As part of its ongoing efforts to deepen economic collaboration with African nations, the Central Bank of Egypt (CBE) has officially joined the Pan-African Payment and Settlement System (PAPSS). This move is poised to transform the way cross-border payments are conducted across the continent, reducing costs and processing times while strengthening Egypt’s economic ties with its African counterparts.

What is PAPSS?

The Pan-African Payment and Settlement System (PAPSS) was developed by the African Export-Import Bank (Afreximbank) to facilitate seamless financial transactions across African nations. It serves as a centralized financial platform designed to streamline cross-border payments, eliminating the need for a third-party currency like the US dollar or euro.

Currently, PAPSS includes 14 central banks and over 50 commercial banks from countries such as Nigeria, Ghana, Kenya, and Tunisia. The system allows payments to be made in local currencies, with transactions settled efficiently through its net settlement mechanism.

This revolutionary platform supports the African Continental Free Trade Area (AfCFTA), which aims to create a single market for goods and services across 54 African countries. By enabling smoother financial transactions, PAPSS helps to reduce trade barriers and enhance economic integration on the continent.

Egypt’s Strategic Move

Egypt’s decision to join PAPSS is a strategic move to enhance its role in African trade and economic integration. Rami Aboulnaga, Deputy Governor of the Central Bank of Egypt, emphasized that the agreement represents a significant milestone in Egypt’s commitment to expanding commercial partnerships with African nations.

“PAPSS not only enhances cross-border payments but also addresses the challenges posed by currency shortages and high transaction costs,” Aboulnaga said. “By participating in this system, we aim to boost intra-African trade and foster stronger economic ties across the continent.”

Benefits of PAPSS for Egypt and Africa

Joining PAPSS brings a host of advantages to Egypt and its African partners:

1. Reduced Transaction Costs and Time
   Traditional cross-border payments in Africa are often routed through foreign financial institutions, incurring high fees and lengthy processing times. PAPSS eliminates these intermediaries, significantly reducing costs and delays.
2. Enhanced Intra-African Trade
   By simplifying the payment process, PAPSS encourages greater trade flows between African nations. This aligns with the objectives of the AfCFTA, which aims to increase intra-African trade from its current level of 18% to over 50% by 2030.
3. Alleviation of Currency Pressures
   PAPSS allows transactions to be conducted in local currencies, reducing the demand for foreign exchange reserves such as the US dollar. This helps stabilize local currencies and improves the sustainability of trade balances.
4. Support for SMEs
   Small and medium-sized enterprises (SMEs), which form the backbone of many African economies, often face barriers in accessing international markets due to high transaction costs. PAPSS lowers these barriers, enabling SMEs to participate more actively in cross-border trade.
5. Strengthened Financial Integration
   By bringing together central and commercial banks across Africa, PAPSS fosters closer financial collaboration. This integration lays the groundwork for a more unified and resilient African financial system.

Egypt’s Role in African Economic Integration

Egypt has long recognized the importance of strengthening its ties with Africa. As one of the largest economies on the continent, Egypt’s participation in PAPSS demonstrates its commitment to supporting regional economic initiatives.

In recent years, Egypt has taken several steps to enhance its role in African trade:

• Investments in Infrastructure: Egypt has invested in projects such as the Cairo-Cape Town Highway, which aims to improve connectivity and trade between North and Sub-Saharan Africa.
• Hosting African Development Events: Egypt has hosted multiple forums and summits to promote African economic collaboration, including the Africa Investment Forum and the African Export-Import Bank Annual Meetings.
• Expanding Trade Agreements: Egypt has leveraged its membership in the Common Market for Eastern and Southern Africa (COMESA) to increase trade with African nations.

PAPSS and the African Continental Free Trade Area

The establishment of PAPSS is closely tied to the goals of the African Continental Free Trade Area (AfCFTA), which is the largest free trade area in the world by the number of participating countries. Launched in 2019, AfCFTA aims to create a single market for goods and services across Africa, eliminating tariffs and non-tariff barriers.

PAPSS supports AfCFTA by addressing one of the key barriers to trade—inefficient payment systems. By providing a reliable and cost-effective platform for cross-border payments, PAPSS makes it easier for businesses to trade across borders, thereby boosting economic growth and development.

The Challenges Ahead

While PAPSS represents a major step forward, there are challenges to its widespread adoption and success:

1. Infrastructure and Technology
   Some African countries lack the technological infrastructure needed to fully integrate with PAPSS. Investments in digital banking and payment systems are crucial to ensure seamless participation.
2. Regulatory Alignment
   The success of PAPSS depends on the harmonization of financial regulations across participating countries. Discrepancies in banking laws and policies could hinder the system’s effectiveness.
3. Awareness and Adoption
   Encouraging businesses and financial institutions to adopt PAPSS will require significant awareness campaigns and training programs.
4. Currency Volatility
   While PAPSS reduces dependence on foreign currencies, local currency volatility remains a challenge that could affect trade dynamics.

Looking Ahead

The inclusion of Egypt in PAPSS marks a significant milestone in the journey toward greater African economic integration. With the system already operational in several countries and more nations expected to join, PAPSS has the potential to transform the continent’s financial landscape.

As Egypt integrates its banking system with PAPSS, it is poised to become a key player in driving intra-African trade. The benefits of streamlined payments, reduced costs, and enhanced financial collaboration could pave the way for a more prosperous and interconnected Africa.

Conclusion

The Central Bank of Egypt’s participation in the Pan-African Payment and Settlement System is more than just a financial milestone; it is a testament to the country’s commitment to fostering regional economic growth and collaboration.

As PAPSS expands its reach and capabilities, it holds the promise of unlocking Africa’s economic potential, creating new opportunities for businesses and individuals alike. By addressing key trade barriers and enhancing financial integration, PAPSS is set to play a central role in shaping the future of African commerce.

Ready to take your career to the next level? Join our dynamic courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT and NCLEX – RN !🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

4th December, 2024