Cash Reigns Supreme in Algeria: A Dive into the Challenges and Opportunities of Cashless Transactions in Africa

From the charming tea houses of the ancient Casbah to the bustling lemonade stalls amid the Roman ruins of Tipaza, cash remains the dominant currency in Algeria, Africa’s third-largest economy. Despite an increasing push towards digital transactions in various corners of the continent, Algeria’s cash-centric lifestyle reveals both challenges and insights into the broader economic landscape.

The Cash-Only Culture

This devotion to cash is not just a matter of personal preference; it reflects the economic realities faced by many Algerians. Unlike certain regions in East and West Africa, mobile money transfers are scarce, with only a handful of establishments accepting card payments. “Ask any Algerian,” says Ali Nassir, a driver with the French taxi-hailing app Heetch, “Cash is the best thing here.”

Nassir and others attribute this reliance on cash to the disparity between the official and black market exchange rates for the Algerian dinar against the dollar. Even in countries that are moving towards cashless economies, cash transactions remain highly sought after, fueling a persistent trust deficit between buyers and sellers.

Trust Issues in Transactions

This trust deficit becomes more pronounced as people venture outside urban centers. “Many people don’t want to pay online before they get their order,” highlights Tania Chorey, co-founder of Shoe Empire, a boutique in Nairobi, Kenya. “If you send items before collecting money, sometimes people switch off their phone to avoid paying.”

Such concerns emphasize a vital aspect of the cash-centric economy: the desire for tangible security in transactions. The fear of online fraud has led many to prefer cash-based dealings, even in the face of emerging digital solutions.

Seeking Solutions for Cross-Border Trade

At the recent Intra-African Trade Fair in Algiers, policymakers and merchants grappled with questions aimed at easing real-time trade across currency borders in a cash-intensive environment. Currently, a client from Burkina Faso wanting to buy dresses from Ghana faces significant hurdles: the buyer must either transport cash across borders or resort to expensive international banking services.

These challenges highlight a pressing need for a streamlined and reliable payment system within Africa. The discussions at the trade fair showcased the urgent need for practical solutions to avoiding third-party operators and facilitating easier transactions.

The Quest for Financial Sovereignty

For years, financial policymakers have sought answers to these challenges. Many see the potential for a system that can facilitate transactions in local currencies without relying on foreign gateways, allowing countries to regain control over their financial sovereignty.

At the fair, a Nigerian attendee talked about the high costs associated with using international payment systems. Without cash at hand to pay for goods, alternative means of payment quickly became cumbersome and costly.

In this landscape, innovations like the Pan-African Payment and Settlement System (Papss) are attempting to revolutionize the way transactions occur across the continent. Launched in 2022, Papss promises virtually instant currency transfers within seven seconds, allowing businesses to operate seamlessly across borders.

The Promise of Instant Transactions

Papss operates within the framework of the African Continental Free Trade Area and is supported by the African Export-Import Bank and the African Union. The system’s CEO, Mike Ogbalu III, emphasizes its capacity to drastically cut processing fees and reduce transaction times.

“Payments are an excellent way of exchanging goods and services,” he states, “but they are also an instrument of control.” The aim is to shield Africa from financial disruptions arising from conflicts and foreign sanctions, thereby fostering stability and economic resilience on the continent.

Challenges Ahead for Papss

While Papss represents an exciting leap forward, it faces a series of challenges. Limited digital infrastructure in rural areas hampers its potential reach, while currency volatility and stringent foreign-exchange controls present additional hurdles.

Experts warn that the existence of multiple established global payment networks means Papss must navigate a competitive landscape. They must balance affordability with reliability to gain widespread acceptance.

Moreover, the initiative’s reliance on a supranational entity rather than individual central banks raises questions about alignment and collaboration within the existing financial frameworks of various African nations. Lucie Ekeleba Blay, an Accra-based lawyer, has pointed out that many central banks are already developing their own payment systems, which could complicate the adoption of Papss.

The Future of Transactions in Africa

If successful, systems like Papss could significantly reduce the friction involved in cross-border transactions, bringing Africa one step closer to an integrated economic union. For small businesses, this represents a broadening of their market reach—potentially opening up to 1.4 billion people within Africa, as Ogbalu states.

For entrepreneurs like Tania Chorey, the prospect of simplifying payment mechanisms could revolutionize their operations. “With Papss, payments will come to your phone. So that’s easy,” she explains, highlighting the transformative potential of this innovation.

As cash continues to reign supreme in places like Algeria, the journey towards a more cashless economy may be gradual. Yet, the innovations being developed might signal a turning tide in how commerce functions across the continent.