By akademiotoelektronik, 02/02/2023

Mike Ogbalu: "The Papss Pan -African Payment System will eliminate the borders that have stolen our economic prosperity"

La Tribune Afrique - The Papss has finally been operational since September 28, 2021, two years after its launch on July 7, 2019 in Niamey, in Niger on the sidelines of the 12th extraordinary summit of the Assembly of the African Union.What happened concretely during these two years?

Mike Ogbalu - Indeed, the African Union (AU) adopted the Pan -African Payment and Rules (PADS) system as a key instrument for the implementation of the agreement on the African Continental Free Trade area (Zlecaf].The development of PADS and its infrastructure was made possible thanks to some of the main institutions of the continent.The platform has been developed by Afreximbank [African Import Export Bank, Editor's note], which also acts as a main settlement in partnership with the African central banks participating in the African Central.The implementation of the infrastructure took place in collaboration with the Secretariat of the ZLECAF, as well as with the approval of the African Union.

It takes time to formulate a new Pan -African payment mechanism and reach an agreement with the main stakeholders such as central banks and existing regional payment systems.We also wanted to test the proposal, refine it and ensure that it is suitable and fully functional for its launch.In order to accelerate its expansion and guarantee the purpose of the regulation, Afreximbank approved funding of $ 500 million to support compensation and regulations in the countries of the West African Monetary Zone (ZMOA).It is estimated that an additional $ 3 billion will be made available to support the implementation of systems at the continent.

Precisely according to the estimates made, the complete implementation of the PADS should allow the continent to save more than $ 5 billion in payment transaction costs each year.How would it be possible in a concrete way?

Without the PADS, cross -border payments generally involve a third currency such as the US dollar or the euro, which causes high costs and long deadlines for transactions.The importer merchant must generally buy a third currency, pay for exchange and settlement costs, then wait for payment to arrive.As a general rule, three banks are involved in cross -border commercial payments: one for the exporter, one for the importer and a confirming bank to issue and guarantee credit letters and collect documents, etc..

The PADS takes several advantages: the provision of an infrastructure where cross -border payment transactions are processed on the same day - in the place of one to five days currently - without needing an intermediate bank;a simple, inexpensive and risk -controlled compensation system and payment system;reduction in cost, duration and temporal variability of cross -border payments across Africa;The significant reduction in dependence on strong currencies in regional commercial payments;the decrease in the liquidity needs of commercial banks for cross -border payments and interbank operations;strengthening the surveillance of central banks on cross -border payment systems;Support for the formalization of a large part of the 50 billion dollars estimated in informal cross -border trade in the region.

AFREXIMBANK is the operator and the main PADS regulation agent.It is also the bank that will provide guarantees of payment on the payment system and overdraft facilities to all settlement agents.

You successfully led a pilot phase in the countries of the West African Monetary Zone (Zmao).What do you expect from the governments of other countries for the whole of PAPS?And what are the challenges?

The major and recurrent problems hampering the availability and capacity for trade in trade in Africa were the lack of liquidity and increased aversion for the risk.This situation has been exacerbated by the withdrawal of major international banks from Africa over the past decade.Stricter regulatory controls and the difficulty of accessing enough foreign currencies have also limited the availability of trade financing.

The successful pilot phase of Papss was facilitated by the six countries of the ZMOA, namely Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone.Papss will be a platform on the continent's level for the treatment, compensation and settlement of intra-African trade and trade payments, taking advantage of a multilateral net regulation system.

We are now engaged in advanced discussions with other national and regional institutions in order to quickly extend connectivity to the continent.We focus on the integration of the rest of the continent into this essential infrastructure by integrating national payment systems, regional payment systems and other financial service providers.

At the level of the countries, access to currencies, liquidity, competition, equity requirements and interest rates may have an impact on the capacity of a bank to participate in financing activities.

Have African banks really started using the platform?

The construction of such a critical financial market infrastructure for a continent like ours must necessarily be a meticulous effort.We have given priority to good governance, to the guarantee of a waterproof and secure infrastructure, to build this system collaboratively and, above all, to the implementation of the underlying settlement system.I am happy to announce that most of the work has been done.

At this point, we have completed the first stage of deployment which is the complete integration of central banks and they started to exchange transactions between them.However, the actual impact of the platform will be felt once the commercial banks begin to carry out transactions there.In a while, we will announce the entry into service on the platform of a certain number of banks which are currently in the finalization phase of their integration.

Transfronner transactions are among the major challenges linked to the ZLECAF.Do you think POSS will accelerate the efficiency of the free trade area?

Individuals, businesses and governments consume goods and services.Trade is the purchase and sale of goods and services.This is made possible by payments.The more effective a payment system, the more accelerated the exchanges.

PADS provides a revolutionary financial market infrastructure allowing instant cross -border payments in local currencies between African markets.By simplifying cross-border transactions and reducing dependence on strong currencies for these transactions, this platform will considerably stimulate intra-African trade and support the implementation of the Zlecaf.

The Pan -African payment and payment system should create new financial flows and successfully facilitate trade and other economic activities between African countries.It is designed to be a fundamental railway connecting the African markets to each other and allowing individuals, businesses and governments of the continent to transparently trading between them.Papss will give new impetus to companies to develop more easily across Africa, essentially eliminating the borders that have divided us and stole our economic prosperity for too long.

PADS will deal with many risks of payment, compensation and settlement and will allow payments of intra-African goods and services to be carried out in the local African currency of traders.

The platform will also meet the challenges currently encountered in existing cross -border payment models and will unify the currently fragmented Pan -African payment landscape with a cross -border instantaneous payment solution, providing an infrastructure where cross -border payment transactions are processed in the same day without theNeed for an intermediate bank.

In view of all the current initiatives, what should intra-African trade look at the end of the decade according to you?

As intra-African trade exponentially increases, an increasing number of financial institutions will consider trade financing as a more attractive proposal, which will result in greater capacity to meet growing demand.

While Africa is becoming more and more a single market, a larger market will create more incentives for more investments in value -added products compared to the current situation where Africa only exportsraw materials.Important investments will flock to the continent to stimulate and take advantage of this new and important market.

We are also likely to see the increased participation of asset managers and investment capital in financing international trade;A greater commitment to governments, central banks, agencies and financial institutions to develop new trade financing capacities.

By the end of the decade, financial development institutions will play a more active role in African trade with short -term loan facilities, working funds and credit guarantees for SMEs.Trade financing will be structured and priced to positively reward commercial behavior aligned on the environment, social and governance (ESG).

We should also attend the growing use of factoring and financing of the supply chain;Increased digitization - including in supply chains - so that real -time data can be monitored to improve risk management.

COVID-19 has put more emphasis on the resilience of the supply chain to improve visibility, to mitigate risks, to ensure that the supply of financing is optimized and to reduce the cost of funding through supply chains.

AFREXIMBANK is in the process of creating a digital ecosystem - called "Africa Trade Gateway" -, including the following digital platforms: the commercial information portal, the African Trade Stock Exchange, the African Platform for Reasonable Diligence of Customers (MANSA), the online customer application, the commercial regulatory platform and the PADS.

Africa Trade Gateway will accelerate intra-African trade by reducing or eliminating the main commercial and financial bottlenecks through the continent.This will encourage the private sector to participate more in trade thanks to increased access to commercial services and intra-African payments and financing.It is estimated that once completed, this innovative platform will help triple the share of intra-African trade in total Africa trade.

Interview by Ristel Tchounand.

Ristel Tchounand

10 minutes

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