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Pan-African Payment System Could Save Africa $5B in Fees

Daba Finance/Pan-African Payment System Could Save Africa $5B in Fees
BREAKING NEWSNovember 8, 2024 at 10:10 AM UTC

TLDR

  • PAPSS launched in 2022 aims to reduce reliance on the dollar for cross-border transactions in Africa, potentially saving businesses up to $5 billion in processing fees annually.
  • More than 80% of cross-border payments from African banks currently go offshore; PAPSS seeks to boost intra-African trade by enabling transactions in local currencies.
  • PAPSS could bring an estimated $50 billion of informal trade into the formal economy, fostering economic growth and trade efficiency in Africa.

Africa’s reliance on the dollar for cross-border transactions may soon diminish as the Pan-African Payments and Settlements System (PAPSS) under the African Continental Free Trade Area (AfCFTA) gains traction.

This payment system, launched in 2022, is set to reduce the need for transaction clearance through U.S. and European banks, a process that costs African businesses up to $5 billion annually in processing fees, according to Tunde Macaulay of Standard Bank Group.

Currently, more than 80% of cross-border payments from African banks are routed offshore. PAPSS aims to address this by facilitating intra-African trade in local currencies, potentially bringing an additional $50 billion of informal trade into the official economy.

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Key Takeaways

Currently, intra-African trade constitutes only 16% of the continent’s commerce, compared to over 60% in the EU. With 47 countries ratified and a market potential of 1.3 billion people, AfCFTA could become the world’s largest free-trade area by 2030. However, the system could face resistance from the U.S., as President Donald Trump has pledged penalties for countries moving away from the dollar in trade.

Economy
PAPSS
AfCFTA
Cross-Border Trade
Cross-Border Payments

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