This archive report was first published on 3 August 2019.
East African Community member states are working to upgrade the underperforming regional electronic payment system, with the goal of linking it to other payment solutions in Africa to ease trade across the continent following the launch of the African Continent Free Trade Area (AfCFTA) in 2018.
The East African Payment System (EAPS), launched in May 2014, has been hampered by the reluctance of member countries to trade in each other's currency, with Kenya controlling over 98% of transactions through the system.
According to Bank of Uganda's deputy governor Dr. Louis Kasekende, the move to upgrade the system will help boost intra-Africa trade and support the growth of regional firms.
Currently, Kenya dominates transactions in the EAPS, which allows citizens of member countries to make and receive payments in regional currencies, including the Kenyan shilling, Ugandan shilling, Tanzanian shilling, Rwandan franc, and Burundian franc.
During the 2017/2018 financial year, Kenyans accounted for over 98% of transactions in the system, amounting to $2.37 billion out of $2.41 billion, with a paltry $40 million being transacted by Uganda, Rwanda, Tanzania, and Burundi.
South Sudan is yet to join the system, which links the respective real-time gross settlements (RTGS) systems of Kenya, Uganda, Tanzania, Rwanda, and Burundi.
The operationalisation of the EAPS was largely meant to enhance regional currency convertibility, with the agreement to make all regional currencies tradable signed in 2014 by EAC member states to promote intra-regional trade and prepare for a monetary union by 2024.
However, EAC central banks have so far opened reciprocal accounts with each other, but member countries remain reluctant to pay and receive payments in regional currencies, citing varying characteristics of regional currencies and difficulties in promoting a freely convertible regional currency regime.
Kenya's Central Bank is working in partnership with other regional central banks to facilitate the acceptance of EAC domestic currencies, aiming to enhance regional trade and lower transaction costs.
According to the Comesa Secretariat, there has been significant progress in the implementation of currency convertibility in the Central and Eastern African subgroup, while the Northern African subgroup has agreed on an action plan for implementation and started quoting exchange rates of neighboring countries' currencies in their forex Bureaus.
