The system can “domesticate African payments and reduce foreign debt” by reducing the need for transactions to be carried out in currencies such as the dollar, Oramah says on the sidelines of the Africa CEO Forum in Abidjan.
PAPSS, established by Afreximbank in January 2022, was heralded as an early win for AfCFTA. But to date, only nine African countries have joined, while the number of commercial banks to have signed stands at around 40. Afreximbank has invested $500m in the system, which will rise to $3b, says Oramah, who is also chairman of PAPSS management board.
Current participants include Nigeria, Zambia and Zimbabwe. The next group of PAPSS entrants this year will be made up of Egypt, Ethiopia and the six-member East African Community, Oramah says.
PAPSS enables governments to pay contractors in local currencies rather than having to borrow from abroad, Oramah argues. It can also raise government tax receipts through job creation, while increasing inter-African trade and strengthening the continent’s currencies, he says.
Kenyan President William Ruto on 29 May called on African countries to join PAPSS and reduce their use of the dollar. “Ruto got it right,” Oramah says. “PAPSS will help in terms of sovereign debt.” AfCFTA estimates that the system can save Africa $5bn a year in payment transaction costs alone.
Free Trade implementation
The extent to which PAPSS can in itself increase the appetite of African countries to trade with each other is unclear. Economists such as James Dzansi at the International Growth Centre in Accra have pointed to factors such as the need to compensate governments who suffer from a drop in import tariff revenues due to AfCFTA.
Oramah points to the AfCFTA adjustment fund set up by Afreximbank, which has three components. The first is a grant-based fund provided by government donors which aims to compensate countries which in the short term lose out from lower tariffs. The second is a concessional financing fund to help states with adopting AfCFTA protocols, and the third is a commercial credit fund from which governments and the private sector can borrow.
The implementation of AfCFTA has progressed well, but still “not to the levels we want,” Oramah says. Rules of origin have now been agreed, but more work is needed on harmonization of standards, including in textiles, he says. “The political act of signing the treaty is a necessary but not a sufficient condition” for free trade. “It can’t start by wishing it.”
He sees quality assurance centres as part of the solution. The bank in December 2022 opened the first African quality assurance centre in Nigeria, in partnership with France’s Bureau Veritas. The centre is designed to ensure that products comply with agreed trade rules. Further such centres are planned in Tanzania, Ethiopia, Kenya and Egypt, Oramah says.
The expansion of the use of transit bonds can also bolster free trade and improve tax collection, Oramah says. Afreximbank in 2021 launched a $1bn transit guarantee scheme, starting with a pilot project covering the Common Market for Eastern and Southern Africa (COMESA).
Afreximbank provides bonds covering the borders that goods are required to cross, and ensures that when goods do not complete their journey, duties and taxes that would have been required are still paid. Paper-based border crossing processes cause expensive delays, and the next step is to expand the use of the bonds to central and west Africa, Oramah says.
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