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With the launch of the new Pan-African Payment and Settlement (PAPS) Platform in Niamey, Niger Republic, last week, African Export-Import Bank (Afreximbank) has opened a vista of opportunities for businessmen on the continent.
The aim of the scheme is to enable African countries trade among one another without resort to other convertible currencies like the Dollar, Pound Sterling, euro and the Chinese Renminbi.
“It is a platform that will domesticate, intra-regional payments, save the continent more than $5 billion in transaction costs per annum, formalise a significant proportion of the estimated $50 billion of informal intra-African trade, and above all, contribute in boosting intra-African trade,” said Professor Benedict Oramah, Afreximbank’s president. Oramah, stated that PAPS, which would be available on mobile devices, would facilitate the clearing and settlement of intra-African trade transactions in African currencies and significantly reduce the dependence on US dollars and other hard currencies in the settlement of regional trade.
According to him, the bank has partnered with the West African Monetary Institute (WAMI) to launch a pilot in six West African countries by the end of the year. The West African Monetary Zone is the continent’s only economic community that does not already have a settlement platform – hence Afreximbank’s decision to pilot the new solution in the region.
Previously referred to as the Intra-Africa Trade Platform, it is one of a number of new initiatives that the bank is currently implementing as part of its strategy to facilitate greater volumes of intra-African trade as well as formalise the continent’s informal trade, which is estimated to be close to US$40 billion.
“Africa’s challenge when it comes to payments and settlements”, Oramah explained, “comes down to the fact that it has multiple local currencies, meaning that cross-border payments typically involve a third currency, such as the US dollar or Euro. This leads to a high cost of intra-African payments, which can take weeks to process.
“Governments want to build their reserves so they tend to prefer exports to markets that issue hard currency.
For this reason, a significant amount of cross-border trade occurs informally. The issue is compounded by the fact that most traders currently do not have a system that enables them to settle in a secure way,” Oramah said.
He explained that with the new platform “a buyer in country A buying from a seller in country B can pay in his or her own currency for the goods, while the seller will receive his or her own currency. At the end of the day, the only countries that will have to pay dollars will be those in deficit”.
Although the president conceded that it might not be possible to completely eliminate hard currencies in trade settlements, he believed that through the digital platform, a fatal blow will, however, be dealt to the underdevelopment of Africa caused by defragmentation of its economies.
“Our goal is to reduce, significantly, the foreign currency content of intra-African trade payments. No people have achieved meaningful development when their economic progress depends on others. In the renewed focus on industrial and value-chain development across the continent in trying to boost trade and investment, it is imperative that we address the economic costs of effecting so many payments in scarce foreign exchange.
“Making cross-border payments easier, cheaper and safer is an obvious critical step in creating an Africa we want,” he said.
Already, the Afreximbank has instituted a $1-billion adjustment facility to enable countries adjust in an orderly manner to sudden significant tariff revenue losses as a result of the implementation of the agreement.
For smooth take off and sustenance of the African Continental Free Trade Area (AfCFTA).
“This facility will help countries to accelerate the ratification of the AfCFTA,” he said, telling the heads of state that, by starting the operational phase of the AfCFTA, “you have started a movement.
“You must not look back,” “This movement is now unstoppable.” He added that, as part of its support for the implementation of the AfCFTA, the bank had provided support to aid the work being done by the African Regional Standards Organisation and the AU in implementing the Agreement.
PAPSS was developed by Afreximbank in collaboration with the African Union, Recall Oramah, on the sidelines of the World Bank/IMF Spring Meetings in Washington D.C, USA early in the year hinted that a digital ecosystem meant to dismantle identified bottlenecks to trade finance flows within Africa was in the offing.
According to him, one of the major constraints to intra-African trade was lack of information to support intra-regional trade and investments. He said the ugly development made many African countries to import products from outside the continent at exorbitant rates, when they could source same from neighboring countries who exported the same products at a much lower cost.
He said: “It was to address that challenge that Afreximbank and the AU were working to use digital technology to improve access to trade information and facilitate the use of African national currencies via intra African trade settlements.
