African payments system taps more States to grow trade, cut forex woes

A new African payments system championed by Kenyan President William Ruto is set to unlock vast regional trade opportunities.

It will ease foreign exchange (forex) woes for companies operating across the continent, a senior official at the African Export-Import Bank (Afreximbank) said.

The Pan-African Payment and Settlement System (PAPSS), which aims to cut reliance on the US dollar for intra-African transactions, is gaining momentum as African nations seek to boost trade amongst themselves and build economic resilience against global shocks.

For companies like Kenya Airways (KQ), the system offers a potential lifeline against persistent issues of blocked funds. The airline has previously faced headwinds, with about $28 million (Sh3.64 billion) in revenue withheld in countries such as Nigeria, Ethiopia, and Malawi, severely impacting its cash flow.

“The blocked funds are mainly a cash impact as we are not able to access these funds,” Kenya Airways Chief Executive Officer Allan Kilavuka said previously. “We are, of course, also concerned about the devaluation of these funds going forward. Currently, we have approximately $28 million blocked in mainly Nigeria, Ethiopia, and Malawi.”

Director of Trade Facilitation and Investment Promotion at Afreximbank Gainmore Zanamwe highlighted President Ruto’s pivotal role in driving the adoption of PAPSS. “Kenya has always been a very important partner in the things that we do because your president, Ruto, has been the most important and key supporter of the Pan-African Payment and Settlement System,” Zanamwe told Financial Standard.

He noted Ruto’s active engagement with top leadership to ensure more banks sign up. PAPSS is designed to facilitate payments in local African currencies, eliminating the need for costly and time-consuming conversions to hard currencies like the US dollar.

This mechanism could save the continent an estimated $5 billion annually in transaction costs, according to Afreximbank President Benedict Oramah, the architect of PAPSS. “What it means in simple terms is that Kenya will now be able to trade with the other countries that have signed so far,” Zanamwe explained.

“We’ve got 16 central banks that have eventually signed onto PAPSS, and we also have about 150 other commercial banks in other countries that have also signed in... and also 14 switches. Steady progress is being made.”

The implications are significant for businesses. A Kenyan exporter of tea to Egypt, for instance, can now receive payment in Kenyan shillings, while the Egyptian importer pays in Egyptian pounds.

“They don’t have to look for the US dollars. So actually, orders will be paid in Kenyan shillings. This is what PAPSS does,” Zanamwe elaborated.

This direct local currency settlement aims to unlock a substantial volume of trade currently hindered by the complexities and delays associated with foreign currency acquisition.

For many Kenyan businesses, difficulty in accessing sufficient dollars has forced them to scale down operations or endure prolonged waits to accumulate funds for overseas suppliers, issues President Ruto has vowed to address.

Beyond goods, PAPSS is set to transform services and investment flows.

“From a tourism point of view, somebody can naturally travel from Kenya to [another African country] and actually pay in shillings. This is what it could do,” Zanamwe said. “You can buy a stock exchange in Nigeria using Kenyan shillings. So it opens a lot of opportunities.” Addressing the vexing issue of blocked funds, such as those faced by Kenya Airways, Zanamwe explained PAPSS’s innovative solution.

“What has been happening with KQ, in some African country... we will then be able to actually allow (funds) to be taken in these local currencies, for example, it could be in Nigeria.”

The system, which has been endorsed by the African Union and promoted by the African Continental Free Trade Area (AfCFTA) Secretariat, is viewed as a key cog in building economic resilience across Africa amid a rising wave of protectionism, the official said. 

“We needed to focus on trading amongst ourselves. We call it our Africa,” Zanamwe stated, drawing parallels to blocs like Europe and Asia, where high levels of intra-regional trade (over 60 per cent) have fostered job creation and insulated economies from external shocks.

Platform’s potential

Kenya’s big lenders, KCB Group and Equity Group, have aligned with PAPSS, underscoring the growing confidence in the platform’s potential. KCB Group, the first East African bank to sign up, noted that PAPSS’s net settlement mechanism will alleviate pressure on demand for foreign currencies, fostering a more efficient regional trade framework.

Equity Group’s participation further reinforces the strategic shift, positioning its subsidiaries in Uganda, Tanzania, South Sudan, Rwanda, and the DRC to contribute to the system’s uptake.

Central Bank of Kenya Governor Kamau Thugge confirmed ongoing discussions for Kenya’s full integration into PAPSS.

He emphasised its potential to alleviate foreign exchange shortages and enable Kenyan traders to fully exploit opportunities within the AfCFTA.