PACCI UPDATESENSURING
PACCI UPDATESENSURING THE SUCCESS OF PAPSS:OVERCOMING CHALLENGES FOR AUNIFIED AFRICAN PAYMENT SYSTEMBy Kebour Ghenna, Executive Director, Pan African Chamber of Commerce and Industry (PACCI), and Mark Badu-Aboagye, Chief ExecutiveOfficer, Ghana National Chamber of Commerce and Industry (GNCCI).control of their financial systems, despite the potentialbenefits of increased trade efficiency. Additionally,regulatory differences among countries create obstaclesfor the harmonisation of payment systems. Each nationhas its own financial regulations, data privacy laws andsecurity standards. Harmonising these different financialregulations in the various countries under a unifiedpayment system presents significant challenges. Ensuringcompliance across borders is complicated and requiresongoing coordination, which has slowed down PAPSSadoption.The Pan-African Payment and Settlement System (PAPSS) is a transformativeinitiative under the African Continental Free Trade Area (AfCFTA), designed tostreamline cross-border payments and facilitate intra-African trade.PAPSS aims to reduce the continent’s dependency on foreign currencies byallowing businesses to settle transactions in their local currencies. By doing so,it promises to reduce transaction costs, mitigate foreign-exchange risks andimprove trade efficiency. Despite its potential, PAPSS faces numerous challengesthat hinder its progress. These include governmental hesitancy, infrastructurefragmentation, currency volatility and technological limitations. Additionally,businesses continue to prefer stable foreign currencies, further complicatingPAPSS implementation. Unless strategic adaptations are made, PAPSS maystruggle to achieve its full potential.KEY CHALLENGES TO PAPSS IMPLEMENTATIONGovernment hesitancy and policy reluctanceGovernments across Africa are hesitant to fully adopt PAPSS due to concernsabout relinquishing control over monetary policy. Central banks in particularare cautious about integrating their systems with PAPSS, for the fear that it maylimit their capacity to manage inflation and currency volatility. This is especiallyrelevant in countries with less stable currencies. There is a reluctance to surrenderCurrency volatility and business preferencesAfrican businesses remain cautious about conductingtrade in local currencies. The high volatility of manyAfrican currencies, coupled with inflation concerns, makesbusinesses wary of using PAPSS for cross-border payments.Most prefer to trade in hard currencies, like the US dollaror euro, which are globally accepted and perceived as morestable. Even with PAPSS, businesses are concerned about the risks associated withcurrency fluctuations and exchange rate instability, which could negatively impactprofitability.The lack of proper currency-hedging mechanisms further compounds thisproblem. Without tools to protect businesses from exchange-rate fluctuations, manycompanies are reluctant to embrace a system that requires them to settle transactionsin local currencies. This creates a significant barrier to PAPSS adoption, especiallyfor small and medium-sized enterprises (SMEs), which are particularly vulnerableto currency risk.Technological and infrastructure gapsThe successful implementation of PAPSS requires robust digital infrastructure,which is unevenly developed across African countries. While some nations, suchas South Africa and Kenya, have advanced financial technologies, others facesubstantial challenges in terms of Internet penetration, digital literacy and financialinclusion. Countries with underdeveloped digital infrastructure will struggle tofully integrate with PAPSS, impeding the system’s seamless adoption.Moreover, the technological infrastructure supporting payment systems in manyAfrican countries is fragmented, making it difficult to harmonise different financialnetworks. Centralised payment systems and digital banking infrastructure vary12PHOTO: Audy of Course on Pexels
