Arusha. Africa can bolster intra-continental trade and reduce transaction costs by $5 billion annually under a recently launched payment system.
The Pan African Payment and Settlement System (PAPSS) also ensures instant transfer of funds from one country to another regardless of the currencies.
“PAPSS holds the potential to bolster intra-African trade,” a key speaker told a forum of legal experts from around the continent on Monday.
The platform was developed by Afreximbank and the secretariat of the African Continental Free Trade Area (AfCFTA) agreement. “It is expected to bolster trade within Africa by facilitating simpler and secure cross border payments,” said Chief Emeka Obegolu, the President of the Pan African Lawyers’ Union (Palu).
He said the tool was key to accelerating cross border trade in Africa which remains low at 13 percent compared to other regions of the world.
One of the factors hindering trade is reliance on third currencies--US dollars, euros and the British Pound--for the clearing and settlement of cross-border payments and transactions. The use of such currencies in intra-African trade is considered a barrier in that it leads to high costs and long transaction times.
Chief Obegolu said the Arusha-based Palu will train members of the AfCFTA secretariat in order to assist African states “to radically grow their trade across borders”.
PAPSS, a financial facility enabling cross-border payment transactions, has been launched after the continental trade pact came into force.
The technology connects African banks, payment service providers and other financial market intermediaries for instant and secure payments between countries
Under the system, instant payments are made by originators to beneficiaries in their local currencies, no matter where they are in Africa.
This not only simplifies the transactions but also lowers the cost of making such payments across African borders, opening other economic opportunities. “Simplified cross border payments reduce payment transaction costs by $5 billion annually,” the President of Arusha-based lawyers’ body said.
Simplified process reduces the costs given the complexities of foreign exchange use for cross-border transactions between African markets
PAPSS also brings together a growing network of central banks, commercial banks, payment service providers and other financial intermediaries in intra-African trade.
The forum was told that despite Africa routinely touted as having seven of the world’s ten fastest growing economies, its global trade remains low. The vast continent of 1.3 billion people accounts for only 2.2 percent of global exports and 2.8 percent of global imports by 2020.
Africa was also a home to 15 out of the 20 least competitive economies chiefly attributed to poor infrastructure and high transportation costs.
The AfCFTA, Chief Obegolu pointed out at the four day forum at Mount Meru Hotel, can reverse the trend “if it is effectively implemented”.
The trade pact was launched in January 2021 but full trading activity is yet to commence due to ongoing negotiations on various protocols. Various speakers, however, asserted that the economic integration of Africa must go hand in hand with strengthening democracy and governance.
Africa was not only riddled with high levels of corruption but inefficiency by public bodies, making it expensive and risky to do business.
Retired Prime Minister Mizengo Pinda, who graced the meeting, observed that corruption was to blame for draining resources from the African continent. “Africa is also under siege from illicit financial flows,” he said, calling on the lawyers across the continent to address the challenge. East African Community (EAC) secretary-general Peter Mathuki said it was a pity that Africa was facing food and fuel crises due to the war in Ukraine.
Mr Usman Mohamed, the president of Sudan Bar Association called on the African countries to take deliberate measures against the dominance of foreign legal firms in the continent. African legal experts, he insisted, should be fully engaged in crafting and signing of investment and concessions contracts and agreements so that the continent does not lose in the deals.