Africa: Transforming Intra-African Trade with The Pan-African Payment and Settlement System (PAPSS)

Intra-African trade faces significant challenges, with payment issues at the forefront of these obstacles. Temitayo Jaiyeola discusses how the Pan-African Payment and Settlement System (PAPSS) could be the catalyst for reversing the current trend of low intra-African trade.

Africa, with its 54 countries, often behaves like strangers among themselves, making it easier to travel outside the continent than within. Despite the continent’s vast potential, trade between African nations remains limited. Nigeria, the largest economy in Africa, had total trade with other African countries amounting to N2.8tn between 2019 and 2022. In contrast, its trade with Latin and North American countries was N8.45tn, and with Asian countries, it reached N76.09tn during the same period.

To boost intra-African trade, the African Continental Free Trade Area (AfCFTA) was established in 2018. The AfCFTA aims to increase Africa’s income from trade by $450bn by 2035 by eliminating barriers and tariffs. However, one major hindrance to the success of AfCFTA is the challenge of settling trade contracts in local currencies, given the multitude of about 42 individual currencies across the continent.

Most intra-African trade transactions are settled in US dollars or euros, adding complexity and cost to transactions and exposing businesses to exchange rate volatility. To address this issue, the African Export-Import Bank introduced PAPSS in 2022. PAPSS is a digital platform facilitating cross-border payments in local African currencies, eliminating intermediaries and conversion fees.

PAPSS aims to connect Africa’s fragmented payment structure, reducing transaction costs and time in intra-African trade by up to 60%. This solution is expected to save businesses on the continent an estimated $5bn in transaction costs annually. It functions as an automated clearing house for pan-African payments and a vital cross-border payment switch.

While the potential benefits of PAPSS are substantial, its success hinges on the collaboration of stakeholders, including central banks, regulators, commercial banks, payment service providers, and traders. Currently, only a limited number of central banks and commercial banks are connected to PAPSS.

The challenges facing PAPSS include the need for harmonization of policies, standards, and regulations among participating central banks. Additionally, the adoption of modern technologies, infrastructure, and reconciling differences in national regulations are crucial for the system’s efficiency and reliability.

Despite these challenges, stakeholders recognize the transformative potential of PAPSS. The system is expected to make intra-African trade more efficient, providing businesses with a commercially viable tool to overcome critical barriers. As the implementation of PAPSS progresses, there is hope that it will contribute to the seamless and cost-effective payment across the African continent, ultimately fostering economic development and growth.