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PAPSS under spotlight as CBN sets transaction limits

At the launch of the Pan-African Payments and Settlement System (PAPSS) in the Ghanaian capital, Accra on January 13, last year, promoters of the electronic platform, as well as stakeholders, were positive that it would play a key role in boosting intra-African trade. For instance, speaking at the event, Chief Executive Officer of PAPSS, Mike Ogbalu III, said: “The commercial launch marks a significant milestone in connecting African markets seamlessly. It will provide a fresh impetus for businesses to scale more easily across Africa and is likely to save the continent more than $5 billion in transactions costs every year.”

Also speaking at the unveiling, the President and Chairman of the Board of Directors of Afreximbank, Dr. Benedict Oramah, stated: “PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade.” Similarly, in her remarks, the Executive Director of the International Trade Centre (ITC), Pamela CokeHamilton, said: “In these uncertain times, African countries now have a commercially viable tool that can address a critical barrier for MSMEs to trade competitively.

ITC is preparing enterprises to benefit from PAPSS, creating new opportunities for growth in cross-border e-commerce and sustainable trade.” History Originally unveiled at the 12th Extraordinary Session of the African Union (AU) Assembly in Niamey, Niger on July 7, 2019, PAPSS is a pan-African Real-Time Gross Settlement (RTGS) infrastructure for cross-border payments in distinct local currencies. It is the brainchild of the African Export-Import Bank (Afreximbank), which partnered with the AU and the African Continental Free Trade Area (AfCFTA) Secretariat to launch the electronic platform as a tool to complement trading under AfCFTA.

Specifically, the system works in collaboration with the continent’s central banks to provide a payment and settlement service to which commercial banks, payment service providers and fintechs across the region can connect as participants. In an interview with journalists, last year, the Secretary-General of AfCFTA Secretariat, Wamkele Mene, said PAPSS would lead to efficient cross-border trade transactions and put Africa on a new economic trajectory. “There are 42 currencies in Africa. We want to make sure that a trader in Ghana can transfer Ghanaian cedi to a counterpart in Kenya who will receive Kenyan shillings,” Mr. Mene said. Prior to its formal launch, the PAPSS had been piloted successfully in the six countries that make up the West African Monetary Zone (WAMZ)—Nigeria, the Gambia, Sierra Leone, Liberia, Ghana and Guinea. Explaining why WAMZ was used for the pilot, Afreximbank boss, Dr. Oramah, stated: “The six WAMZ countries have different currencies. One of the countries is Francophone and the others are Anglophone.

You have a big economy like Nigeria and then you have smaller economies. So anything that can go wrong in other parts of Africa would have gone wrong in the WAMZ, and we will have been able to address it during the piloting phase.” In October 2021, the Central Bank of Nigeria (CBN) issued guidelines on operations of PAPSS in the country. Specifically, the guidelines stipulated that commercial banks should adopt the exchange rate at the Investors and Exporters’ (I&E) window for cross border payments through PAPSS. “All authorised dealers are required to ensure that prevailing exchange rate at Investors and Exporters Forex Window as advised by Financial Markets Department, FMD, should be used in cross-rates conversion between naira, United States dollars and third currencies within Africa, for outbound payments and vice-versa for inflows,” the guidelines stated. Successful transactions A year, after the apex bank issued the guidelines, Nigeria emerged as the first country in Africa to record the first successful transaction through the PAPSS platform. The transaction, which was between the Ghana Commercial Bank and First Bank of Nigeria Plc, was via the Nigeria Inter-Bank Settlement System Plc (NIBSS) Instant Payment platform for commercial banks, Fintechs, payment service providers, card schemes, and other payment industry players. Also, on March 3 this year, Stanbic IBTC Bank PLC, a subsidiary of Stanbic IBTC Holdings PLC, successfully completed the first inbound commercial transaction on the PAPSS platform in Nigeria.

According to a statement by the lender, the transaction, worth N5million, was carried out on behalf of a key corporate client from Ghana Commercial Bank (GCB). Commenting on the milestone, Chief Executive of Stanbic IBTC Bank, Wole Adeniyi, said: “We are delighted to have successfully processed our first inbound commercial transaction on PAPSS. This deal underscores our pledge to provide our clients with efficient and secure payment and settlement solutions that support their growth and expansion across Africa. We look forward to leveraging our expertise and the capabilities of PAPSS to enable more African businesses to tap into the opportunities presented by intra-African trade.” Head of Transaction Banking at Stanbic IBTC Bank, Jesuseun Fatoyinbo, also expressed confidence in the PAPSS platform, saying: “This is a testament to the effectiveness of PAPSS in facilitating cross-border payments and settlement in a fast, secure, and costeffective manner. We are proud to be at the forefront of this initiative and commend the efforts of Afreximbank and the African Union in developing the PAPSS platform and promoting intra-African trade.” Also commenting on the transaction, Chief Executive of PAPSS, Mike Ogbalu III, said: “We are delighted that Stanbic IBTC has completed its first inbound commercial transaction on PAPSS. This is a significant step towards achieving our goal of promoting intra-African trade and facilitating cross-border payment and settlement of transactions in African currencies. We believe that PAPSS has the potential to revolutionize the way businesses trade and settle transactions in Africa.”

Transaction limits However, in a circular the CBN posted on its website on July 26, which was signed by the Director of Trade and Exchange Department, Dr. Ozoemena Nnaji, the apex bank announced that for the settlement of PAPSS transactions with its foreign exchange, “the limit per customer shall be $20,000 per quarter,” while the limit per Authorised Dealer Bank (ADB), “shall be $200,000 per quarter.” In addition, the CBN stated that multiple applications through different ADBs is not permitted. According to the circular, “for settlement of PAPSS transactions by CBN, Authorised Dealers shall obtain the approval of CBN for USD cover, before initiating payment on PAPSS.” It emphasised: “Authorised Dealer Banks are allowed to maintain a USD settlement account with the PAPSS settlement bank, to settle PAPSS transactions, for which CBN would not provide foreign exchange.”

Furthermore, the regulator stated that PAPSS transactions “remain trade backed” and that the eligible payment mode for such transactions must be Bills for Collections. Potential With official data showing that over 80 per cent of African crossborder transactions originating from the continent’s banks are currently cleared and settled offshore, thus creating inefficiencies and increasing the cost of African cross-border payments, the general belief is that once PAPSS is fully implemented, it could save the African continent over $5 billion in payment transaction costs annually and also lead to increases in value addition to products, jobs creation and more earnings for traders. Indeed, the view in some quarters is that a full implementation of AfCFTA and PAPSS could eventually lead to a strong economic and political integration in the African continent (with the establishment of an African Central Bank and an African currency similar to the Euro), a situation, which would enable countries on the continent to finally break free from the hold of their colonial masters. Conclusion However, as analysts point out, the tremendous potential of PAPSS in significantly boosting intra-African trade, especially as a critical tool for the implementation of the AfCFTA, may be difficult to realise if the current political instability on the continent (military coups) continues to be the norm.

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