African businesses lose approximately Sh647.3 billion (US$5 billion) annually in currency conversion costs due to reliance on third currencies like the US dollar for transactions within the continent. This issue can be addressed by implementing the African Continental Free Trade Area (AfCFTA), which aims to create a single integrated market. According to Wamkele Mene, Secretary-General of AfCFTA, removing barriers to cross-border payments, customs, and infrastructure will significantly reduce transaction costs for businesses trading within Africa.
The AfCFTA seeks to create a single continental market for goods and services by reducing trade barriers among participating African countries. Mene emphasized that countries need to align national policies, modernize customs systems, and expand cross-border payments in local currencies to enable businesses to benefit from the continental market. He cited a transaction between businesses in Ghana and Kenya as an example of the barriers facing firms, which often require conversion through a third currency before completing a payment.
One solution to reduce reliance on third currencies is the Pan-African Payment and Settlement System (PAPSS), developed by Afreximbank in collaboration with the AfCFTA Secretariat. This system allows businesses to make cross-border payments in local currencies, reducing the need for currency conversions and making transactions between African markets easier. Mene and George Asamani, Project Management Institute’s Managing Director for Sub-Saharan Africa, discussed the role of customs authorities and national governments in implementing AfCFTA commitments.
Asamani stressed that a continental agreement becomes meaningful when businesses can use it, which depends on coordination among institutions, risk management, and reliable systems. He noted that project management skills can help governments and businesses turn continental trade commitments into usable systems. Mene addressed concerns that opening markets could expose domestic industries to competition from larger or more established firms, citing rules that protect infant industries in a country.
Mene called for greater investment in project preparation, trade infrastructure, and digital systems, emphasizing that physical infrastructure must work alongside customs processes and digital services. He pointed to the Digital Trade Protocol as part of efforts to create conditions for investment in emerging technologies and data centers. Asamani added that Africa needs more professionals capable of managing projects that cross institutional and national boundaries.
The success of AfCFTA ultimately depends on whether businesses can enter new African markets at lower cost and with less administrative burden. Mene emphasized that all stakeholders have a contribution to creating a single integrated market. The discussion took place during a fireside discussion at the Project Management Institute’s Global Summit Series in Cape Town, South Africa.
The implementation of AfCFTA will require collaboration among governments, businesses, and project professionals to turn continental trade commitments into tangible benefits for firms. With the right infrastructure, digital systems, and project management skills, African businesses can reduce transaction costs and increase trade within the continent.
Key points
- African businesses lose approximately Sh647.3 billion (US$5 billion) annually in currency conversion costs.
- The Pan-African Payment and Settlement System (PAPSS) can reduce reliance on third currencies for cross-border transactions.
- Implementing AfCFTA requires alignment of national policies, modernization of customs systems, and expansion of cross-border payments in local currencies.
