High hopes for seamless intra-Africa trade under the terms of the Africa Continental Free Trade Area (AfCFTA) got a boost this week with the formal roll-out of a payments platform by the Africa Export-Import bank (Afreximbank), the continent’s trade finance institution.

The platform is called the Pan-African Payment and Settlement System, or PAPSS, and was first launched in July 2019 at an African Union summit in Niger.

Ideally, PAPSS would enable instant payments in African currencies between merchants on the continent, “essentially eliminating the borders that have balkanized us and robbed us of our economic prosperity for so long,” according to Mike Ogbalu III, a veteran of Interswitch, Africa’s first fintech unicorn, who manages the platform as CEO.

By settling transactions in African currencies, the other big goal of this platform is to reduce Africa’s dependency on currencies like the dollar and euro.

One (giant) leap towards fixing Africa’s fragmentation

When investors and startup founders discuss the addressable market for a service in Africa, the issue of fragmentation often comes up, essentially a complaint about the over 40 currencies, and regulators a business has to deal with in order to sell across Africa.

As a hedge for stability, businesses use foreign currencies to settle transactions, which tends to increase transaction time.

A pan-African payments platform does not solve all fragmentation issues, and may not eliminate border hassles the way Ogbalu declares. Also, African currencies continue to be negatively affected by weak economic productivity and turbulent events like coups. For example, in Zimbabwe, repeated attempts to revamp the local dollar keep failing because of inflationary government policies.

But according to a description of how PAPSS works, the promise is that when an individual, SME or corporate initiates a cross-border African transaction, checks for compliance between countries involved will be done within the system at near-instant speeds. Money from a sender’s bank would go straight to the beneficiary’s bank within 120 seconds.

Apart from commercial banks, fintech companies that provide payment services within and between countries are part of the PAPSS infrastructure. Indeed, the success of the system could hinge on how well fintech companies are integrated since thousands of businesses already use them to receive payments.

A central port for African central banks

But this potentially blissful era of pan-African payments needs the continent’s central banks to be integrated.

So far, the effort has been led by some central bank governors in west Africa. Godwin Emefiele, Nigeria’s central bank governor, heads a governing council that includes the central bank governors of Guinea, Sierra Leone, Liberia, Ghana, and the Gambia who will oversee and regulate PAPSS.

Emefiele is known in Nigeria for his dogged defense of the naira, sometimes to counterproductive ends. Last month, his central bank got a court order that suspended the bank accounts of startups that allowed Nigerians to buy dollar-denominated stocks. Even as inflation weakens the naira and increases dollar demand, Emefiele doubles his steps by, for example, suspending the licensing of new forex changers in the parallel market and picking a fight with an online publisher of exchange rate data.

It is not a surprise that he would be a central figure in a pan-African platform for instant payments in local currencies. PAPSS will provide “greater transparency and control as we now have a single window into all cross-border transactions emanating from our various jurisdictions and across the continent,” he said.

As part of the roll-out, Afreximbank, the trade finance body based in Egypt, said it has approved $500 million to support clearing and settlement in the six countries mentioned above which constitute the West African Monetary Zone.

It will approve $3 billion for PAPSS to be implemented across the continent, but that will be after other national and regional central banks get on board.  A key signal of the enthusiasm for PAPSS will be the response of the Senegal-based Central Bank of West African States, which administers the CFA franc in 8 French-speaking west African countries.