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AfCFTA loses US$5 billion yearly to third-party payment systems

An AU commissioner has said the continent has made the right choice in adopting the Pan African Payment and Settlement System (PAPSS) as solution to the challenge

Economies of the African Continental Free Trade Area (AfCFTA) lose US$5 billion in transactional cost to third-party foreign payment systems each year, the African Union commissioner for Economic Development, Trade, Tourism and Industry, Albert Muchanga, has disclosed.

Muchanga, who was speaking to the B&FT at the 6th Ghana International Trade and Finance Conference (GITFiC) in Accra, said the continent has made the right choice in adopting the Pan African Payment and Settlement System (PAPSS) as solution to the challenge.

“Each payment that comes from the continent has to go to New York for processing and this costs Africa about US$5 billion in transactional fee each year according to data from the African Union (AU),” he said.

Muchanga, however, affirmed that PAPSS presents an opportunity to trade and make direct payments in local currencies without going through any intermediaries which would exert extra cost on businesses in Africa.

The PAPSS, according to Muchanga, is expected to aid small and medium enterprises (SMEs) and large businesses to be competitive through cost reduction in trade by utilising the digital platform to curb the reliance on third currencies during intra-African trade.

Data from AfCFTA’s secretariat indicate that over 450 million people on the continent are employed in the SMEs sector – contributing close to 60% of Africa’s gross domestic product (GDP).

This data, Muchanga said, is a very significant part of the continent’s economy, adding, “The investment and businesses of the over 450 million people must be protected through the use of the PAPSS”.

He called on central banks in Africa to expedite processes to aid in the implementation of the system to facilitate trade. Already, the Bank of Ghana (BoG) has said the transactional speed of the PAPSS has met the international standard of global payment systems.

Director of Payment Systems at BoG, Dr Settor Kwabla Amediku, speaking at the B&FT’s Money Summit last month, confirmed that the PAPSS has a transactional time of seven seconds, meeting the accepted interval for global instant payments which currently stands at a band interval of between 1-10 seconds.

The operational time of PAPSS, doing better than ten seconds, according to the BoG, means that the system is efficient, reliable and of global acceptance.

Payment barriers to formal and informal trade in Africa

A number of barriers are currently present at local, regional and international levels which affect formal and informal trade. In Africa, SMEs account for nearly 80% of the continent’s businesses, but trading across borders is notably expensive and lengthy due to non-tariff and regulatory barriers.

The informal cross-border trade in Africa, which represents some 43% of the official GDP, lacks effective payment, regulatory and institutional frameworks to support cross-border digital trade – limiting the potential of intra-Africa trade.

It is in this vein that an evaluation of opportunities and bottlenecks for cross-border digital payments in the region is fundamental, hence, the introduction of the PAPSS to effectively enable AfCFTA’s implementation.

About GITFiC 2022

The conference this year, brought experts and ministers of finance, business leaders and diplomats to identify potential solutions in addressing issues concerning cross-border trade under the AfCFTA.

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