The Pan-African Payments and Settlement System (PAPSS) can save the continent as much as $5 billion in processing costs by eliminating the dollar in cross-border African transactions, says the head of business and commercial banking at Standard Bank, the continent’s biggest bank.
Speaking to Bloomberg, Tunde Macaulay of Standard Bank Group, said that clearing transactions through U.S. or European banks imposes delays and costs on African businesses.
PAPSS, a unified payment system under the African Continental Free Trade Area (AfCFTA) pact can alleviate these challenges, said Macaulay, who has 25 years of experience working across the continent.
How the Pan-African Payment Settlement System (PAPSS) Works to Enable Instant African Cross-Border Payments https://t.co/E1zewt7dNr @papss_africa @AfCFTA #PAPSS #Africa
— BitKE (@BitcoinKE) January 19, 2022
The system, which was introduced in 2022, could also integrate around $50 billion of informal trade into the formal economy, Macaulay noted.
“We will have visibility of it if the payment system is implemented the way it’s supposed to be,” he said.
“That’s the intention – to remove this friction across payments.”
According to a 2022 report from the Africa Export-Import Bank, over 80% of cross-border payments from African banks are still processed offshore, typically routed through Europe or the U.S. Given that only 16% of Africa’s trade is conducted within the continent, compared to over 60% in the European Union, this reliance on external clearing presents significant challenges and missed opportunities for intra-African trade.
The AfCFTA Agreement Kicks Off with the First Trade Between Kenya and Ghana – BitcoinKE https://t.co/civ9hkJrqZ
— Italtec Gold & Commodities (@italtecgc) October 13, 2022
47 countries have ratified the African Continental Free Trade Area (AfCFTA), which seeks to unify the region into a single market. With a potential reach of 1.3 billion people and a combined GDP of $3.4 trillion, the AfCFTA could become the world’s largest free-trade zone by area when fully operational by 2030.
PAPSS utilizes local currencies to address Africa’s foreign exchange shortages and conversion challenges. The continent currently operates with 42 different currencies.
AfCFTA | African Countries to Adopt Pan-African Payment and Settlement System (PAPSS) by February 2024
The platform, developed by the African Export-Import Bank (Afreximbank) with the backing of the African Union (AU), allows a trader in a participating country to direct their… pic.twitter.com/dzmRVsSD9c
— BitKE (@BitcoinKE) November 9, 2023
Macaulay proposed a phased approach to integration, initially concentrating on reducing trade barriers by lowering taxes and removing unnecessary non-tariff barriers like licenses and quotas. He also emphasized the need for greater support for small and medium-sized enterprises.
So far, 115 commercial banks, including:
- Standard Bank
- 4 of Africa’s largest banks
- 13 central banks, and
- 10 switching-service providers
have joined the system.
5 of Africa’s Largest Banks Sign Up to Use the Pan-African Payment and Settlement System (PAPSS)
The financial institutions signed a Memorandum of Understanding (MoU) which will facilitate Ecobank and its subsidiaries in conducting cross-border transactions using the Pan-African…
— BitKE (@BitcoinKE) June 30, 2023
However, scaling it will depend on achieving a coordinated ‘network effect’ which is not yet certain, Macaulay noted.
AfCFTA’s $1 billion Adjustment Fund will play a vital role by supporting governments and businesses impacted by revenue losses from tariff reductions, he added. The African Union aims to expand this fund to $10 billion by 2033, enabling countries to join the free-trade zone without causing economic challenges.
The AfCFTA ‘is a battle Africa must win for its own prosperity,‘ Macaulay said.
“There can be no turning back.”
Follow us on X for latest posts and updates
Join and interact with our Telegram community
________________________________________
