BY Maimbolwa Mulikelela –

HAVING a well functioning payment infrastructure that can integrate the disparate payment systems across the African continent is critical to its growth.
As countries begin to trade under the African Continental Free Trade Agreement (AfCFTA), having a functioning payment infrastructure is required to improve payment flows and reduce transaction costs.
This is particularly true because Africa presents a peculiar problem that lends itself to innovative solutions according to the African Export-Import Bank (Afreximbank) president and chairman of the board of directors Benedict Oramah.
There are 42 national currencies on the continent, access to hard currencies required to transact across borders is very limited, Professor Oramar indicates.
He says the current payment arrangements cost the continent about US$5 billion annually, while intra- regional payments take two to 14 days to complete.
Professor Oramah says with problems, it is no wonder that Intra-Africa trade levels are so low!
“While Afreximbank and its partners are working hard, under the AfCFTA arrangement, to reduce the various impediments to intra-African trade, dealing with the problems of payment remains a key priority.
“During my recent tour of a few Southern African countries after the recently concluded Intra-African Trade Fair (IATF) in Durban, a few entrepreneurs who participated in the Fair expressed absolute satisfaction in the entire event.
More importantly, in new deals signed and relationships forged,” professor Oramah says.
He is aware of the hard currency challenges across Africa, the concern raised to him by countries was how they will get paid when they ship their orders.
“Why should we require hard currencies for trade between Kenya and Uganda or between Senegal and Guinea? Why should a trader in Malawi worry about receiving payments for goods shipped to Kenya? Why can’t we operate as if every African currency is convertible within Africa?
“And why should Intra-African payments be routed via third countries outside the continent? Why should we pay US$5 billion annually, more than the nominal Gross Domestic Product (GDP) of more than 25 African countries, in clearing charges to non-African banks for Africa-to-Africa transactions,” Professor Oramah asked?
With the Pan-African Payment and Settlement System (PAPSS), Africa will begin to address these absurdities.
That is why it is a revolutionary and path breaking system that will transform Africa’s financial landscape and promote continental trade and financial integration.
Today’s commercial launch of PAPSS is a watershed moment for the continent and represents another step towards restoring the dignity of Africans.
Beyond making payments more efficient, the Pan-African payment and Settlement System will begin to strengthen African currencies and enhance their regional convertibility.
PAPSS will also serve as an added tool for monetary policy management for most African countries.
This is why, at the outset, Afreximbank plans to back the system with a US$3 billion overdraft facility to African central banks and other direct participants.
This facility will avail resources to the central banks for settlements and clearing while bringing stability and predictability to external payment flows and current account management.
Among commercial banks, the Bank, through its Afreximbank Trade Facilitation Programme (AFTRAF), is forging relationships with at least 500 African banks providing them with letter of credit confirmation lines.
Professor Oramah says it intends to grow to US$8 billion from over US$2 billion today.
This will represent the largest banking relationship ever forged by any financial institution on the continent.
Presently the Bank has over 480 banks on board.
Ghana President Nana Akufo-Addo indicates that PAPSS will save Africa more than US$5 billion annually in payment transaction costs.
In addition, it will play an increasingly significant role in accelerating the continent’s transactions underpinning the operation of the AfCFTA.
President Akufo-Addo complimented Afreximbank and AfCFTA secretariat for the establishment of the payment system.
He cited PAPSS as a major leap in releasing the continent from over dependence on external players and factors in achieving a long yearned-for acceleration in intra-continental trade and investment.
“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,” President Akufo-Addo says.
He commented on the pan African significance of Ghana hosting the event as a harbinger of the hard-won struggle for economic self-determination following the political decolonisation of the continent over 60 years ago.
PAPSS, developed by Afreximbank, is expected to boost intra-African trade by transforming and facilitating payment, clearing and settlement for cross-border trade across Africa.
In his presentation, PAPSS chief executive officer Mike Ogbalu emphasizes that the payment system is not designed to compete with or replace existing payment systems, but to facilitate the connectivity
level that brings all payment systems together into one network that is interoperable, efficient and affordable.
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 have 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, which has been successfully piloted in the six countries of the West African Monetary Zone, delivers multiple advantages and efficiencies to intra-African trade payments, including reducing the
cost, duration and time variability of cross-border payments across Africa.
Decreasing the liquidity requirements of commercial banks for cross-border payments as well as strengthening oversight of cross-border payment systems by central banks.
PAPSS is also set to deliver harmonisation across the continent through its comprehensive legal, regulatory and operational framework comprising standardised rules, formats and governance arrangements.
It will harmonise Know-Your-Customer and Anti-Money Laundering procedures, payment confirmation and settlement finality.
With this payment system in place, it is hoped that the trade between African nations will be seamless.