LATEST UPDATES
Card-image-cap

Business | Trade Investment

Intra-African Trades Get a Boost by CBN's New Regulation for the Operation of PAPSS

Nov 16, 2021   •   by   •   Source: Proshare   •   eye-icon 2410 views

Tuesday, November 16, 2021 / 5:30 PM / By Seyi, Oluwatoba, & Jesutooni of Banwo & Ighodalo /Header Image Credit: Tech Nova

 

Introduction

On October11, 2021, the Central Bank of Nigeria ("CBN") took a fundamental step towardsfacilitating the settlement and payment of cross-border transactions within theAfrican continent, by issuing a new regulation titled: Guidelines on theOperations of Pan African Payments and Settlement System (PAPSS) in Nigeria(the "Guideline"). The CBN is empowered under section 69 of the Banks and OtherFinancial Institutions Act (BOFIA), 2020 to issue regulations for theadministration, standardization and governance of payment, settlement andclearance operations in Nigeria. The new Guideline is expected to facilitatethe operation of the Pan African Payments and Settlement System ("PAPSS"),developed and introduced by Afreximbank in partnership with the West AfricanMonetary Institute (WAMI). The PAPSS is currently being deployed as a pilotscheme in the West African Monetary Zone (WAMZ), before its operation isextended across all regions in Africa.

 

This updateprovides a synopsis of the Guideline and highlights the likely impact for keystakeholders, as well as the overall domestic and continental economy.



Proshare Nigeria Pvt. Ltd.


 

Key Features of the PAPSS

  • PAPSS supports theinitiation of cross border retail payments in local currency of the sendingcountry and the receipt of funds in local currency of the beneficiary's countrywithin West Africa.
  • The inter-bank settlementwill be in US Dollars, with a multilateral netting arrangement.
  • The inter-bank netsettlement will be based on prefunding by participating financial institutions,through the domestic Real Time Gross Settlement (RTGS) System.
  • Afreximbank shall be thesettlement agent for transactions conducted on the PAPSS.
  • Each participating centralbank is required to maintain a USD account with Afreximbank, for the purpose ofsettling eligible transactions from its country on a net basis.
  • Respective central banksare to determine the eligible transactions for which foreign exchange will beprovided by them.
  • Commercial banks may alsooperate a USD settlement account with Afreximbank, to settle obligations forpayments in respect of ineligible transactions, for which the CBN would notprovide foreign exchange.

 

 

Furtherto the above, the Guideline Directs all Authorised Dealers to Ensure that:

  • Eligible payment ofimports and receipt of export proceeds settled by the CBN, are restricted totrade-backed transactions only.
  • The documentationrequirements stipulated in Memorandum 9 and 10 of the Foreign Exchange Manual(2018) and other relevant extant circulars, apply to all transactions underPAPSS.
  • The stipulateddocumentation requirements must be met by banks their customers, before atransaction is initiated on PAPSS.
  • Import payments arerestricted to goods of African origin.
  • Export proceedsrepatriated to the CBN are certified by the respective processing banks, asbeing repatriated by the concerned Exporter.
  • All extant guidelines,circulars, and directives on the operations of the Foreign Exchange Marketapply to transactions under the PAPSS.
  • For outbound payments andverse-versa for inflows, the prevailing exchange rate at the Investors andExporters FX Window are applied to cross-rates conversions between the Naira,USD and third currencies within Africa.
  • Authorised Dealers are toseek and obtain prior approval of the CBN for USD cover, before initiatingpayments on the PAPSS for the settlement of the CBN.
  • Only eligibletransactions, as may be determined by the CBN from time to time, may beinitiated on the PAPSS for the settlement of the CBN. Thus, items classified "NOT VALID FOR FOREX" shall continue to remain so

 

Commentary

 At a time when the African Union is at thefinal stages of the full operation of the African Continental Free Trade Area1("AfCFTA"), the Guideline is expected to facilitate the objectives of thecontinental single market, widely tipped to be one of the world's largestsingle markets, accounting for about US$ 4 trillion in spending and investmentacross the continent, with multi-trillion dollar opportunities for the 54African countries. The Guideline is also seen as a regulatory imperative foradequately preparing Nigeria for active participation in the free trade zone.

