The African Export-Import Bank (Afreximbank) said it will launch its new Pan-African Payment and Settlement (PAPS) platform to ease transaction on the continent.
Its President, Prof Benedict Oramah, explained that PAPS, which will be available on mobile devices, will facilitate the clearing and settlement of intra-African trade transactions in African currencies and significantly reduce the dependence on U.S. dollars and other hard currencies in the settlement of regional trade.
According to him, the bank has partnered the West African Monetary Institute (Wami) to launch a pilot in six West African countries by the end of the year. The West African Monetary Zone is the continent’s only economic community that does not already have a settlement platform – hence Afreximbank’s decision to pilot the new solution in the region.
Previously referred to as the Intra-Africa Trade Platform, it is one of a number of new initiatives that the bank is currently implementing as part of its strategy to facilitate greater volumes of intra-African trade as well as formalise the continent’s informal trade, which is estimated by the bank to be close to $40billion.
“Africa’s challenge when it comes to payments and settlements”, Oramah explained, “comes down to the fact that it has multiple local currencies, meaning that cross-border payments typically involve a third currency, such as the US dollar or Euro. This leads to a high cost of intra-African payments, which can take weeks to process.
“Governments want to build their reserves so they tend to prefer exports to markets that issue hard currency. For this reason, a significant amount of cross-border trade occurs informally. The issue is compounded by the fact that most traders currently do not have a system that enables them to settle in a secure way,” Oramah said.
He explained that with the new platform “a buyer in country A buying from a seller in country B can pay in his or her own currency for the goods, while the seller will receive his or her own currency. At the end of the day, the only countries that will have to pay dollars will be those in deficit”.
Although Oramah agreed that it may not be possible to completely eliminate hard currencies in trade settlements, he believes that through the platform, it will be significantly reduced.