AfCFTA loses $5 billion a year to third-party payment systems

The AfCFTA Secretariat is located in Ghana-West Africa

Economies in the African Continental Free Trade Area (AfCFTA) are losing $5 billion in transaction costs every year to third-party foreign payment systems, the African Union Commissioner for Economic Development, Trade has revealed. , tourism and industry, Albert Muchanga.

Mr Muchanga, who was speaking to B&FT at the 6th Ghana International Trade and Finance Conference (GITFiC) in Accra, said the continent had made the right choice in embracing the pan-African payment and settlement system. (PAPSS) as a solution to the challenge. .

“Every payment from the continent has to be sent to New York for processing, costing Africa around $5 billion in transaction fees every year, according to data from the African Union (AU),” a- he declared.

Mr. Muchanga, however, asserted that the PAPSS offers an opportunity to trade and make direct payments in local currencies without going through intermediaries which would incur additional costs for businesses in Africa.

The PAPSS, according to Mr. Muchanga, is expected to help small and medium enterprises (SMEs) and large enterprises to be competitive through the reduction of trade costs by using the digital platform to reduce reliance on currencies third parties in intra-African trade.

Data from the AfCFTA Secretariat indicates that more than 450 million people on the continent are employed in the SME sector, contributing nearly 60% of Africa’s Gross Domestic Product (GDP).

This data, Mr. Muchanga said, is a very important part of the continent’s economy, adding, “Investments and businesses of over 450 million people need to be protected through the use of PAPSS.”

He called on central banks in Africa to expedite processes to help implement the trade facilitation system. Already, the Bank of Ghana (BoG) has declared that the transaction speed of PAPSS meets the international standard for global payment systems.

BoG’s Director of Payments Systems, Dr. Settor Kwabla Amediku, speaking at B&FT’s Money Summit last month, confirmed that PAPPS has a transaction time of seven seconds, meeting the accepted interval for payments. global snapshots which currently sits at a band interval of between 1 and 10 seconds. PAPSS’ operational time of better than ten seconds, according to the BoG, means the system is efficient, reliable and has global acceptance.

Payment Barriers to Formal and Informal Trade in Africa

A number of barriers are currently present at local, regional and international levels that affect formal and informal trade. In Africa, SMEs represent almost 80% of businesses on the continent, but cross-border trade is particularly costly and time-consuming due to non-tariff and regulatory barriers.

Informal cross-border trade in Africa, which accounts for around 43% of official GDP, lacks effective payment, regulatory and institutional frameworks to support cross-border digital trade, which limits the potential for intra-African trade. It is in this spirit that an assessment of opportunities and bottlenecks for cross-border digital payments in the region is fundamental, hence the introduction of PAPSS to effectively enable the implementation of the AfCFTA.

About Matthew R. Dailey

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