Potentials, Prospects and Policy: Digital Trade between Africa and the EU

For every nation to reap the benefits of the digital transformation, sustained openness to international services trade, investment and cross-border data flows is essential. Digital trade would be a boon for Africa and the EU if there were greater integration between them. Banner: Shutterstock/Rich T Photo
Potentials, Prospects and Policy: Digital Trade between Africa and the EU
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The European Union (EU) has been Africa’s historical trading partner since the colonial era. However, over the last two decades the EU’s share of African trade has been decreasing steadily and has now fallen below 50%. Digital trade would be a boon for both if there were greater integration between them in the digital market. I argue that upgrading the EU-Africa trade partnership with a digital provision will enhance service delivery and quality, promote stability and stimulate further profitable technological innovation. It will also narrow the digital trade gaps with other regions.

Currently, the share of companies in Africa and the EU combined account for only 5% of the total value of global digital platforms, compared to the United States (67%) and Asia (29%). Harnessing new digital solutions and making appropriate policy decisions could greatly reduce the constrains on African trade in particular, including logistics, internet services and high trade costs. The goal set by the European Commission’s New Africa-Europe Alliance for Sustainable Investment and Jobs in 2018 was to boost EU-Africa co-operation on digital economy; to do this, long-standing obstacles, such as non-tariff barriers imposed by the EU on African goods in the agricultural and services sectors, must be addressed.

The digital development of the Fourth Industrial Revolution heralds various social, economic and political upheavals that will unfold over the 21st century.

In this regard, recent initiatives such as the new Africa-EU partnership towards a digital economy and African Union – European Union Digital for Development (AU-EU D4D) are important, particularly in the post-COVID world. The AU-EU D4D initiative was launched by EU President Ursula von der Leyen in December 2020 to support African institutions to lay the ground for an inclusive and sustainable digital transformation. It targets sustainable and green digital transformation in Africa through multi-stakeholder dialogue and investments in the digital domain.

Today, half the world's people are online. The digital development of the Fourth Industrial Revolution heralds various social, economic and political upheavals that will unfold over the 21st century. As we have already witnessed during the COVID-19 crisis, many countries have moved to include or even prioritize digital inclusion and ICT investments in their broader development agenda. Some of the digitally advanced countries in Africa such as Kenya, Nigeria and South Africa are already embracing digital platforms in their government systems. South Africa and Kenya have also launched the 5G technology for enhanced reliability, availability, and network capacity.

If African countries are to move towards green, resilient and inclusive growth, harnessing the potential benefits of digital trade from the EU-Africa trade agreement will be key.

Africa has seen some of the fastest-growing penetrations of mobile subscribers in 2020, as the region continues to undergo a digital transformation; in 2017, mobile penetration in Africa was estimated at 44%, compared to an average internet penetration of 20% (with a wide variation from 90% to 3%). The development of a mobile technology ecosystem will even be more integral to digital trade, not only for small-scale enterprises (which are dominant in Africa) but also for medium and larger enterprises. Besides, the greater demand for “just-in-time” services—where smaller online sales and purchases are more common, faster and reliable than larger advanced orders—can also help SMEs engage in digital trade and enhance their contributions to the economy. As the first Secretary-General of the African Continental Free Trade Area, Ambassador Wamkele Mene pointed out, digital trade will be a new and innovative tool for Africa’s economic recovery and to improve the quality of people's lives in Africa.

If African countries are to move towards green, resilient and inclusive growth, harnessing the potential benefits of digital trade from the EU-Africa trade agreement will be key.

Potential

Africa has the youngest population of any region in the world, and a massive digital uptake is coming. Over the last two decades, the internet penetration in sub-Saharan Africa has increased tenfold compared with a mere threefold increase in the rest of the world. Given this rapid increase, technology-enabled platforms that combine the demand and supply side of industrial outputs will provide an opportunity to create a single market of 1.4 billion people with a combined GDP of over USD 2.6 trillion.

Since technology and international trade are intertwined, this rapid internet penetration in Africa will also open greater marketing opportunities for a growing middle-class with greater purchasing power. European companies could benefit from tapping into Africa’s fast-growing internet economy, which could reach USD 180 billion by 2025. Similarly, African companies could more easily access consumers in the world’s third-largest economy: while the market share of Africa’s digital trade is higher than the EU (around 6.5% compared to nearly 5.8%), the average GDP per capita in sub-Saharan Africa is 22 times lower than the EU.

Prospects

Today, many African countries do not have the fiscal space to provide a large bailout for economic recovery from the COVID-19 shock. Among others, digital trade is seen as one solution to relax the financial constraints across the continent by engaging enterprises in digital business. Tanzania is now beginning charges/fees from online mobile transactions, according to the Ministry of Finance and Planning. While the move can enhance tax bases, it has implications in other areas as well. For example, in sub-Saharan Africa—a area that has a large informal sector—imposing taxes on digital trade and services for intraregional business means governments can provide more formal channels of protection to their citizens (e.g. to access credit and other benefits).

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Digitization in the Fourth Industrial Revolution will be essential for data economy, trade and international collaboration, as well as to transform international trade and access to markets. The more the EU-Africa trade partnership uses digital platforms, the more it can level up its commitments to engage economic transformation. As a result, digital trade will have four major impacts on business not only in these two regions but also in the world's largest trading nations like the United States:

  • putting trade in services will enhance collaborative innovation
  • supporting product development with technology can affect the type of goods and services that countries trade, as well as the volume and the value traded, for a larger number of digitally connected customers across the globe
  • increasing organizational efficiency by changing the nature of the work as well as reducing investments in fixed assets
  • improving customer satisfaction and their online experience 

Similarly, digital trade will provide the opportunity for African governments to address the gaps in the physical and human capital, as well as shape the national strategies to strengthen digital governance. Africa’s exports are mostly from the agricultural sector, so digital markets would help them to produce high value-added products as well as develop manufacturing capacity and industrial development, including agro-processing which also contributes to food security.

Policy implications

Challenges related to intellectual property protection, data protection and cybersecurity may impede African countries’ trade competitiveness from the EU perspective. Establishing an adequate and more transparent approach to assessing general data protection is of paramount importance for policymakers. Similarly, from the African perspective, creating a more consistent legal framework and strengthening the institutions to govern digital transformations will be invaluable to creating stable trading partnerships.

For every nation to reap the benefits of the digital transformation of the Fourth Industrial Revolution, sustained openness to international services trade, investment and cross-border data flows is essential.

The EU is active in supporting the AU in developing policies related to emerging technologies such as digital identification, data governance and cybersecurity through the Policy and Regulation Initiative for Digital Africa. However, Africa needs a more co-ordinated approach to implementing cybersecurity and personal data protection; for instance, only 13 out of 55 countries have ratified the AU’s Malabo Convention on Cybersecurity and Personal Data Protection since it was adopted in 2014. Therefore, to achieve the goal set by this convention—and against a backdrop of ambitious African policy goals under the AU’s Agenda 2063—it would better for African leaders to engage in a little more “policydoing” rather than too much policymaking.

In conclusion, for every nation to reap the benefits of the digital transformation of the Fourth Industrial Revolution, sustained openness to international services trade, investment and cross-border data flows is essential.






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Go to the profile of B. Yerram Raju
about 2 months ago

Creating stable trading relationships that includes all types of services is fraught with more instability than stability. Online boarding of trade between nations that have varying information technology and digital systems is subject to high risks that the emerging nations can ill afford.