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Despite the promise of the African Continental Free Trade Area (AfCFTA), Africa’s ambition to expand cross-border trade using local currencies continues to face significant obstacles, with experts identifying weak currencies, fragmented payment systems, inconsistent trade policies and the absence of strong continental financial institutions as major barriers.
The experts warned that unless these structural challenges are addressed, businesses across the continent will continue to rely on the US dollar and euro for cross-border transactions, costing Africa an estimated $5 billion annually in foreign exchange and transaction expenses.
Although the Pan-African Payment and Settlement System (PAPSS) was introduced to enable businesses to settle transactions in local currencies and reduce dependence on hard currencies, adoption has remained uneven across member states, forcing many traders to convert local currencies into dollars before doing business with neighbouring African countries.
Speaking on the challenges, trade expert and former Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), John Isemede, said the greatest obstacle is not the willingness of African countries to trade among themselves but the continent’s weak financial architecture and unstable currencies.
“The issue is not whether Africans want to trade with themselves. The real challenge is whether we have built the institutions, payment systems and monetary structures capable of supporting such trade,” he said.
Drawing from his experience in regional trade, Isemede explained that East African countries such as Uganda and Tanzania have developed relatively smoother payment arrangements that facilitate cross-border commerce, while similar monetary integration remains largely absent in West Africa.
He noted that differences in exchange-rate regimes continue to complicate direct local currency settlements. While the CFA franc remains pegged to the euro, Nigeria’s naira operates under a different exchange-rate system and has experienced significant volatility.
“No exporter wants to receive payment in a currency that may lose substantial value before settlement is completed. Businesses naturally prefer stable currencies that preserve the value of their transactions,” he said.
According to him, Africa lacks the institutional framework required to support continent-wide local currency settlements, unlike Europe, where the European Central Bank coordinates monetary activities. He questioned whether African financial institutions currently possess the capacity to provide payment guarantees, trade finance and exchange-rate risk protection for exporters.
Isemede also maintained that proposals for a West African single currency remain difficult because the region is divided between countries operating national currencies and those using the CFA franc.
“The monetary systems are fundamentally different. Until those structural differences are addressed, a common currency will remain difficult to implement,” he stated.
He recalled Nigeria’s participation in regional initiatives such as the former West African Clearing House, noting that those experiences demonstrated the importance of strong institutions capable of managing exchange-rate risks and facilitating regional payments.
Tracing Nigeria’s monetary history, he observed that confidence in the naira has weakened considerably following repeated devaluations and exchange-rate instability, making businesses reluctant to enter long-term supply contracts.
According to him, Africa’s more than 40 national currencies continue to complicate regional trade, as traders often prefer settling transactions in dollars or euros rather than accepting neighbouring countries’ currencies.
Beyond currency instability, Isemede identified inadequate transport infrastructure, weak maritime and aviation capacity, fragmented insurance systems and inconsistent trade policies as additional obstacles undermining regional trade integration.
He argued that successful local currency trade must go beyond political declarations and focus on practical issues such as currency convertibility, exchange-rate risk, national trade laws, payment systems and international financial obligations.
According to him, African governments must also develop clear trade policies that distinguish formal commercial trade from informal cross-border transactions while creating an environment that encourages legitimate regional commerce.
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He further highlighted the lack of reliable trade information across many African countries, noting that businesses often struggle to obtain timely information on payment systems, banking arrangements, exchange rates and international pricing mechanisms.
Isemede also pointed to the lingering influence of colonial-era financial structures, arguing that many African economies remain tied to their former colonial powers through banking, insurance and monetary arrangements, limiting financial independence.
He identified capital flight as another major concern, observing that many political leaders, public officials and corporate executives hold significant wealth in foreign currencies and overseas accounts.
“If those responsible for managing African economies have greater confidence in foreign currencies than in their own, it becomes difficult to convince businesses to embrace local currency settlements,” he said.
He added that the continued preference for hard currencies reflects concerns over repeated currency devaluations and inflation, while limited investment in domestic manufacturing and value addition continues to sustain demand for foreign exchange.
Isemede stressed that Nigeria must also address domestic issues including exchange-rate management, currency stability and illegal currency trading if it hopes to promote greater confidence in local currency transactions.
While acknowledging the important role of the African Export-Import Bank (Afreximbank), he clarified that the institution was established primarily to finance African trade rather than serve as the continent’s central bank.
He said critical questions remain over who bears exchange-rate losses when currencies depreciate between shipment and payment, as well as how payment delays, letters of credit, political risks, border disruptions and currency shortages would be managed.
According to him, governments, commercial banks and regional institutions should demonstrate practical examples of successful companies conducting profitable cross-border trade using local currencies, arguing that evidence of success would inspire greater confidence than policy announcements alone.
Also speaking, Chief Executive Officer of Rimax Group, Linus Okwara, said Africa’s estimated annual loss of about $5 billion represents only one aspect of deeper structural weaknesses affecting regional trade.
Okwara identified weak trade policies, poor information sharing, fragmented financial systems, continued colonial-era economic influences and persistent capital flight as key constraints limiting intra-African commerce.
He added that recurring inflation and currency depreciation have made many African currencies unreliable stores of value, encouraging businesses to continue relying on the US dollar and euro.
The experts further observed that Africa lacks continent-wide trade laws and monetary institutions comparable to those of the European Union, noting that while Europe benefits from a common legal framework and the European Central Bank, Africa has no equivalent continental monetary authority.
They emphasised that Nigeria’s position as Africa’s largest economy does not automatically translate into a stronger currency, stressing that currency strength depends on sound macroeconomic policies, productivity and investor confidence.
The analysts urged African governments, central banks and AfCFTA member states to strengthen payment systems, harmonise trade policies, reduce currency volatility and build institutions capable of supporting sustainable local currency settlements.
They concluded that until Africa develops stronger monetary cooperation, coherent trade governance and effective mechanisms to protect businesses against exchange-rate risks, the vision of seamless intra-African trade under AfCFTA will remain difficult to achieve.
