Understand AfCFTA, SADM and PAPSS

The African Continental Free Trade Area (AfCFTA) is a landmark agreement that aims to create a single market for goods and services in Africa, with a population of 1.3 billion people and a combined GDP of $3.4 trillion. The AfCFTA entered into force in May 2019 and trading under its rules started in January 2021. It is expected to boost intra-African trade, industrialization, and economic development across the continent.

One of the key pillars of the AfCFTA is the Single African Digital Market (SADM), which is an initiative to harmonize digital policies and regulations, promote digital infrastructure and connectivity, and foster digital skills and innovation. The SADM will enable the free movement of data, goods, and services across Africa, as well as create new opportunities for digital entrepreneurs and businesses.

A crucial component of the SADM is the Pan-African Payment and Settlement System (PAPSS), which is a centralized payment platform that allows cross-border transactions in local currencies. The PAPSS was launched in July 2019 by the African Export-Import Bank (Afreximbank) and the African Union Commission (AUC). It aims to reduce the reliance on foreign currencies, lower transaction costs, and increase financial inclusion.

The PAPSS is expected to facilitate trade under the AfCFTA by providing a secure, efficient, and affordable payment system for intra-African trade. It will also support the development of regional value chains and the integration of informal traders into the formal economy.

However, the AfCFTA faces several challenges that need to be addressed in order to realize its full potential. One of these challenges is the lack of digital integration and interoperability among African countries, which hampers the flow of information, transactions and payments across borders. This is where the Single African Digital Market (SADM) and the Pan-African Payment and Settlement System (PAPSS) come in.

Some of the main challenges are:

Harmonizing trade policies and regulations among 54 diverse countries, with different levels of economic development, infrastructure, governance and institutional capacity.

Addressing non-tariff barriers, such as customs delays, transport costs, sanitary and phytosanitary measures, technical standards and quality requirements, that can raise the cost of doing business and reduce the competitiveness of African products.

Enhancing productive capacities and diversifying exports, especially in the industrial and service sectors, to take advantage of the larger market opportunities and avoid trade imbalances.

Ensuring that the benefits of trade liberalization are equitably distributed among and within countries, and that vulnerable groups, such as women, youth and small-scale farmers, are not left behind or marginalized.

Building political will and trust among member states, as well as engaging with stakeholders from the private sector, civil society and regional organizations, to foster ownership and commitment to the AfCFTA vision and objectives.

These challenges are not insurmountable, but they require concerted efforts and cooperation from all parties involved. The AfCFTA is not a panacea for Africa’s development challenges, but it is a crucial step towards achieving greater integration, cooperation and prosperity on the continent.

The SADM seeks to promote the development of digital infrastructure, platforms and services, as well as the adoption of common standards, protocols and guidelines for data protection, cybersecurity, consumer protection and taxation. The SADM also aims to foster digital skills, innovation and entrepreneurship among African youth and women. The PAPSS is designed to reduce the reliance on foreign currencies, lower transaction costs, increase financial inclusion and support monetary policy coordination. The PAPSS is expected to be operational by the end of 2021, with 18 countries already committed to join.

The SADM and the PAPSS are complementary and mutually reinforcing initiatives that will support the implementation of the AfCFTA and enhance its benefits for African businesses and consumers. By creating a digital single market and a payment system for Africa, they will enable faster, cheaper and more secure trade and e-commerce across the continent.

The AfCFTA, the SADM, and the PAPSS are ambitious and transformative initiatives that have the potential to reshape the economic landscape of Africa. They will create new markets, new opportunities, and new challenges for African businesses and consumers. They will also require strong political commitment, effective coordination, and adequate resources to ensure their successful implementation.

Source: Tekedia