• Thursday, February 29, 2024
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Pan-African payment system to reduce dependence on foreign notes

Emefiele: a tenure defined by controversy, unorthodoxy

The launch of the Pan-African Payment and Settlement System (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 Thursday in Ghana.

He said it will also reduce the need for correspondent banks, and amplify intra-African trade significantly. Prior to the launch of PAPSS, settlement for intra-African trade required a third currency and a non-African correspondent bank.

This resulted in an estimated loss of close to $5 billion in payment charges annually which also helped to undermine trade among African countries.

In addition, he said trade between African nations was largely invoiced and executed in third currencies, thereby subverting and destabilising domestic foreign exchange markets.

“Though intra-African trade is projected to surge following the successful implantation of the African Continental Free Trade Area (AfCFTA) agreement, the launch of PAPSS today (Thursday) provides a fresh vista of opportunity and aspiration for the African continent,” Emefiele said at the official launch of PAPSS in Ghana.

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, he 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.

In addition, he said as a robust continental payment and settlement platform, PAPSS would strengthen the foundation for the potential monetary union within the region.

Ghana President Nana Addo Dankwa Akufo-Addo, represented by the Vice President Mahamudu Bawumia on Thursday in Accra, hosted and presided over the commercial launch of the PAPSS, observing that the ground-breaking platform will save Africa more than US$5 billion annually in payment transaction costs, while it plays an increasingly significant role in accelerating the continent’s transactions underpinning the operationalisation of the AfCFTA.

President Nana Akufo-Addo complimented Afreximbank and AfCFTA Secretariat for the establishment of the payment system citing PAPSS as a major leap in releasing the continent from overdependence on external players and factors in achieving a long yearned-for acceleration in intra-continental trade and investment.

Read also: Emefiele to drive financial firms’ adoption of new payment system

“This launch is a result of many months of hard work, resolve and commitment towards achieving set objectives for the growth of the continent in trade. All Central Banks in Africa must now join up and ensure seamless transfer of funds deploying this most practical and important African solution to an African problem,” added President Nana Akufo-Addo.

In his remarks, Benedict Oramah, President and Chairman of the Board of Directors of Afreximbank, said, “We are eager to build upon the African Continental Free Trade Area’s creation of a single market throughout Africa, and PAPSS provides the state-of-the-art financial market infrastructure connecting African markets to each other thereby enabling instant cross-border payments in respective local African currencies for cross-border trade.”

“Afreximbank as the main Settlement Agent for PAPSS, provides settlement guarantees on the payment system and overdraft facilities to all settlement agents, in partnership with Africa’s participating Central Banks. PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade.”

On his part, the AfCFTA Secretary-General Wamkele Mene appreciated the role and commitment of the Continent’s Heads of States and Governments through the African Union, saying that their strong political will, continues to be the bedrock of progress towards a full implementation of AfCFTA that has now been strongly boosted with the commercial launch of the PAPSS.

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 PAPSS, over 80 per cent 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.

In his presentation, Mike Ogbalu, PAPSS, chief executive emphasized that the payment system is not designed to compete with or replace existing payment systems, but to facilitate the connectivity level that brings all payments systems together into one network that is interoperable, efficient and affordable. “PAPSS is designed to make our currencies regain value to domesticate intra-Africa payments in this journey towards African prosperity, while providing the superhighway which connects others to reach every part of this continent as we seek to create the Africa that we want.”

The PAPSS launch event was graced by the presence of Olusegun Obasanjo, former President of the Federal Republic of Nigeria and Chairman of the IAFTA Advisory Council, and Mahamadou Issoufou, former President of Republic of Niger who was acknowledged as a champion in driving the establishment of the AfCTA Initiative, among other dignitaries.