge of trade in goods at the AfCFTA Secretariat, since day one of negotiating the AfCFTA, “we tried to provide a holistic approach to address the low level of intra-Africa trade.” Among other factors, Ali said, the cost of trade finance and access to means of finance has a very significant negative impact on the level of intra-Africa trade. The benefits of PAPSS for cross border payments include cost reduction; reduction in duration and time and decreasing liquidity requirements for commercial and central banks. “I believe that PAPSS and similar initiatives are what makes the AfCFTA different, and not just another trade agreement in our continent,” Ali said. According to Prudence Sebahizi, the AfCFTA Chief Technical Advisor, the second advantage is that most of Africa’s cross border trade which is not recorded will now be recorded. “That’s why informal cross-border trade in Africa accounts for close to 60 per cent. With this payment system, it will be much easier for government institutions to record statistics of trade that is happening,” Sebahizi said. The CEO of PAPSS noted that “a prosperous African continent is a trading continent” which builds and retains wealth from its goods and services. Governments, businesses and individuals, Ogbalu said, all 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 a consequent prosperity,” Ogbalu said. “At a continental level, establishing an efficient payment infrastructure that will facilitate transactions from Cape Town to Cairo, from Dakar to Dar es Salaam, will go a long way to eliminate the artificial borders that have divided the continent and robbed us of our shared prosperity.” The Secretary General of the AfCFTA Secretariat, Wamkele Mene, said that the dream of an integrated Africa “is becoming a reality in our lifetime.” With the launch of the critical tool for boosting intra-Africa trade, Mene said, “the implementation of the AfCFTA is well positioned to benefit the categories of very important segments of our society – small medium enterprises, young entrepreneurs; those Africans that are trading across borders, by significantly reducing the cost of trading across borders on our continent.” For the public to have trust in the system, a continental market integration project, different levels of oversight were set up with, among others, central bank governors of participating countries as members. The system’s management team is led by Ogbalu and his deputy, Jean Bosco Sebabi, a Rwandan who is a former the deputy director general of the Rwanda Social Security Board (RSSB).
