Africa is making significant strides toward establishing financial independence by reducing its reliance on Western payment systems. This push for payment sovereignty is spearheaded by the African Continental Free Trade Area (AFCFTA), which aims to create a unified and robust infrastructure that connects the payment systems of African countries.
Pan African Payment and Settlement System (PAPSS)
In 2020, the AfCFTA Secretariat, in collaboration with the Afrexim Bank, launched the Pan African Payment and Settlement System (PAPSS). This system allows individuals and businesses to make instant cross-border payments in more than 40 African currencies. PAPSS has been a game-changer in reducing the need for US dollars and other hard currencies for transactions across the continent, facilitating easier and more cost-effective trade.
Despite its benefits, not all African countries have integrated their payment systems with PAPSS. A recent study highlighted that about 50 percent of small and medium enterprises (SMEs) are unaware of this system, indicating a need for increased awareness and adoption.
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Urgency for Payment Sovereignty
At the 3i Africa Summit in Accra, the Secretary-General of the AfCFTA Secretariat, Wamkele Mene, underscored the importance of leveraging technology to achieve payment sovereignty. He noted that Africa’s reliance on foreign platforms like SWIFT, which processed $20.5 billion worth of transactions in 2019 alone, is not sustainable. Mene stressed the need for Africa to develop its own systems to handle these transactions, emphasizing that 42 different currencies on the continent are too many and hinder economic efficiency.
Advancing Digital Trade
To further this agenda, African leaders have adopted a protocol on digital trade, the first of its kind globally. This protocol is designed to enhance Africa’s digital economy and facilitate trade across the continent. It includes provisions for the free movement of data, prohibiting the localization of fintech services, and ensuring that digital trade and services are free from duties and taxes. This initiative aims to create an inclusive digital environment that supports seamless transactions and innovation.
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Policy Reforms and Innovation
The Deputy Governor of the Bank of Namibia, Ms. L Dunn, emphasized the need for African policymakers to create a conducive environment for innovation. Speaking at the summit, she highlighted the importance of revising outdated laws and regulations that hinder the growth of fintech companies. Dunn called for a comprehensive review of these policies to unlock the full potential of digitalization on the continent.
She pointed out that many existing regulations are restrictive and prevent the necessary innovation for fintech to thrive. By removing these barriers, African countries can attract investments and drive impactful economic change.
Collaborative Efforts
The collective effort to achieve payment sovereignty and enhance digital trade is vital for Africa’s economic development. The success of these initiatives depends on the cooperation of governments, private enterprises, and civil society organizations. Continuous education and outreach are essential to ensure that SMEs and other stakeholders are aware of and can utilize systems like PAPSS.
Moving Forward
Africa’s push for payment systems sovereignty and digital trade represents a transformative step toward economic independence. By reducing dependency on external systems and currencies, the continent can build a more resilient and self-sufficient economic framework. The widespread adoption and integration of PAPSS and the digital trade protocol will be crucial for achieving these goals.
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