Trade within Africa intensifies due to escalating tariff disagreements
The Pan-African Payments and Settlements System (PAPSS), developed by Afreximbank, is making significant strides in promoting financial integration across Africa. Currently operational in 15 countries, including Kenya, Malawi, Tunisia, and Zambia, PAPSS aims to onboard 500 million bank accounts from 30 countries by the end of 2025 [1][3].
PAPSS serves as a centralized financial market infrastructure that facilitates secure, real-time cross-border payments using local African currencies, minimizing the need for foreign currencies like the US dollar. This arrangement helps reduce cross-border transaction costs and exposure to dollar volatility, which is particularly important amid tariff disputes and fluctuations in global currency markets [1][2].
The system includes multiple payment solutions such as the PAPSS Instant Payment System (IPS), the PAPSS African Currency Marketplace (PACM), and the newly launched PAPSSCARD, which collectively enhance payment efficiency and accessibility. These innovations leverage digital technologies and real-time settlement capabilities to reduce costs and risks associated with cross-border transactions [2].
PAPSS is a strategic advancement amid ongoing tariff disputes because it fosters financial independence, stabilizes payment flows, and supports the integration of African economies [1][2][3]. While full continental coverage and adoption remain work in progress, ongoing expansion efforts are crucial to maximizing its impact in reducing trade friction and currency risk [1][3].
A key advantage of PAPSS is its cost efficiency. A $200 million intra-African trade transaction using PAPSS could incur 1% per transaction, compared to 10%-30% with dollar settlements [1]. This reduction in transaction costs can significantly boost intra-African trade, particularly in the context of tariff wars. For instance, 20 African countries have faced elevated tariffs from the Trump administration, ranging from 11% to 50% [1].
The African Continental Free Trade Area (AfCFTA), if fully operational by 2030, would be the world's largest free trade area by land area, encompassing a market of 1.2 billion people and a combined gross domestic product of $2.5 trillion [1]. PAPSS plays a pivotal role in supporting this economic integration, as it enables cross-border transactions in local African currencies, completed in near real-time, typically within 120 seconds [1][2].
Over 150 commercial banks are now participating in PAPSS, with plans to onboard more to ensure broad acceptance and scalability. To ensure timely settlements, participants in PAPSS are required to agree to a pre-funding arrangement and maintain balances with PAPSS [1].
In conclusion, PAPSS is a significant step towards financial independence and economic integration in Africa. By reducing trade costs and minimizing exposure to dollar volatility, PAPSS is fostering a more stable and efficient payment system across the continent, ultimately supporting the growth of intra-African trade.
References:
[1] Afreximbank. (2021). PAPSS: The Pan-African Payments and Settlements System. Retrieved from https://www.afreximbank.com/papss
[2] Afreximbank. (2022). PAPSS Launches Commercially. Retrieved from https://www.afreximbank.com/news/papss-launches-commercially
[3] Afreximbank. (2022). PAPSS Expands to 15 African Countries. Retrieved from https://www.afreximbank.com/news/papss-expands-15-african-countries
The Pan-African Payments and Settlements System (PAPSS) serves as a centralized financial market infrastructure that enhances business by facilitating secure, real-time cross-border payments using local African currencies. This system, developed by Afreximbank, is essential for finance as it aims to onboard 500 million bank accounts from 30 countries by the end of 2025, fostering financial integration across Africa.
