Introduction

Trade policy uncertainty, unilateral tariffs, and the high cost of making cross-border payments in Africa have created an urgency to seek options for settling trade in local currencies such as the Cameroonian Franc CFA Franc, the Ghanaian Cedi, and the Nigerian Naira. This led to the creation of the Pan-African Payment and Settlement System (PAPPS), which was formally launched in Ghana in January 2022. African countries signed the African Continental Free Trade Area (AfCFTA) in 2018, creating a unified market of 54 African countries with a population of 1.2 billion people. The World Bank and Kouam et al (2024) forecast higher incomes, lower rates of poverty, improved standards of living, and economic transformation resulting in job creation. This trade commentary is separated into four sections; Section 1 outlines the forecasted impact of the AfCFTA, followed by an analysis of Africa’s exposure to international currency markets in Section 2. Section 3 specifies how the PAPSS will work in detail before a quick analysis of its implications for a small country like Cameroon in Section 4.

Section 1: The AfCFTA Will Positively Benefit the African Cameroonian Economy

The AfCFTA will Positively Impact the African Economy: The agreement, which connects 55 countries and 1.3 billion people, could boost Africa’s income by $450 billion by 2035, representing a 7% increase in GDP. It is projected to lift 30 million people out of extreme poverty and improve the incomes of nearly 68 million others living on less than $5.50 a day. The AfCFTA is expected to increase Africa’s exports by $560 billion, predominantly in manufacturing, and generate significant wage gains—10.5% for women and 9.9% for men—across both skilled and unskilled workers. The largest poverty reductions are anticipated in regions with currently high poverty rates, such as West and Central Africa (Kouam & Sundjo, 2022).

A key driver of these gains is enhanced trade facilitation, which could account for $292 billion of the income increase by reducing red tape and simplifying customs procedures. Additionally, full implementation of AfCFTA could spur foreign direct investment (FDI) growth by over 100%, further boosting economic growth and job creation. However, realizing these benefits depends on substantial policy reforms, improved trade facilitation, and regional cooperation. The AfCFTA is thus positioned as a game-changer for Africa’s economic integration, poverty reduction, and sustainable development (World Bank, 2020)

Cameroon Stands to Benefit Hugely from the AfCFTA: CEPI’s detailed analysis using a Regional Dynamic Computable General Equilibrium model projects that the AfCFTA, combined with the Economic Partnership Agreement (EPA) with the EU, could increase Cameroon’s GDP by about 2.4% in 2020 and 2.45% by 2030, potentially raising GDP growth to 7.45% if the country achieves a 5% baseline growth. The AfCFTA is expected to boost exports to African markets substantially, with agricultural exports increasing by US$14.01 million and industrial exports by US$63.43 million by 2030. However, it may also reduce domestic demand for agricultural and industrial products by 11% and 18%, respectively, while demand for services could surge by nearly 50%.

Investment could rise in the agriculture, industry, and services, boosting firms’ profits and household welfare, with wages expected to increase modestly despite some downward pressure from the EPA. However, to fully leverage the AfCFTA and benefit from it, Cameroon must strengthen its infrastructure, improve the business environment, and develop regional value chains aligned with AfCFTA goals. Addressing political instability and enhancing competitiveness, especially in agriculture and manufacturing, are critical to maximizing trade gains and attracting investment (Kouam et al, 2024).

Section 2: Africa’s Exposure to International Currency Markets

Size of Economy and Commodities Exports: Most African countries are small, and their exports are dominated by commodities like oil, gold, diamonds, and minerals. Other significant exports include coffee, cocoa, textiles, and agricultural products such as fruits and vegetables. Meanwhile, the continent imports goods of higher value such as automobiles, computers, clothing and fashion accessories, machinery, and chemicals.

While it is justifiable that partners in China, Europe, and North America ask buyers to pay in their local currencies, there is no reason why African countries should not invoice trade across the continent using their own currencies. Intra-African trade is only 16-18%, versus 65% for Europe and 45% for North America.

