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Vice President Mahamudu Bawumia has called on the African Export-Import Bank (Afreximbank) to re-examine the strategy it is currently using to implement a centralized payment and settlement system for intra-African trade and commerce payments.
The Pan African Payments and Settlement System (PAPSS), developed by the Afreximbank is the first centralized payment market infrastructure for processing, clearing and settling of intra-African trade and commerce payments. It is expected to facilitate payments as well as formalise some of the unrecorded trade due to prevalence of informal cross-border trade in Africa.
Rather than building a whole new structure from scratch, which would require individual financial institutions across the continent to connect to a central database, Ghana’s Vice President believes a simpler, quicker and more effective method would be to plug in the existing payment structures being operated by African Central Banks into a central system at Afreximbank.
Dr Bawumia made the call on Tuesday, July 27, 2021 in Accra at the opening ceremony for the 5th Ghana International Trade and Finance Conference (GITFiC 2021). The Conference is being attended both physically and virtually by senior officials of African central banks, the African Union, West African Monetary Institute members of the Diplomatic Corps, and other key stakeholders in the African Continental Free Trade Area (AfCFTA).
“It is important that I mention this, for the attention of Afreximbank and the implementers of the Pan African Payments System: If you look at the strategy and the mode that we are observing in the implementation of the Pan African Payment and Settlements System, we are seeing that individual financial institutions are being asked to connect to the system. I think it’s a very inefficient way to proceed.
“If you look at the financial systems within each of the countries, you have switches and financial institutions are all connected to these switches, whether it’s in Ghana or Nigeria or the BCEAO. I think the easiest and quickest way for us to go as a continent is to have the national switches connect directly to the Pan African Payments and Settlements System. So when the national switch in Ghana, for example, under GhIPPS, connects to PAPPS, it brings along immediately all the 23 or so banks that are functional. It would be similar in Nigeria, similar with the BCEAO. If we want to wait for each individual financial institution to connect directly, there will be a long delay in the process but we don’t have time.
“So my humble advice is that let’s move towards the national payment systems connecting directly to the Pan African Payment and Settlements System and that will bring all the financial institutions under their switches for us to move forward,” he explained.
Alluding to the theme for the Conference, “Facilitating Trade in AfCFTA; The Role of the Financial Services Sector”, Vice President Bawumia noted that a simple, efficient payment system is an integral part of ensuring continental trade.
“After all, payments are at the heart of the day-to-day functioning of free trading system. Making sure that the underlying payment system runs smoothly is the least we should expect of the financial system if we are to realize the vision of the continental free trade.”
With intra-African trade expected to improve from the single-digit levels to over 60 percent, the Pan African Payments and Settlement System will allow businesses on the continent to clear and settle transactions in their local currencies without depending on third-party currencies.
It will also provide an alternative to the current high-cost and long correspondent banking relationships by facilitating trade and other economic activity across African countries through a simple, low-cost, and risk-controlled payment clearing and settlement system.