By Darryl Bernstein, Partner, Baker & McKenzie, Johannesburg
Digitization is disrupting global trade – the emergence of Industry 4.0, cloud computing, Internet of Things (IoT) and advanced technology has become relevant for 21st century trade in terms of both goods and services. The increasing impact of digitization reveals that African economies should be harnessing digital trade to encourage sector- wide economic development.
The potential for digital trade to drive economic development and transformation in Africa remains largely unexplored. With the African Continental Free Trade Area (AfCFTA), which came into effect on 30 May 2019, there is now wider scope to pursue regional strategies to develop Africa’s digital economy. AfCFTA presents itself as a “new dawn” for Africa and aims to bring together 55 African countries to create a single market with a combined GDP of USD 2.5 trillion covering market 1.2 billion people.
How Africa can benefit from Digital Trade
While e-commerce is thriving in some African countries, for example we have witnessed the money market boom in Kenya and the robust growth of e-commerce platforms in Nigeria, these good outcomes are often confined to the domestic market with limited regional success.
Essentially, digital trade, and its benefits for development can be derived in two ways. Firstly, through e-commerce, that is, the use of digital platforms to facilitate trade in goods and services capable of both physical and digital delivery. The opportunities for African economies comes through the increased connectivity of both local and foreign markets.
Growing internet use in Africa has been instrumental in providing an alternative route to market for SMEs and entrepreneurs who were previously hindered by the lack of connectivity, high transaction costs and information asymmetries. E- commerce offers firms and entrepreneurs visibility at a low cost and businesses are increasingly able to leverage social medial platforms to market their products and services. Increased connectivity also reduces the proximity barriers previously encountered when accessing new markets, especially for services capable of digital delivery.
Secondly, digital trade extends to the use of innovative technologies to enhance overall economic efficiency and productivity. The diffusion of digital technologies in sectors of prime importance for African countries, such as manufacturing and agriculture, could increase productivity and efficiency, making these sectors more competitive. For instance, the combination of IoT, big data and cloud computing for precision agriculture results in more accurate crop and weather monitoring.
It can provide data which can be analysed to inform farming processes and decisions. Further, productivity and efficiency in manufacturing can be increased by automation, robotics and 3D printing. And increased digitization in manufacturing will intensify the demand for ICT services and business services, which are intermediaries in the production process.
There has been eagerness amongst both developing and developed members of the World Trade Organization to create rules to regulate digital trade. However, there is limited direction on what digital trade entails or how it should be regulated. Given the challenges and realities faced by African countries, negotiations at a global level would be premature. Africa’s digital trade strategy should rather be focused on pulling together regional efforts to strengthen capabilities and build digital economies. In this regard, the AfCFTA provides an appropriate platform for negotiating rules on digital trade for Africa.
At the negotiating table, African countries must seek to develop and harmonize the regulatory and institutional framework required to integrate their digital economies. A sophisticated legal and regulatory framework that enables digital transactions is vital for full participation in global digital trade. Further, an adequate legal framework could tackle the issue of trust, which acts as a barrier to the participation of both consumers and suppliers in e-commerce transactions.
So far, only a few African countries have implemented legislation to regulate data and consumer protection, data transfer, cybersecurity and electronic transactions. Regulations that allow for the secure cross-border transfer of data, the protection of personal data and consumer rights on digital platform, the policing of cybercrime and the recognition of electronic transactions are essential for the digital economy.
Regulation would also need to be supported by efficient ICT infrastructure, which is the backbone of the digital economy. Infrastructure that ensures access to sophisticated networks and internet speed is critical to the sustainability of the digital market. A large number of consumers and businesses remain offline, and there is a substantial gap between African countries and the rest of the world in terms of internet connectivity, largely due to inefficient ICT infrastructure, lack of broadband access and the high cost associated with internet connectivity.
Further, the rise in use of digital platforms does not reduce the need for traditional means of delivery – trade logistics still matter for digital trade. Poor quality roads and inefficient custom procedures tend to lengthen the time for delivery and increase shipping costs, which in turn influences purchasing decisions.
Regional and cross-border investment in infrastructure is therefore critical. The African Union adopted the Action Plan for Boosting Intra-African Trade (BIAT) in January 2012, which seeks to develop and upgrade infrastructure for intra-African trade. BIAT prioritizes and builds on initiatives adopted by the AU, namely by calling for implementation of the Programme for Infrastructural Development in Africa (PIDA), multiple-country infrastructure projects and the creation of an enabling environment for public sector participation. Strong efforts and commitment to the realisation of the action plan is now required. In addition, at a domestic level, African countries need to maintain focus on attracting foreign investments into infrastructure.
Digital trade should also be truly inclusive in order increase economic development in Africa. This requires African countries to build local capability, eliminate the digital divide and develop home-grown skills. Digital trade is essentially skills biased and relies on an adequate supply of labour that is equipped with the right expertise, literacy and creativity to perform high level digital tasks. Digital trade also requires consumers and firms who are comfortable to use digital platforms and technologies.
If African countries do not embrace digital trade and begin to implement strategies to equip themselves to engage and compete with other digital economies, they will be left behind. With this in mind, the strategy going forward should be to place a strong focus on building capabilities on a regional level in Africa. These considerations should be addressed when further negotiations on AfCFTA take place in the next few months