Unfortunately, African countries do not trade using their currencies due to liquidity. If a Cameroonian manufacturer buys packaging from Ghana, it is not clear that they will possess Ghanaian Cedi to purchase that good. Trading in African currencies requires a collaborative system that is easy and accessible. The Pan-African payment and Settlement system is that.

Rather than upset the exorbitant privileges of the U.S. dollar, Africans must prioritize trade between their own currencies to reduce the cost of trade while lowering the need for central banks to keep significant amounts of the U.S. dollar. The cost of accumulating reserves is equally high and uncertain, driven by remittances in poor countries and exports in middle-income countries. The Pan-African Payment and Settlement System (PAPSS) was designed to ensure that African businesses can facilitate payments through a platform – an application – that allows them to send and receive payments from any country in Africa. This brief provides a step-by-step guide on how the PAPSS works to enable millions of entrepreneurs, traders, consultants, and policymakers across the continent of Africa.

Section 3: How will the PAPSS Work?

The PAPSS is supported by several banks and central banks across the continent, which makes it easy for consumers in any country to use the system. The PAPSS supports three core processes, which include instant payment, pre-funding, and net settlements.

Instant Payments: users will be able to make instant payments without converting their local currencies into hard currencies, reducing the time taken to make payments across the continent. Previously, money was sent to a bank or clearing house outside Africa and resent to the recipient in their local currency. Under the instant payment system, payments will go directly to the recipient without leaving the African continent (Fig. 1).

Figure 1: How Instant Payments Work Under the PAPSS

Pre-funding Agreements: Due to the speed at which real-time payments occur, PAPSS must guarantee that funds are available to complete the transactions before any debits or credits. As such, participants must agree to pre-fund their accounts to make sure the payment happens seamlessly. Users access the real-time gross settlement (TGS) system in the pre-funding process, while indirect users (Most SMEs and businesses) can fund or defund their clearing accounts with PAPSS. This process is carried out through the ISO 20022 messaging standard, ensuring that users are informed at each stage of the process.

Settlement: PAPSS ensures prompt settlement within 24 hours, and all net settlements across all participating central banks occur at the same time – 11.00 UTC – each day.

Figure 2: How the PAPSS Settles Transactions

Section 4: Economic Implications of the Pan-African Payment  and Settlement System (PAPSS)

Traders or businesses who intend to export or import across Africa can use the PAPSS platform. While Cameroon’s Central bank is yet a formal partner but commercial banks such as Afriland First Bank, Access Bank and Eco Bank are part of the network. This will make it easier from an operational standpoint and make it easier for account holders at these institutions to participate.

Businesses stand to benefit from the PAPSS in three ways;

