By Naomi Makovo

A Sizeable Share of Local Currencies

In a bid to make commerce work for Africa, African Export-Import Bank (Afreximbank ) and African Continental Free Trade Area (AfCFTA) Secretariat, successfully organized a consultative forum bringing together the association of African stock exchanges, executives of African commercial banks, payment switches and other financial providers. The forum aimed at deliberating on the success and future of the Pan-African Payment and Settlement System (PAPSS) saw participants advocate for increase in share of African currency within the intra-African trade.

With the absence of a single currency within the EAC and the African continent, PAPPS formed as a collaboration between the African Union and the African Export-Import Bank, seeks to address this challenge by supporting cross-border payments in local currencies amongst African countries. PAPPS alleviate Africa’s dependency on foreign currency, which has detrimental effects that suppress economic development within Africa.

In business cost terms, currency conversions cost Africa approximately $5 billion annually. Through its three main functions– net settlement, support for instant payment, and pre-funding- PAPSS demonstrates Africa’s ability to drive economic development through its initiatives. As a move deemed to focus on streamlining cross-border trade, analyzing how its full implementation will be a game-changer for the East African Community member states is essential.

Streamlining Cross-Border Transactions in the EAC

The PAPSS promises to revolutionize intra-EAC trade by making payments easier for MSME traders Photo| Darkshade Photos Via Pexels

Among the many persistent challenges facing the EAC region, such as cumbersome border regulation, is cross-border payments. PAPSS rollout across EAC member states and, at large, Africa simplifies cross-border trade experience. As time is money in the business world, PAPSS facilitates instant payments, saving traders the worry about transacting details and allowing them to focus on more essential business agendas. From a financial institution perspective, PAPSS is a great value addition that presents an excellent opportunity to expand the trade corridors of the EAC. With various time differences within African countries, PAPSS presents a 24/7 settlement system for EAC traders. Traders may no longer require multiple correspondent banking relationships. PAPSS enables an efficient flow of money within the region, contributing to financial integration.

Making payments from one country to another takes much work. The transaction cost is high, and the wait period before the transaction is complete takes critical economic time. Acquiring hard currencies is particularly difficult for SMEs within the EAC. One of the primary reasons for the development of PAPSS is to eliminate the reliance on hard currencies such as the US dollar and allow traders to settle transactions in their currencies. This also strengthens the position of local currencies within the EAC bloc. Based on the IMF publication, the difficulty of cross-border trade contributes to Africa’s total imports and exports amounting to 15% while it is 70% in the European Union.

Boosting Intra-EAC Investment in Trade and Financial Inclusion

PAPSS has the potential to provide new business opportunities for the EAC block by making transactions more accessible and affordable for businesses. With a more than 174 million population, the EAC presents an opportunity for an untapped market. PAPSS can facilitate more effortless movement of goods, capital and services across EAC member states, fostering increased investment, trade and economic cooperation. One remarkable aspect of PAPSS is its potential to empower small and medium enterprises within the EAC. Trade complexities often pose a significant barrier to this business, the backbone of most EAC member states’ economies. PAPSS promises a simple, accessible, cost-effective payment platform that enables enterprises to explore new market opportunities and expand their market base within the EAC and across Africa.

“This payment revolution unleashes the potential of enabling underserved communities within the EAC to enjoy accessible and affordable cross-border payments.”

PAPSS is not intended to replace existing national and regional payment systems but to integrate them to benefit African economies better. This payment revolution unleashes the potential of enabling underserved communities within the EAC to enjoy accessible and affordable cross-border payments. Enhancing financial inclusion will positively impact the EAC, such as improving credit, providing access to savings and insurance, and fostering economic growth.

Navigating the Legal and Regulatory Landscape

The benefits of PAPSS are undeniable. However, its success and stability are tied to a well-defined legal and regulatory framework. As an ambitious initiative aimed at operating across multiple jurisdictions, it is crucial to harmonize legal frameworks related to payments, cybersecurity, data protection, anti-money laundering and know-your-customer procedures. Regulatory authorities are pivotal in overseeing PAPSS operations, maintaining stability, and mitigating system risks.

Regulations especially on the digital landscape underscore the adoption of the PAPSS Photo| Tima Miroshnichenko via Pixels

To foster confidence, trust, and credibility, the legal and regulatory framework governing PAPSS must adhere to international cybersecurity standards, data protection, and other regulations, such as KYC standards. In this digital era, protecting personal data and privacy is paramount. Traders within the EAC require assurance and provisions on data breach notification mechanisms, data sharing, consent, and data encryption requirements. To ensure individuals fully integrate PAPSS, it is vital to ensure the legal and regulatory framework prioritizes consumer protection.

The implementation of PAPSS ushers a new digital and economic trajectory within the EAC. By facilitating efficient cross-border transactions, PAPSS supports EAC’s desire to eliminate regional trade and investment barriers. PAPSS serves as a connecting rail between African markets and individuals, businesses, and governments. The Pan-African Payment and Settlement System is a game changer as its successful implementation promises the realization of a more prosperous, connected East African Community.

Opinions expressed in these article are solely those of the writer and do not necessarily reflect the policy standpoint of Liberty Sparks. For clarification and publication inquiry reach out to the editor at [email protected]