Ghana and Nigeria have made steady progress with the integration of payment systems as part of the implementation of an integrated payment system for West African states. Ghanaweb quoted Mr. Archie Hesse, Chief Executive Officer of Ghana Interbank Payment and Settlement Systems GhIPSS), as revealing that the technical level of integration had been completed, and currently what remains is to synchronise the settlement of currency exchanges during transactions. “We are transacting in cedis, Nigeria transacts in naira. What do we do? Are we going to have a daily exchange rate between the two countries’ currencies? This is a key factor [currency settlement] to be looked at,” he said.
The final integration of West African states’ payment systems will be implemented by the end of 2022. GhIPSS is expected to introduce a scheme to link the National Switching and Processing System—gh-Link- TM—with other West African countries.
Hesse noted that Afreximbank, the pan-African trade finance lender, had initiated a project to address the forex implications of cross-border payment transactions in Africa. Late last year, the bank, in collaboration with the African Union and some African central banks launched a Pan- African Payment and Settlement System (PAPSS), which is a central financial market infrastructure to support payment arrangements between African states to facilitate the economic and financial integration of Africa.
“Once it is done, with the switches all linked to each other, it should be easy to integrate,” Hesse said. PAPSS expects to connect the entire continent, handle instant payments in multiple African currencies, and provide a settlement mechanism that creates trust within the ecosystem. According to its sponsors, PAPSS brings two critical changes to Africa’s trade finance: minimising the use of hard currencies in trade payments, and domesticating payments and settlements within Africa. This, in turn, will help organisations and their financiers manage currency risks better.
“The PAPSS is a platform that will domesticate intraregional payments, save the continent more than $5 billion in payment transaction costs per annum, formalise a significant proportion of the estimated $50 billion of informal intra-African trade, and above all, contribute in boosting intra-African trade,” Afreximbank’s President Benedict Oramah, had said while addressing the summit.
The platform, which has been developed in collaboration with the African Union, will make it possible for African companies to clear and settle intra-African trade transactions in their local currencies. This will significantly reduce the dependence on hard currencies in regional trade payments.
Today, cross-border payments in Africa typically involve a third currency, such as the US dollar or euro, leading to high costs and long transaction times. Speaking on how PAPSS works, Afreximbank’s regional COO for East Africa, Kudakwashe Matereke, said: “If for instance someone in Kenya is trading and the balance favours Kenya, you settle it at that level. Every quarter you settle in the agreed currency, which reduces the need for people to travel across the borders with currency of the other country.” It means only the deficit between two countries will be settled using dollars.
Afreximbank had previously worked with the West African Monetary Institute to pilot the solution in six West African countries. The PAPSS is a crucial element of the African Union’s work to implement AfCFTA, which was signed by 54 of the 55 African Union nations, and ratified by 27.