AFRICAN financial institutions, including those in Zimbabwe, have been slow to adopt the Pan-African Payment and Settlement System (PAPSS), a platform designed to simplify cross-border transactions and promote the use of local currencies.
The issue was highlighted by Wamukele Mene, secretary-general of the African Continental Free Trade Area (AfCFTA) Secretariat, during his opening remarks at the Conference of African Ministers of Finance, Planning, and Economic Development held in Ethiopia this week.
PAPSS offers a cost-effective solution for businesses to conduct transactions in local African currencies, promoting economic integration and cooperation across the continent.
However, despite its potential benefits, the platform has yet to gain widespread acceptance among African financial institutions.
“While deployment is progressing, uptake has been slower than expected, and efforts are ongoing to accelerate adoption by commercial and central banks. By simplifying cross-border transactions and reducing reliance on foreign currencies, PAPSS will enhance trade efficiency and promote financial inclusion,” Mene said.
“I urge our financial institutions to leverage PAPSS and digital banking platforms to support SMEs and informal traders.”
He added that efforts were ongoing to accelerate adoption by commercial and central banks.
Economists attributed the low uptake of PAPSS to a combination of economic, institutional, and operational challenges.
- Feature: Zim needs to shift its trade matrix
- AfCFTA: What is in it for Zimbabwean businesses?
- Embrace AfCFTA, Zim firms told
- Old Mutual tech hub trains start-ups
Keep Reading
“Many African economies, including Zimbabwe, rely heavily on foreign currencies for trade and financial stability. This reliance undermines the appeal of a system such as PAPSS, which prioritises local currency transactions,” said Stevenson Dhlamini, an economist and research fellow with the Public Policy and Research Institute of Zimbabwe.
“In Zimbabwe, for instance, the volatility of the local currency and the prevalence of dollarisation create a disincentive for banks to adopt a system that emphasises local currency use.”
Dhlamini noted that the absence of harmonised regulatory frameworks across African countries complicates cross-border transactions.
He explained that banks face compliance challenges when navigating differing national regulations, which discourages participation in PAPSS.
“Central banks may also be cautious about ceding control over monetary policy and payment systems to a continental platform. PAPSS requires robust digital infrastructure, including reliable internet connectivity and advanced banking systems,” Dhlamini said.
“However, many African countries still face significant gaps in digital infrastructure, limiting the system’s operational efficiency.
“For example, in rural areas or regions with poor connectivity, banks may struggle to integrate PAPSS into their operations.”
He said many African currencies were highly volatile and illiquid, making banks hesitant to engage in transactions denominated in local currencies.
“This undermines one of PAPSS’ core value propositions. In Zimbabwe, for instance, hyperinflation and currency instability have eroded confidence in the local currency, further complicating the adoption of PAPSS,” Dhlamini said.
Economist Trust Chikohora said it was about confidence in the currencies and whether countries would be able to keep reserves of the African currencies and then use them to import the goods required for their economies.
“It’s a reflection of the low level of intra-Africa trade. Africa tends to trade more with other continents than it trades with itself,” he said.
However, with targeted interventions such as regulatory harmonisation, infrastructure investment, and economic incentives, Dhlamini said PAPSS had the potential to transform payment systems across Africa.
“By addressing these barriers, PAPSS can play a pivotal role in reducing reliance on foreign currencies, lowering transaction costs, and fostering economic integration under the AfCFTA,” he said.
Chikohora emphasised the need to boost intra-Africa trade.
“I think the bigger issue is to promote intra-Africa trade so that there can be more settlements using African currencies. This trade will also boost the significance and value of African currencies,” he said.
