As intra-African trade continues to record significant growth within the region, with Africa Continental free trade area (AFCFTA) and African Union (AU) playing major role in strengthening pan-African trade, and potentially increasing intra-Africa trade by 33% while aiming to create a large free trade area in Africa.One of the significant key-aspect of intra-Africa trade growth; is the unveiling of pan-African payment system PAPSS.
PAPSS a payment system that supports cross-border retail payment in local currency, enabling the efficient flow of money securely across African borders, while minimizing risk and contributing to financial integration across the region. launched in 2022 by the African union (AU) and African export-import bank(afreximbank).
The use of third-party currencies (USD,EURO) in trade dealings within Africa is increasingly expensive; financial experts are saying the use of third-party currencies for trade payments costs the region about $5billion yearly in intra-regional trade transactions fee; experts are describing this payment platform PAPSS as an alternative. Highlighting its supports for cross border retail payment in local currency, thereby eliminating any need for third-party currencies like the United States dollar and euro.
Prof. Benedict Oramah, president of afremixbank told Arise tv in an interview that; foreign currency.(FX) is becoming scarce and there has been so many troubles with accruing it for payments of goods and services across Africa, adding that it has caused a “diversion of trade”.
“In an age where foreign currency had increasingly become scarce you also have caused a diversion of trade, Because; to buy something from your neighbor you have to go and try and earn another currency somewhere else to be able to get the currency to pay for it” he said. Prof. Benedict is championing for the domestication of payment in Africa to avoid going through different channels to get foreign currencies to pay for trade within the region. “I would say this is not necessary, we want to domesticate all the inter-African payments” he added.
However fifteen pan-African countries have been enrolled to PAPSS with their central banks incharge of PAPSS regulations in their respective countries. Namely: bank of Ghana, central bank of Nigeria, central bank of Liberia, central bank of the republic of Guinea, bank of Sierra Leone, reserve bank of Zimbabwe, central bank of Djibouti, bank of Zambia, central bank of Kenya, central bank of Gambia, central bank of Tunisia, central bank of Egypt, central bank of Comoros, reserve bank of Malawi, National bank of Rwanda.
Recently, the central bank of Nigeria (CBN) in its ongoing commitments; to fostering seamless intra-African trade, driving financial inclusion, and operational efficiency for Nigerians engaging in cross-border payments within Africa has announced new guidelines for PAPSS transaction in the country.
According to a circular referenced: TED/FEM/PUB/FPC/001/006, from the CBN trade and exchange department. There have been some significant reviews for document requirement for PAPSS
Transaction in Nigeria.
1. The use of basic documentation, know your customers (KYC) and anti-money laundry (AML), provided by the customers to the authorized dealer bank for individual transaction below USD 2000 and corporate transactions below USD5000 or its equivalent monthly is now allowable.
2. For transactions above USD2000 and USD5000 for individual and corporate respectively, all Documentation requirements stipulated in the CBN foreign exchange manual and extant circulars shall apply.
3. Applicants shall be responsible for ensuring that regulatory documents are made available, to facilitate the clearance of goods (as may be requested by the relevant government agencies).
4. ADBs are allowed to source for foreign exchange for the settlement of PAPSS transaction through the Nigerian foreign exchange market (without recourse to the CBN).
5. All exports proceeds repatriated under PAPSS shall be subject to certification by the respective processing banks.
Optimism for businesses.
Financial experts and institutions said the use of PAPSS within Africa will reduce business dependant on third-party currencies and reduce transactional cost which in turn will boost business across the region. However, following the release of the new guidelines for PAPSS transaction, CBN has made it easy for Nigerian business owners to participate in intra-African trade and facilitate payments with PAPSS; by-passing strict regulations. This new guidelines eliminates the stress businesses go through while trying to provide documents stipulated to CBN foreign exchange manuals.
Trades payment within the region can now be facilitated quickly with customer basic valid Identification documents. Press release from the apex bank says customer will be allowed to use (KYC) and (AML) documents for transactions below $2000 for private individuals\business; $5000 for corporate business transactions.
However customers with large trade values above $2000 appropriated for private individuals and $5000 corporate businesses are subjected to strict regulations by CBN. CBN says traders with larger trade volume will face stricter restrictions while facilitating payment with PAPSS in the country. “for transactions above the threshold all documentation as stipulated in the CBN foreign exchange manual remains mandatory”. CBN noted.
Additionally, to ensure the smooth clearance of goods across Nigeria’s borders the CBN said regulatory documents will be made available by applicants . This will ensure that the necessary papers are in place for smooth dealings. In another significant change, that’s good for business; CBN has allowed authorized dealer banks (ADBs) to source foreign exchange for the settlement of PAPSS transaction directly through the Nigerian foreign exchange market “without recourse to the CBN”. CBN noted that this move is to help enhance the flexibility of transactions, reducing the heavy reliance on the central bank. “Authorized dealer banks may now source foreign exchange for PAPSS settlement through the Nigerian foreign exchange market (without recourse to the CBN)”. CBN report noted.
Trade volume concerns.
Modupe Diyaola, a fin-tech leader and CEO of meCash told Business Day about her trade volume concerns, highlighting that increase in trade volume will bring down reduction in the price of transaction fee, which will drive efficiency for business owner within the continent.
But the CBN guideline only gave easy room for minimum threshold of $2000 for private business and $5000 for corporate business. “I believe transaction fee will reduce overtime. Once volume are established and financial institution players start seeing the value in holding African currency reserve to facilitate PAPSS transaction”. She said. She further argued that fin- techs and innovators should be included at the center of PAPSS adoption. She stressed that PAPSS should not be limited to just commercial banks but also to fintechs. “We would like to see the CBN drive this for Nigerian fin-tech”. She added.
Further- more the CBN urges Nigerians and commercial banks to adopt PAPSS and commence, Originating transaction in-line with the new policy. While encouraging exporter and importers, to familiarize themselves with the new requirements and leverage PAPSS for cross-border transactions within Africa.
NWALI CHIDOZIE MICHAEL.
