This article was contributed to TechCabal by Conrad Onyango/bird
A new pan-African payment system removes legacy complexities, including the cost of cross-border payments, boosts operational efficiency and opens a new path to more stable and stronger African currencies and is expected to boost intra-African trade.
A Kenyan customer can now pay for a product from Ghana in Kenyan shillings, while the trader receives payment for the goods in Ghanaian cedi, without annoying conversion issues, following the official launch of a revolutionary payment system in Africa.
The Pan-African Payment and Settlement System (PAPSS) which allows merchants to make real-time money transfers from one African country to another went live in Ghana last week, triggering its roll-out to other African countries.
Strengthening local currencies
The Afreximbank, Africa Union and AfCFTA initiative removes the use of the dollar and other third-party currencies from the transaction matrix, providing a new opportunity to create demand and strengthen local currencies.
Small and medium-sized enterprises (SMEs) will be the main beneficiaries of estimated annual savings of US$5 billion in customs clearance and transaction costs, as more people start using the new cross-border payment platform. continent.
The savings will allow small businesses to unlock billions of dollars and ease the financial burden needed for traders to expand beyond their country’s borders to access the world’s largest free trade area, the African Continental Free Trade Area, with a market value of $3 trillion. U.S. dollars.
“The commercial launch marks an important step in seamlessly connecting African markets. This will give new impetus to businesses to scale more easily across Africa and is expected to save the continent over $5 billion in transaction costs every year,” said Mike Ogbalu, CEO of PAPSS.
Small and medium enterprises form the backbone of Africa’s economy, accounting for more than 90% of businesses and employing around 60% of workers, according to the International Trade Center.
However, at the heart of its project “Promoting the competitiveness of SMEs in Africa” report, is the revelation that African SMEs face a huge financing gap, estimated at more than US$136 billion every year.
And while the report claims that capital is the biggest obstacle to local merchants growing – due to scarcity, high interest rates, high collateral requirements and cumbersome application processes, it also reveals that women traders are the hardest hit.
“It is particularly difficult for women to obtain finance, as fewer African women have bank accounts, compared to men, and legal rights to family capital and collateral can be restrictive, given local laws and customs. on land ownership,” according to the report. .
The Executive Director of the International Trade Center, Pamela Coke-Hamilton, said African countries now have a commercially viable tool that can overcome a critical barrier preventing MSMEs from trading competitively even in times of uncertainty. indicating the end of the negative impact of exchange rate fluctuations. .
“ITC prepares businesses to benefit from PAPSS, creating new opportunities for growth in cross-border e-commerce and sustainable trade,” said Coke-Hamilton.
The new payment platform has the potential to reduce transaction time to seconds, removing a major barrier to the growth of intra-African e-commerce, services and goods.
The platform has had a successful pilot in all seven West African countries – Gambia, Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone – that make up the West African Monetary Zone (WAMZ).
With talks underway to integrate other African central banks, the continent could also be seen moving closer to a single currency.