Pan African Payments Settlement System (PAPSS): A New Dawn?

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Thursday, November 18, 2021 / 09:39 AM / by CSL Research / Header Image Credit: SRB

 

In terms of continental trade, Africa falls behind other parts of the world. While the size of continental commerce varies greatly between nations and sub-regions, UNCTAD estimates that intra-Africa exports account for just about 15.0% of total trade. The Africa Continental Free Trade Agreement (AfCFTA), which aims to increase cross-border trade between African countries and establish a single, integrated African market with over a billion customers and $3.0bn in GDP, went into force in Jan-2021. Recently, this vision got a significant boost as the African Export-Import Bank (Afreximbank) announced the operational rollout of the system after completing a pilot in the West African Monetary Zone (WAMZ). Also, the Central Bank of Nigeria issued new guidelines titled: "Guidelines on the Operations of Pan African Payments and Settlement System (PAPSS) in Nigeria". But what is PAPSS?

In a nutshell, PAPSS is a pan-African payments and settlement infrastructure for intra-African commerce that was developed by the AfCFTA in collaboration with Afreximbank, to facilitate instant cross-border payments and address the informality of cross-border trade within Africa. The reduction of reliance on hard currencies (such as the USD, GBP, EUR) is a core value proposition of PAPSS, as transactions initiated in the local currency of the origin country will be received in the local currency of the beneficiary country within Africa (currently limited to Afrexim member countries). Also, it involves Real-Time Gross Settlement (RTGS), which enables instant payments.  

Looking forward, we believe PAPSS can provide a significant boost to intra-continental trade activities between countries within the free trade area, as it can reduce costs and eliminate time barriers, providing impetus for increased trade within Africa.  The introduction of the PAPSS will also mean other African countries will hold and demand other African currencies, which will increase demand for the more industrial and output-driven nations.  Nonetheless, we eagerly anticipate initiatives to address other trade impediments, such as port congestion, poor infrastructure, and high transportation costs, as they are equally imperative. 


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