Want Free Trade to Be a Game-Changer for Africa? Build Digital Platforms
The vision of an Africa unified by free trade took a major leap forward with the signing of the African Continental Free Trade Area (AfCFTA) in March 2018. The AfCFTA, which commits countries to removing tariffs on 90 percent of goods and progressively liberalizing trade in services, would be the largest new trade agreement in decades, creating a market of 1.3 billion people and more than US $2 trillion in GDP. Economists estimate that the AfCFTA could lead to a 25 percent increase in intracontinental trade and billions in economic gains by allowing manufacturing and service industries to blossom, e-commerce entrepreneurs to find new markets, and informal traders to come out of the shadows.
At the Africa Trade Forum 2018 in Lagos earlier this month, speaker after speaker described the AfCFTA as a “game changer” for Africa. However, they also cautioned that much hard work lies ahead to make that promise a reality. In particular, the role of technology in facilitating trade and making sure all Africans benefit from it came up again and again. Helping governments use technology to better serve their citizens is one of the core objectives of the Data and Technology team at The Rockefeller Foundation, so I listened with great interest as free trade in Africa was presented as a technological challenge rather than confined only to the realm of policy or politics
As I see it now, here are four main ways technology can play a pivotal role in realizing AfCFTA’s promise:
- Reducing friction at the borders: Existing regional free trade areas in Africa, such as ECOWAS and COMESA, have not met all trade-related expectations, showing that simply reducing tariffs isn’t sufficient when there are other barriers to trade. For instance, trade can’t truly flourish if it has to flow through traditional, paper-based customs procedures. A well designed digital trade clearance platform that allows goods to clear customs with a single click would be a huge step toward a true single market. E-commerce platforms, small entrepreneurs, and informal traders, especially, need the speed, cost-effectiveness, convenience, and transparency (and reduced risk of having to pay bribes) that such a platform could provide.
- Tracking imports from outside the continent: While 47 countries have signed the AfCFTA, these don’t yet include Nigeria, the continent’s largest economy. Even fewer countries have taken the next step of ratifying the agreement. One of the key worries is the risk of allowing products from outside the continent to sneak past tariffs. A digital trade clearance platform could also play a key role in confirming that imports from outside the continent don’t enter through the back door. This is an application where a blockchain’s ability to create a secure, verifiable record of transactions might be useful.
- Creating a “digital single market”: Actually making trade happen isn’t just about getting goods over borders; it requires knowing where and who your customer is, collecting payments, and visiting customers. Creating basic, internationally interoperable digital platforms for identity, payments, addresses, and movement of people on the continent would be a potent complement to cutting tariffs. The trial of the new Pan-African Payment and Settlement Platform and efforts to agree on a continental framework on digital identification signal the first steps toward a true digital single market.
- Bridging revenue gaps: Reducing tariffs will cut into an important, easily collected source of revenue for African governments. Forecasts show that these losses could be made up elsewhere, but only if governments can effectively collect those taxes. Electronic platforms (perhaps built on digital identification and payment platforms) that make it easier for businesses large and small to comply with their tax obligations—and for governments to verify this–would be a potential leap forward for governance.
Building out these digital platforms to fulfill the promise of trade is not far-fetched. In fact, investment in many of these systems is already underway. Around 26 African countries are currently building or revamping digital ID systems. These platforms do not have to be expensive and can make use of the continent’s rapidly growing mobile telecoms infrastructure.
The more significant challenge is ensuring that new digital platforms are structured in a way that advances the pan-African development goals. This means agreeing on common standards that allow one government’s digital system to talk to another’s so that a person can do business seamlessly no matter where they are. This means connecting different types of platforms—like identification, payment, taxation, and customs systems—so that complex transactions can be conducted with a single click or swipe. It means setting up using digital platforms to give governments and the public real-time data on trade and its impacts. Finally, it is critical to ensure that everyone, particularly those with limited means and education, can access and benefit from these platforms. Every government technology platform faces these challenges—not just those having to do with trade or with Africa—and they are a focus of our Data and Technology work here at the Foundation.
Building the 21st-century digital platforms that can make continental free trade deliver development and progress for all of Africa will take both practical and political cooperation, to make sure that the right digital platforms are created, that they can talk to each other, and that all Africans can use them productively and securely. Getting it right would not only unlock the potential of continental free trade but firmly establish African countries as global leaders in using technology to deliver benefits to their people.