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Kenya has taken a significant step toward enhancing economic stability within the African continent by formally joining the Pan African Payments and Settlement System (PAPSS). Trade Cabinet Secretary Moses Kuria made this announcement highlighting the pivotal implications of this move.

The primary benefit of Kenya’s inclusion in PAPSS is that it now enables Kenyan companies to conduct trade transactions with fellow African member states using their local currencies. This development aligns perfectly with the objectives of the African Continental Free Trade Area (AfCFTA), promoting seamless trade within the continent.

Moses Kuria, while sharing his optimism, emphasized, “This means that Kenyan companies can trade with their peers from other African member states using our local currencies, a major boost for the African Continental Free Trade Area (AfCFTA).”

PAPSS, introduced in January 2022, serves as a digital, centralized payments and settlement system tailored for intra-African trade in goods and services. The key advantage it offers is the ability for African businesses to execute trade transactions using their local currencies, thereby substantially lowering transaction costs.

Previously, African companies and their local banks were dependent on correspondent banks located outside the continent to settle payments between two African currencies, often involving intermediary foreign currencies such as the US dollar or the Euro. This cumbersome process created foreign exchange challenges and liquidity pressures for African Central Banks.

However, the advent of PAPSS has changed the landscape significantly. It has led to substantial savings of over $5 billion in trade transaction costs across the continent. PAPSS operates under the oversight of the African Central Banks and is headquartered in Cairo, Egypt.

To utilize PAPSS, companies initiate a payment instruction with their local bank or payment service provider. The process involves forwarding the instruction to the Central Bank, which is then validated by PAPSS. Subsequently, the instruction is transmitted to the beneficiary’s Central Bank and the local bank, with the final step being the disbursement of the transferred funds in the local currency to the beneficiary.

PAPSS has forged partnerships with more than 25 prominent banks in Africa, including institutions like Ecobank, Zenith Bank, and Stanbic. This extensive network underscores PAPSS’s commitment to facilitating efficient and cost-effective intra-African trade.

Kenya’s membership in the Pan African Payments and Settlement System reflects its dedication to nurturing economic stability and fostering harmonious trade relationships across the continent. As African nations increasingly embrace PAPSS, the prospect of regional economic integration and growth takes on a more promising outlook.

Photo Source: technext24

By: Montel Kamau
Serrari Financial Analyst
2nd October, 2023

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