As trade wars escalate globally, an African payment system is accelerating its efforts to enable businesses across the continent to conduct cross-border transactions in local currencies.
The Pan-African Payments and Settlements System (PAPSS) allows companies in different African nations to trade without relying on the dollar. Amid ongoing tariff disputes involving the U.S., China, and other countries, PAPSS says many African nations are ramping up their use of alternative global currencies to reduce trade costs and minimize the exposure to dollar volatility.
Lower Costs, Faster Speeds
PAPSS’ internal estimates show that a $200 million intra-African trade transaction would typically incur 10% to 30% in costs through dollar settlements. By using local currencies such as the Nigerian naira, Ghanaian cedi, or South African rand, these fees could be reduced to just 1% per transaction.
As a result, the potential savings for Africa are substantial. PAPSS estimates that Africa could retain up to $5 billion annually in hard currency by adopting regional currency settlements.
Payments are completed in near real time, typically processing within 120 seconds. To meet these settlement times, PAPSS must ensure that funds are available to complete the originator’s transaction before transferring funds between the buyers and sellers’ accounts. Participants are therefore required to agree to a pre-funding arrangement, maintaining balances with PAPSS.
Towards the World’s Largest Free Trade Zone
PAPSS launched commercially in January 2022. The system was developed by Afreximbank as one of the foundational components toward the full realization of the African Continental Free Trade Area, an agreement reached in 2018 among African Union nations.
Expected to be fully operational by 2030, the continent-wide trade zone would be the world’s largest free trade area by land area, encompassing a potential market of 1.2 billion people and a combined gross domestic product of $2.5 trillion. PAPSS is currently operational in 15 African countries, including Kenya, Malawi, Tunisia, and Zambia, with over 150 commercial banks now participating.
Tariff wars have significantly impacted Africa. According to the Carnegie Endowment for International Peace, 20 African countries are currently facing elevated tariffs from the Trump administration, ranging from 11% on imports from Cameroon and the Congo to 50% on goods from Lesotho. Another 29 African countries are subject to the baseline tariff of 10%, including Egypt, Ethiopia, and Kenya.
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