The Africa Export-Import Bank has achieved a significant milestone by integrating 11 African central banks into its flagship Pan-African Payment and Settlement System (PAPSS). This initiative, in collaboration with the African Union, aims to streamline trade processes and reduce expenses within the region. The bank anticipates the remaining central banks to join this revolutionary payment system by early next year.
PAPSS offers a ground-breaking alternative for participants to conduct transactions in their respective currencies, eliminating the need for a third-party currency such as the U.S. dollar.
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John Bosco Sebabi, Deputy CEO of PAPSS, emphasized the importance of efficient payments in driving trade, stating, “Trade goes well where payments can be made easily, and this is why we can only see trade pick up if we see improvement in efficient payments.”
Afreximbank estimates that over 80 percent of intra-African payments currently pass through European or U.S. channels, resulting in exorbitant costs of up to $5 billion in fees and compliance expenses. The integration of central banks into PAPSS aims to rectify this, providing a streamlined and cost-effective solution for intra-African trade.
The primary participants in the PAPSS system include central banks, serving as regulators and clearance agents, as well as commercial banks, fintech companies, payment service providers, and their customers, including businesses operating across the region.
Sebabi clarified that the goal is not to exclude the U.S. dollar but to facilitate easier transactions. For example, participants in Zimbabwe or Rwanda will have their accounts debited and credited in their respective currencies, with central banks managing the conversion as needed.
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The establishment of the African Continental Free Trade Area (AfCFTA), which unites 55 members of the African Union and eight Regional Economic Communities, gives particular timeliness to the Pan-African Payment and Settlement System. AfCFTA aims to create a single continental market with a combined GDP of approximately $3.4 trillion and a population exceeding 1.3 billion.
Despite these ambitious goals, the region currently experiences the world’s lowest intra-regional trade volumes, standing at only 18 percent. In contrast, Europe and Asia boast 70 percent and 59 percent intra-regional trade, respectively. Sebabi is optimistic that PAPSS will rapidly gain momentum to bridge this disparity and enhance intra-African trade relationships.
The system has already gained traction with the participation of 81 commercial banks, primarily from the West African monetary zone. Notable Southern African participants include Standard Bank, the continent’s largest bank in terms of assets.
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PAPSS has demonstrated impressive efficiency, with transaction times ranging from as little as 7 to 10 seconds and a maximum processing time of 120 seconds. This innovative payment system has the potential to revolutionize intra-African trade relationships, fostering economic growth and collaboration across the continent.