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Africa has got its first continent-wide digital payment system to facilitate payments for goods and services in local currencies.

The Pan-African Payment and Settlement System (PAPSS) was formally launched by the African Export-Import Bank (Afreximbank) at the African Union extraordinary summit on July 7 in Niamey, Niger Republic.

The summit gathered African heads of states to kick off the operational phase of the African continental free trade area (AfCFTA).

“The PAPSS is a platform that will domesticate intra-regional payments, save the continent more than US$5bn in payment transaction costs per annum, formalise a significant proportion of the estimated US$50bn of informal intra-African trade, and above all, contribute in boosting intra-African trade,” said Afreximbank’s president Benedict Oramah, 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 recently at a GTR roundtable discussion in Nairobi, Kudakwashe Matereke, Afreximbank’s regional COO for East Africa, explained how the PAPSS will work:

“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,” he said.

It means only the deficit between two countries will be settled using dollars.

Afreximbank has 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 has now been signed by 54 of the 55 African Union nations, and ratified by 27.

Nigeria was the latest country to sign the landmark trade agreement earlier in July, leaving Eritrea as the only country holding out.

While the operational phrase of AfCFTA has now commenced, there are a number of outstanding decisions that are still pending by the participating nations, including around tariffs and rules of origin.

For instance, with the aim to liberalise 90% of trade taking place between the member states, the nations are yet to determine which sectors to protect and which to liberalise, a process that will likely be long and protracted.

Afreximbank is playing a crucial role in AfCFTA’s ambition to create a single African market for goods and services covering 1.2 billion people. In addition to the PAPSS, the bank is instituting a US$1bn AfCFTA adjustment facility to “enable countries to adjust in an orderly manner to sudden significant tariff revenue losses” as a result of the implementation of the agreement, the bank says.