Kenya has officially joined the Pan-African Payments and Settlement System (PAPSS), a major step towards boosting intra-African trade under the African Continental Free Trade Area (AfCFTA).
The Central Bank of Kenya signed the necessary instruments on Friday, making Kenya the 16th country to join PAPSS.
News about this great development was announced by Trade and Industry CS Moses Kuria via his official X (formerly Twitter) account.
“I am pleased to announce that the Central Bank of Kenya has signed the instruments that have finally seen Kenya join the Pan African Payments and Settlement System (PAPSS),” Kuria wrote.
The system allows businesses to make and receive payments in local currencies across Africa, eliminating the need for costly and time-consuming foreign exchange transactions.
“This means that Kenyan companies can trade with their peers from other African Member States using our local Currencies, a major boost for the African Continental Free Trade Area (AfCFTA),” Kuria added.
PAPSS is anticipated to exert a substantial influence on trade within the African continent.
As per research conducted by the African Export-Import Bank (Afreximbank), PAPSS has the potential to augment intra-African trade by as much as 15 per cent.
According to UNCTAD, intra-Africa trade currently accounts for just 14.4 per cent of total African exports. UNCTAD's projections suggest that the AfCFTA has the potential to increase intra-Africa trade by approximately 33 per cent and reduce the continent's trade deficit by 51 per cent.
UNCTAD's data also indicates that approximately 34 per cent of households in Africa live below the international poverty line, which is defined as $1.9 per day. This information was reported on January 2nd.
Cross-border payments in Africa have long been a cumbersome process, entailing the tedious conversion of local currencies into foreign counterparts.
However, a transformative solution has emerged on the continent, promising instant payments in local currency and simplifying transactions across borders.
This groundbreaking system is known as the Pan-African Payment and Settlement System (PAPSS), and it is poised to revolutionise the way businesses conduct cross-border transactions.
What exactly is PAPSS, and how does it work?
PAPSS, short for the Pan-African Payment and Settlement System, is designed to facilitate instantaneous payments across African borders using local currencies.
It operates through three fundamental processes: instant payment, pre-funding, and net settlement.
These core components collectively aim to streamline the cross-border payment landscape, minimising the time required to complete transactions.
The hallmark feature of PAPSS is its ability to effect payments in just two minutes, marking a significant departure from the protracted procedures associated with traditional cross-border transactions.
Exploring PAPSS's core processes:
Instant Payment: PAPSS's cornerstone feature is its capability to enable instant payments, making it possible for businesses to swiftly conduct transactions without the need for currency conversion.
This expedites the payment process, enhancing efficiency and reducing transaction times.
Pre-Funding: PAPSS also offers the option for users to pre-fund their accounts before initiating transactions. However, this facility is primarily accessible to direct participants, predominantly banks, mandated to maintain real-time gross settlement (RTGS) accounts with their respective central banks. This pre-funding arrangement streamlines the process for those with RTGS accounts, ensuring seamless transactions.
Net Settlement: PAPSS further streamlines cross-border transactions by processing settlements within a remarkable 24-hour window across all participating central banks simultaneously.
This system recognises that banks accumulate credits and debits throughout the day, effectively owing and being owed money.
PAPSS ensures that, by day's end, all payments are settled, guaranteeing that banks have sufficient cash reserves to sustain their operations.
In essence, PAPSS is set to redefine the cross-border payment ecosystem in Africa, addressing longstanding challenges by offering businesses and financial institutions a more efficient and convenient means of conducting transactions.
No longer will the arduous process of currency conversion be a requisite hurdle, as PAPSS paves the way for instantaneous payments in local currency, bolstering economic integration across the continent.
With PAPSS's robust features and streamlined processes, the days of cross-border payment delays and uncertainties may soon be a thing of the past. As this innovative system continues to gain traction, it holds the promise of ushering in a new era of economic collaboration and prosperity across Africa.