AFRICA: Continental payment system piloted

THE Africa Export-Import Bank (Afreximbank) is piloting a pan-African payments and settlements system to enhance continental economic integration.

The system is currently tested in Gambia, Ghana, Guinea, Liberia, Nigeria, as well as Sierra Leone.

This is a good move, according to Namibia Trade Forum (NTF) trade policy analyst Claudia Capelao, who says successful continental economic integration hinges, to a large extent, on payment system integration.

The roll-out of payment systems is expected to commence by the end of 2021, however, digital preparedness among African countries could be a limiting factor.

Capelao recently said liberalising trade does not involve the elimination of tariffs only, and there are other potential obstacles, such as how goods would be paid for.

She said with cash being the leading form of payment in many African economies, online and mobile money transactions are growing in popularity when it comes to cross-border trade.

Furthermore, the emergence of the Covid-19 pandemic has taken digital payments beyond convenience and into the realm of necessity, Capelao said.

The payment question poses a challenge to the full implementation of the African Continental Free Trade Area (AfCFTA) agreement, she said.

As a result, the continental agreement has brought forth its solution: the Pan-African Payments and Settlements System (Papss).

The Papss project, spearheaded by Afrexim Bank, is meant to facilitate the processing, clearing and settlement of commercial transactions on the continent.

Capelao said apart from reducing costs and time involved in the processing of cross-border payments, the Papss has many benefits.

Ths includes decreasing the liquidity requirements of commercial banks, and decreasing the liquidity requirements of central banks for settlement.

At the same time, it would strengthen central banks' oversight of cross-border payment systems.

The digitalisation of the payment system is crucial, however, given the vastness of Africa and the need for trade efficiency.

The Cisco Global Digital Readiness Index has indicated that none of the African countries obtained a perfect score on any of the seven components examined.

Based on their scores, many AfCFTA members are some distance away from the average score, while a couple of them do not even have data on digital readiness.

Capelao said Namibia's continental integration presents a unique opportunity for the sourcing of investments and for the growth of small and medium enterprises.

“Sadly, at this point, financial sector regulations, and in some cases the lack thereof, could delay the benefits of trade negotiations,” she said.

The trade analyst cautioned that while it is important to safeguard the value of the country's currency, some protection measures could hamper the inflow of capital and export receipts.

“We may be successful at maintaining a certain level of foreign reserves while foregoing the opportunity to diversify sources of export revenue and investments, and thereby losing the chance to sustainably increase our reserves,” said Capelao.

She said in the meantime, some interventions can be made to be prepared for the opportunities that lie ahead.

Namibia is among 10 countries on the continent which have achieved internet affordability since 2010.

Therefore, telecommunication infrastructure needs to be enhanced to make the internet more accessible as well, Capelao said.

Furthermore, she said there are exiting payment platforms that are recognised internationally, and the country could benefit from regulatory reform.

Such reforms, however, need to factor in fintech advancements – especially where there is potential for investment and trade.

SOURCE: THE NAMIBIAN Nghinomenwa Erastus