 

Whiletrading across the AfCFTA officially began on January 1, 2021, according to theAU's Johannesburg Declaration, seamless cross-border payments and settlementremain a key driver for achieving free movement of goods and services withinthe continent – an important catalyst for scaling up intra-African trades andinvestments. Nigeria, Africa's largest economy and biggest market, was the 34thAfrican country to ratify the Agreement Establishing The AfCFTA, according to aDecember 2020 report by the United Nations Economic Commission for Africa(ECA).2

 

By creatinga regulatory framework for an orderly and prompt settlement of transactionsbetween trade parties under the PAPSS, the Guideline sets the tone forparticipation by Nigerian commercial banks (who are Authorised Dealers) and theCBN, with their counterparts within the West-African sub-region, in the pilotscheme period, and in the near future, hopefully across the entire African continent.Nigerian entities expected to participate under the PAPSS should review theirobligations and reporting duties appropriately. In addition, they should payspecific attention to the domestic foreign exchange regulations in Nigeria, theprovisions of the Guideline, as well as the broader rules of engagement in thecontinental single market (AfCFTA Agreement & Protocols). Accordingly,participating institutions are advised to seek appropriate legal guidance onhow to conduct their businesses in compliance with all relevant laws andregulations.

 

FootNotes

1.  AU:https://au.int/sites/default/files/treaties/36437-treatyconsolidated_text_on_cfta_-_en.pdf

2. ECA:https://www.uneca.org/storys/nigeria-becomes-34th-country-ratify-afcfta-agreementwww

 


 Proshare Nigeria Pvt. Ltd.


 

RecentArticles By Banwo & Ighodalo

1.     Synopsis of the CBN RegulatoryGuideline on the E-Naira - November 15, 2021

2.     Trademarking"Yoruba": Illegality or Mere Cultural Appropriation? - July07,2021

3.     Trademark Licensing in Nigeria - May 06, 2021

4.     Finance MinisterIssues Order Expanding the Goods and Services Exempt from VAT in Nigeria - May 28, 2020

5.     COVID-19 andCommercial Transactions: Some Emerging Legal Issues - March 30, 2020

6.     Patents: The Fitnessand Wellness Industry October 23, 2019

7.      Ownership of Trademarks in Nigeria - October 06, 2019

8.     Companies Operating In Nigeria ToPay 0.005% Net Profit Levy Under The NPTF (Establishment) Act 2018 - September 17, 2019

9.     NAFDAC-Regulated Products Imported Into NigeriaNow To Be Processed On The Nigeria Trade Portal - September 06, 2019

10.  National Identity Management In Nigeria: NIMCand Matters Arising  - Jul 29, 2019

11.   Drilling Rigs Are Not Vessels: Court Of AppealPronounces - Jul25, 2019

12.   Nigeria: What You Need To Know About The NewMinimum Capital Requirement For Insurance  - Jun 03, 2019

13.   NationalHousing Fund Act 2018: Analysis And Recommendations For Legislative Review  - May 03, 2019

 

 

 

 

Editorial Team

SeyiBella

Partner

[email protected]

 

OluwatobaOguntuase

SeniorPractice Support Lawyer

[email protected]

 

JesutooniAjiboye

PracticeSupport Lawyer

[email protected]

 

The Grey MatterConcept is an initiative of the law firm, Banwo & Ighodalo.

 

DISCLAIMER: This article is only intended to provide general information onthe subject matter and does not by itself create a client/attorney relationshipbetween readers and our Law Firm or serve as legal advice. We are available toprovide specialist legal advice on the readers' specific circumstances whenthey arise.

 

 

Proshare Nigeria Pvt. Ltd.



RelatedNews

1.     Understandingthe Pan-African Payment and Settlement System of the AfreximBank - Ade Adefeko

2.    Africa EconomicRecovery - The Role of Digital Tech in Efficient Ports and Free Trade

3.    NIPC Launchese-OSIC To Facilitate Investment Promotion in Nigeria

4.    Settling andClearing Payments in Africa through The Pan African Payment and SettlementSystem

5.    ''RIBS''Investment: NIPC Assures Ekiti Of Technical Support

6.    CBN DirectsBanks to Apply I and E Rates for PAPSS Transactions

7.    How NIPC Usesthe ''RIBS'' Approach to Boost Nigerian Investments

8.    How AfCFTA isScaling up Local Content Initiatives in Nigeria

9.    Coronation MBholds 2nd edition of its Interactive Session Series themed AfCFTA - The RoadAhead

10.  Africa MustTransit to A Manufacturing Hub to Make AfCFTA Effective


 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

Get the App

apple-store  play-store

Connect with us


Proshare is a professional practice focused on delivering research and information services to bridge the gap between investors and markets; by delivery on credible, reliable, and timely engagements through the following areas — Impact Research, Market Intelligence, Strategic Advisory, Stakeholder Relations & Digital Media.