Kenya Taps Its Digital Payments Chops For Ambitious Pan-African Project
Kenya’s successful bid to host the Pan-African Payment and Settlement System (Papss) marks a pivotal moment in Africa’s ongoing effort to reduce its reliance on the US dollar in cross-border trade. President William Ruto made the official announcement earlier this week, revealing that Papss will find its headquarters in Kenya and receive formal adoption by the African Union’s Assembly of Heads of State and Government in February.
Papss, a groundbreaking platform developed by the African Export-Import Bank (Afreximbank) and endorsed by the African Union, is tipped to revolutionize African trade. This system allows traders in participating countries to pay their suppliers in different nations using their local currencies, effectively bypassing the need for multiple currency conversions, often facilitated through correspondent banks in the US and Europe.
The significance of this development is underscored by its projected cost-saving potential, with estimates suggesting that it could save the continent approximately USD 5 B in expenses related to currency conversions, per estimates by the African Continental Free Trade Area (AfCFTA) secretariat in Ghana. The African Continental Free Trade Area (AfCFTA) is a landmark agreement among African countries to create a single market, promoting intra-African trade and economic integration by removing barriers and tariffs.
“Kenya is a champion [of Africa’s integration] and we have been asked to host the headquarters of the pan-African payment system in Kenya,” President Ruto told participants at the launch of AfCFTA’s Trade and Development Centre at the Strathmore University.
“Because we are leaders in the technology space and promoters of AfCFTA and any institution that supports the integration of our continent, we have gladly accepted to host the headquarters of the pan-African payment system in Kenya.”
This move towards a unified payment system also holds broader implications for Africa’s economic integration. It aligns with the founding objectives of African unity, addressing longstanding challenges faced by small and medium enterprises, as well as young entrepreneurs. These beneficiaries of the African payment and settlement system often struggle to afford the costs associated with currency convertibility.
As of now, a significant portion of intra-African trade deals are routed through the US and Europe, often taking three to five days to reach their destination, with added costs incurred at each stage. The lack of an integrated payment and settlement infrastructure is a notable hindrance, resulting in an estimated 80 percent of intra-Africa trade deals going through intermediary currencies like the US dollar or euro.
Furthermore, the recent shortage of the US dollar in Africa, driven by a global flight to safe-haven currencies due to heightened global inflation and interest rates, has further highlighted the issue of overreliance on the US currency in intra-African trade. This has also contributed to currency depreciation in various African nations.
It’s worth noting that Africa already has several cross-border payment systems tailored to regional trading blocs, such as the Regional Payment and Settlement System (REPSS) of the Common Market for Eastern and Southern Africa (COMESA) and the East African Payment System (EAPS) for the East African Community (EAC) countries. However, Papss represents a more comprehensive effort to address these challenges on a continental scale.
Kenya’s successful bid to host Papss not only positions the country at the forefront of the movement to reduce the dominance of the US dollar in African trade but also has the potential to significantly impact the economic landscape and the way business is conducted across the continent. This initiative aligns with the historical pursuit of African unity and signifies a significant step toward achieving the region’s inclusive trade and economic integration.
Featured Image Credits: RegTech Africa