UA new step has just been taken towards the financial integration of Africa in the context of the continental free trade area. On paper, it brings together 54 of the 55 African countries (except Eritrea), or 1.2 billion inhabitants, and represents a cumulative GDP of 2,500 billion dollars, the equivalent of the GDP of France. Or the largest common market in the world in terms of inhabitants. It was launched with great fanfare at the African Union summit in Niamey in 2019, with the ambitious objective of rapidly advancing intra-African trade, to boost the economies of the least developed continent. Intra-African trade represents only 15% of the continent’s total trade, compared to 70% for the European Union, for example. But the process was slowed down for almost two years due to the Covid-19 pandemic. The launch in early January of the Pan-African Payment and Settlement System (Papss), a key instrument that will allow payments and settlements in local African currencies, further concretizes this financial market logic in which Zlecaf intends to register. This system has already been tested in six countries of the West African monetary zone, namely Ghana, Nigeria, Gambia, Liberia, Guinea and Sierra Leone. A small area certainly, but representative of the difficulties encountered elsewhere. Eventually, the continent might save more than $5 billion in payment transaction costs each year. The aim is also to reduce delays, it takes on average between 2 and 14 days for intra-regional payments, hence the low level of intra-African trade.
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What is it concretely?
The Papss is a pan-African platform that should allow companies and governments to trade with each other instantly, transparently, and in local currencies between the different African markets. It is developed by the most important institutions of the continent, such as the African import-export bank (Afreximbank), the African Union or even the central banks involved in the project, in collaboration with the general secretariat of Zlecaf. The aim is therefore to repeal the high costs of cross-border commercial transactions and excessively long delays. Indeed, today, cross-border payments on the continent require the intervention of a third currency, usually the US dollar or the euro, which leads to the high costs that Zlecaf wants to avoid. And also an excessive dependence of Africa vis-à-vis third currencies to pay for the transactions that take place on its soil. For example, to transfer money to Nigeria from Egypt, one must go through a correspondent bank in a country outside Africa, only then, following paying a fee, will this money be available. “Papss is not designed to replace existing regional and national payment systems, but to collaborate and work with them to better integrate African economies for the benefit of all,” said Benedict Oramah, Head of of Afreximbank and Chairman of the Board of Papss. “We have over 42 currencies in Africa. We want to reduce and eventually eliminate this cost [5 milliards de dollars, NDLR], as it limits the competitiveness of our SMEs and makes trade expensive and inaccessible for many SMEs and young entrepreneurs,” the Secretary General of the Zlecaf Secretariat, Wamkele Mene, recently explained in an interview with Africa Renewal. “It’s an African solution to an African problem. It is the most practical and significant achievement in payment system integration on the continent since independence from colonial rule. We have never been closer as a continent to the vision of issuing a common currency,” Ghanaian Vice President Mahamudu Bawumia commented at the launch.
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Towards an integrated financial market
Currently, barriers to intra-African trade are numerous. In addition to the glaring lack of liquidity, the difficulty of accessing foreign currencies, Africans are faced with the issue of risk with strict regulatory controls. One of the explanations is to be seen on the side of international banks, many of which have left the African continent in the last ten years. “Payment infrastructures have existed for some time at the national and sub-regional level. However, these systems lack interoperability. Fragmented national and regional payment systems cannot drive pan-African economic development and intra-African trade. While these are off to a good start, it is critical that we now integrate all of Africa financially,” explained Mike Ogbalu.
And things should move quickly, Afreximbank plans to grant an $8 billion line of credit to 500 African banks to facilitate business transactions with Papss. “This will represent the largest banking relationship ever forged by a financial institution on the continent. Currently, the bank has integrated more than 480 banks, developed the head of the bank. “The introduction of Papss provides central banks with greater transparency and control, as we now have a single window for all cross-border transactions emanating from our various jurisdictions and across the continent,” said, Godwin Emefiele, Governor of the Central Bank of Nigeria. This financing of the banks is crucial, because by going through the Papss they will be protected once morest the many risks of payment, clearing and settlement. “Papss will give new impetus to businesses so they can more easily expand across Africa, essentially eliminating the borders that have balkanized us and robbed us of our economic prosperity for so long,” said Mike Ogbalu III, CEO of Papss. Papss, according to him, “Papss has demonstrated its credibility through its successful pilot phase and proof of concept in the WAMZ, exhibiting the diversity and complexity expected in the wider African context (multilingual, multicurrency, multi-regulator, etc.)”. Next step: “Papss will now focus on integrating the rest of the continent into this critical infrastructure including national payment systems, regional payment systems and other financial service providers”, added Mike Ogbalu III. The year 2022 is already shaping up to be crucial for the Zlecaf, since the States should finalize the negotiations on the rules of origin, but also accelerate on the future financing mechanism for SMEs and the launch of the African Trade Gateway digital platform. .
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