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Only 9 countries have joined the African payments system, thought to be an early win for AfCFTA

Only 9 countries have so far signed up to the Pan-African Payment and Settlement System (PAPSS) since its establishment in January 2022 by the African Export–Import Bank (Afrieximbank).

President of the AfrieximBank Benedict Oramah tells The Africa Report around 40 commercial banks on the continent have signed up to the system. The bank has invested $500m, which will rise to $3bn on developing and establishing the system, heralded as an early win for the AfCFTA, says The Africa Report.

According to Mr. Oramah, a wider adoption of the PAPSS can help prevent future sovereign-debt crises. The system can “domesticate African payments and reduce foreign debt” by reducing the need for transactions to be carried out in currencies such as the dollar, Oramah said in an interview on the sideline of the Africa CEO Forum in Abidjan.

Current participants include Nigeria, Zambia and Zimbabwe. The next group of PAPSS entrants this year will be Egypt, Ethiopia and the six-member East African Community, Oramah says.

PAPSS enables governments to pay contractors in local currencies rather than having to borrow from abroad, Oramah argues. It can also raise government tax receipts through job creation, while increasing inter-African trade and strengthening the continent’s currencies.

Kenyan President William Ruto on 29 May called on African countries to join PAPSS and reduce their use of the dollar. “Ruto got it right,” Oramah says. “PAPSS will help in terms of sovereign debt.” AfCFTA estimates that the system can save Africa $5bn a year in payment transaction costs alone.

The extent to which PAPSS can in itself increase the appetite of African countries to trade with each other is unclear. Economists such as James Dzansi at the International Growth Centre in Accra have pointed to factors such as the need to compensate governments who suffer from a drop in import tariff revenues due to AfCFTA.

Oramah points to the AfCFTA adjustment fund set up by Afreximbank, which has three components. The first is a grant-based fund provided by government donors which aims to compensate countries which in the short term lose out from lower tariffs. The second is a concessional financing fund to help states with adopting AfCFTA protocols, and the third is a commercial credit fund from which governments and the private sector can borrow.

The implementation of AfCFTA has progressed well, but still “not to the levels we want,” Oramah says. Rules of origin have now been agreed, but more work is needed on harmonization of standards, including in textiles, he says. “The political act of signing the treaty is a necessary but not a sufficient condition” for free trade. “It can’t start by wishing it.”

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