PACCI UPDATESwidely across the continent. Limited access to reliable and affordable Internet,especially in rural areas, further restricts the potential of PAPSS to reach its fullscale.Cybersecurity concernsAs digital payment systems grow, so does the risk of cybersecurity threats. ManyAfrican countries are ill-equipped to defend their financial infrastructure fromcyber attacks, making them vulnerable to disruptions. PAPSS, being a cross-borderdigital system, is exposed to potential cyber risks that could destabilise its operations.Without adequate cybersecurity protocols and investments in cyber defence, PAPSSfaces a risk of data breaches, fraud and disruptions that could erode trust in thesystem.Complexity of currency conversion and exchange-rate risksPAPSS allows transactions in local currencies, but managing the conversionbetween African currencies is an inherently complex task. The differences incurrency value, coupled with fluctuating exchange rates in the different countries,create complications for cross-border trade. Businesses are uncertain about the costimplications of converting their local currency to that of a trade partner, and therisk of sudden exchange rate shifts could impact profitability. Although PAPSS aimsto mitigate these risks, the current absence of currency-hedging solutions leavesbusinesses exposed to potential financial losses.The National Bank of Rwanda is one of continent’s central banksthat will ensure the smooth running of the PAPSS.practices for cybersecurity, PAPSS can build trust and encourage wider participationamong businesses and financial institutions.Develop a phased virtual African currencyOver the long term, PAPSS could explore the development of a virtual Africancurrency to facilitate cross-border payments and reduce reliance on foreign exchange.This digital currency could be introduced in phases, starting with regional digitalcurrency zones, before moving towards a continent-wide currency. This phasedapproach would help PAPSS better address regional economic realities and establisha strong foundation for eventual continental integration.RECOMMENDATIONS FOR ENSURING THE SUCCESS OF PAPSSFoster Public-Private Partnerships (PPP)Governments and PAPSS should work closely with private financial institutions,fintech companies and industry stakeholders to accelerate the adoption of the system.Public-private partnerships can lead to innovative solutions such as integrating tradefinance, mobile banking and peer-to-peer finance services that cater directly to theneeds of African businesses. These partnerships can also expand PAPSS’s reach byinvolving non-bank financial institutions, ensuring broader adoption and usability.Incentivise the use of local currenciesGovernments must introduce incentives to encourage businesses to trade in localcurrencies. Financial incentives, such as reduced transaction fees, tax breaks orregulatory exemptions should be offered to businesses that use PAPSS for cross- borderpayments. Additionally, PAPSS should develop currency-hedging mechanisms toprotect businesses from the risks associated with currency fluctuations, making localcurrency transactions more attractive and secure.Improve technological integration and infrastructure developmentAfrican governments, with support from international organisations and privatepartners, must invest in infrastructure development to bridge the digital divide andensure that all countries can participate in PAPSS. This includes upgrading Internetconnectivity, improving financial literacy and expanding access to digital bankingservices, particularly in underdeveloped regions. These improvements are criticalfor increasing PAPSS’s adoption across Africa. Finally, the successful implementationof PAPSS is critical to the realisation of AfCFTA’s full potential. By addressing theconcerns of governments, businesses and the wider financial community, PAPSS canbecome a transformative platform for African trade. However, this requires strategicadaptation, including building public-private partnerships, incentivising the use oflocal currencies and enhancing cybersecurity.With sustained efforts, PAPSS can overcome the challenges it faces and help Africatake a leading role in global trade by facilitating seamless, efficient and low-cost crossborderpayments.Expand education and awareness campaignsMany businesses are still unaware of the potential benefits of using PAPSS. Toaddress this, targeted education campaigns should inform businesses about theadvantages of PAPSS, such as faster payment settlements and reduced reliance onforeign currencies. These campaigns should also address concerns about currencyvolatility and provide real-world examples of successful PAPSS transactions to buildtrust among businesses.Enhance cybersecurity and data governanceA major priority for PAPSS must be investing in cybersecurity infrastructure toprotect the payment system against potential threats. Governments, in collaborationwith the private sector, should implement robust data-governance frameworks andcybersecurity protocols to secure PAPSS operations. By adopting international bestKebour Ghenna, ExecutiveDirector, PACCI.Mark Badu-Aboagye, CEO, Ghana NationalChamber of Commerce and Industry.PHOTO: NBR13
