By Nnamdi Odumody
In order to solve the paralysis in intra African trade, the African Export Import Bank (AFREXIM) has launched a Pan African Payment and Settlement Platform (PAPSP) at the African Union Extraordinary Summit in Niamey, Niger.
This initiative is part of the African Continental Free Trade Area (ACFTA) which is designed to bring 1.3 billion Africans and create a $3.4 trillion single economic market. The initiative has the following operational instruments: Rules Of Origin Portal, Tariff Concession Portals, Portal On Monitoring and Elimination of Non Tariff Barriers, Digital Payments and Clearing System, and African Trade Observatory Dashboard.
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This is why the African Development Bank has supported similar initiatives across the continent, including the East African Payment System and the West African Monetary Zone’s project to link payment systems. Likewise, in support of the CFTA, Afreximbank is working on establishing a Pan-African Payment and Settlement Platform (PAPSP), which will not only lower transaction costs but also facilitate informal cross-border trade, currently estimated at $93 billion.
Another interesting trend is the rise of African multinationals investing into other African countries. At the forefront are African financial institutions. Today, Ecobank has a footprint in 24 countries while Moroccan banks are now present in 16 countries, up from just three in 2005. This is welcome news. Indeed, banks support about one-third of total intra- African trade.
According to Dr Benedict Oramah, President of Afreximbank, the PAPSP which will be available on mobile devices will facilitate the clearing and settlement of intra African trade transactions in African currencies and significantly reduce dependence on global currencies in settlements for regional trade.
The African Export Import Bank has partnered with the West African Monetary Institute to launch a pilot in six West African countries before the end of the year as the West African Monetary Zone is Africa’s only economic community which doesn’t have a settlement platform, hence the decision to pilot the initiative in the region.
PAPSP is one of the initiatives implemented by AFREXIMBank to facilitate greater volume of intra-African trade and formalize the continent’s volume of informal trade estimated at $40 billion.
Considering the fact that Africa has multiple local currencies, cross border payments has traditionally involved the use of a third currency like the US dollar, Euro, British Pound or Chinese Renminbi resulting in high cost of intra-African payments which, PAPSP is a timely intervention to fix the friction.
We will see how the platform will exchange Naira for Cedi or Rand, without hedging them against the Dollars or Pounds. I think that is where we need to watch closely.
On paper, it looks straightforward, but in practice, the factors that give each currency higher or lower value will come into play; and that’s when the manipulation starts.
If anything has ever worked as stated, this world would have been a perfect one…
Hope there will not be manipulation. If not, the whole thing will crash.