1. The PAPSS will reduce transaction costs and time delays traditionally associated with cross-border trade. Historically, African businesses have relied heavily on third-party currencies such as the US dollar or euro for cross-border payments, incurring high conversion fees and long settlement times. PAPSS eliminates the need for intermediaries by enabling payments directly in local currencies, which reduces currency conversion costs and mitigates exchange rate volatility risks through its innovative approach (Kouam & Mua, 2023). These cost savings are vital for small and medium-sized enterprises (SMEs), which often face prohibitive transaction fees that limit their ability to engage in intra-African trade.
2. Beyond cost savings, PAPSS enhances liquidity management and operational efficiency through its multilateral net settlement mechanism. Instead of settling each transaction individually, the system aggregates payments between countries and settles only the net differences, reducing the volume of cross-border fund transfers and easing liquidity pressures on central banks. This mechanism accelerates payment settlements from days to minutes, improving working capital cycles for businesses by providing faster access to funds and payment certainty. For example, a Cameroonian exporter receiving payments from Kenya can get funds in the Franc CFA almost instantly, while the Kenyan buyer pays in Shillings. This simplifies cash flow management and reduces foreign exchange exposure.
3. PAPSS will accelerate financial inclusion and market access by connecting a broad network of central banks, commercial banks, payment service providers, and fintech companies across the continent. This interconnected ecosystem will expand payment service availability to individuals and SMEs that do not always have the technical know-how and the financial ability to access cross-border transactions due to complex and costly payment systems (Kouam, 2021). Furthermore, the PAPSS is ISO-certified, adhering to and aligning strongly with international regulatory standards enhances trust and security, encouraging wider adoption and innovation in payment solutions. African businesses will easily scale their operations due to the simplicity associated with PAPSS, allowing them to tap new markets and accelerate diversification and growth.
4. From a macroeconomic standpoint, it will reduce the dependence on the dollar and improve the resilience of financial systems. At present, over 80% of intra-African trade is invoiced in the U.S. dollar, increasing vulnerability to dollar-induced shocks and amplifying the crowding of investment (Kouam 2021; Kouam, 2021a). As countries and traders begin trading in their own currencies, this will reduce the cost of holding dollars for the central bank, reduce the risk of a dollar-induced banking crisis, and limit the macroeconomic fallout of a stronger dollar. The PAPSS will increase the resilience of the African economies to dollar-induced economic shocks, while creating an innovative system that simplifies trade for businesses and entrepreneurs across the continent.

Conclusion

The findings of this paper highlight the critical role that both the AfCFTA and the Pan-African Payment and Settlement System (PAPSS) can play in reshaping Africa’s economic landscape. The AfCFTA is poised to become a game-changer for the continent by creating the world’s largest free trade area, fostering economic integration, and opening new opportunities for growth and poverty reduction. However, these gains are not automatic; they depend heavily on parallel reforms in trade facilitation, infrastructure, and policy harmonization.

PAPSS emerges as a vital enabler of these outcomes by addressing one of the most persistent obstacles to intra-African trade: the high cost and complexity of cross-border payments. By allowing businesses and individuals to transact in local currencies and settle payments instantly, PAPSS reduces reliance on the US dollar, lowers transaction fees, and mitigates currency volatility. This is particularly beneficial for small and medium-sized enterprises (SMEs), which often face prohibitive barriers to accessing new markets. The system’s multilateral net settlement mechanism further enhances liquidity management for central banks and expedites cash flow for businesses, making African economies more agile and resilient.

For Cameroon, the synergy between AfCFTA and PAPSS is especially promising. CEPI’s analysis shows that the combined effects of AfCFTA and the Economic Partnership Agreement (EPA) with the EU could raise GDP, boost exports, and increase investment across sectors. However, the benefits are contingent on addressing domestic challenges, such as improving infrastructure, strengthening the business environment, and enhancing competitiveness in agriculture and manufacturing. Political stability and the development of regional value chains are also essential for maximizing trade gains and attracting investment. The PAPSS creates an inclusive intra-regional development for exporters and importers.

In summary, the successful implementation of AfCFTA and the widespread adoption of PAPSS can unlock unprecedented economic opportunities across Africa. The PAPSS creates an opportunity to lower transaction costs, accelerate financial clearing, and create a unique opportunity for traders to use African currencies to trade between themselves. Policymakers must therefore prioritize supportive reforms, invest in digital and physical infrastructure, and encourage the adoption of innovative payment systems to ensure that the promise of continental integration translates into tangible benefits for businesses and citizens alike.

Reference List

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Henri Kouam is the Founder and Executive Director of the Cameroon Economic Policy Institute (CEPI), one of the top thinktanks in Cameroon and Central Africa with tangible policy wins. He is a contributor to the London-based Economist Intelligence Unit (EIU) and has consulted for NATO, the Bill and Melinda Gates Foundation, and Benzinga, among others, since 2021. As one of the leading International trade policy experts in Cameroon, he leads CEPI’s African Continental Free Trade Area (AfCFTA) advocacy and trainings.