Nigerians can now use naira to buy goods and services from other African countries without the hurdle of converting to the dollar, thanks to the new African payment system – Pan-African Payment and Settlement System (PAPSS).
African countries with 42 different currencies lose $5 billion annually as the cost of currency convertibility.
The new African payment system will enable Africans to transact in real-time on a digital platform with somebody or entity in other parts of the continent using their local currency, “so you will not have to worry about converting to a dollar, or Euro or any other currency,” notes Wamkele Mene, the secretary-general of the African Continental Free Trade Area (AfCFTA) Secretariat.
Speaking on the first day of BusinessDay’s African Business Conference (ABC) in Lagos, Kunle Elebute, CEO of KPMG, explained how the payment platform will work, saying the central banks of 54 African countries will agree on a single currency, e.g. the dollar, which their currencies will exchange for on the platform managed by either Mastercard or Visa.
Before the launch of the new African payment system, Mene said, “If you want to trade between South Africa and Kenya, you have to convert the South African Rand into the dollar, transact with somebody with a business in Kenya and receive that United States dollar, convert it into the Kenyan Shillings and then you can conclude the transaction.”
Intra-African trade is constrained; the lack of expeditious conclusion of transactions are the very challenges the Small Medium Enterprises (SMEs) encounter as a result of 42 currencies in the continent, Mene said.
The new African payment system was officially launched on January 13, 2022, in Accra, Ghana.
According to Afreximbank, PAPSS provides the solution to the disconnected and fragmented nature of payment and settlement systems that have long impeded intra-African trade.
Prior to the introduction of the new African payment system, over 80 percent of African cross-border payment transactions originating from African banks had to be routed offshore for clearing and settlement using international banking relationships.
That posed multiple challenges, ranging from payment delays to operational inefficiencies and compliance concerns for the disparate regional payment systems.
PAPSS is expected to reduce dependence on third currency such as dollar, Euro, Pounds, for intra-African transactions, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), said.
Settlement for intra-African trade used to require a third currency and a non-African correspondent bank. But Emefiele said with PAPSS the need for correspondent banks will reduce, and that will amplify intra-African trade significantly.
“Though intra-African trade is projected to surge following the successful implantation of the AfCFTA agreement, the launch of PAPSS provides a fresh vista of opportunity and aspiration for the African continent,” Emefiele said at the official launch of PAPSS in Ghana.
Nigeria, Africa’s largest economy, signed the AfCFTA on July 7, 2019, becoming the 34th member of the trading bloc.
Under the AfCFTA, Nigeria is said to gain from increased access to cheaper goods and services from other African countries, as its intra-African trade is low.
In 2018, Nigeria’s imports from the African region relative to total imports, was put at 3.2 percent while the share of the county’s exports to the African region relative to total exports was 13.2 percent.
As a percentage of total trade, intra-African trade is expected to increase to 35 percent from 15 percent over a five-year period with the infrastructure provided by PAPSS as payments and settlement bottlenecks are resolved, Emefiele said.
With the growing pace of digitisation of financial services, which has been accelerated by the onset of the Covid-19 pandemic, he said PAPSS can serve as a veritable platform for supporting e-commerce within Africa.
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An originator issues a payment instruction in their local currency to their bank or payment service provider.
The payment instruction is sent to PAPSS. PAPSS carries out all necessary validation checks on the payment instruction.
The payment instruction is forwarded to the beneficiary’s bank or payment service provider. The beneficiary’s bank clears the funds to the beneficiary in their local currency.
With instant payment, participants no longer need to convert local currencies into hard currencies which then entailed the funds leaving Africa to be converted before being sent back again to the beneficiary bank – adding days to the transaction time. In addition, compliance, legal and sanctions checks are performed instantly within the system. Near-instant payments process within 120 seconds.
PAPSS – enables the efficient flow of money securely across African borders, minimising risk and contributing to financial integration across the regions.
Whether shopping, transferring money, paying salaries, dealing in stocks and shares or making high-value business transactions, PAPSS’ real-time infrastructure provides a reliable, cost-effective answer for instant payments.
PAPSS works in collaboration with Africa’s central banks to provide a payment and settlement service to which commercial banks, payment service providers and fintechs across the region can connect as ‘Participants’.
