The multiplier effect of trade digitalization on growth of exports within the African Continental Free Trade Area

Digital trade is particularly trendy in Africa in this moment. After the recent analysis carried out from the Overseas Development Institute (ODI) on the impact of the Protocol on Digital Trade of the African Continental Free Trade Area (AfCFTA), and the Bilaterals' criticism of such Protocol, a new discussion paper from the Kenya Institute for Public Policy Research and Analysis (KIPPRA) examines the effect of trade digitalization on Kenyan exports on trade with the other AfCFTA State parties, giving some policy recommentdations that are valid also for other African countries. Completed in 2023, the paper has just been published on the KIPPRA website. It examines the effects of information access, ICT infrastructure, digital payments, and cyber security on flows of exports to other African States. The study finds (not surprisingly), that access to information can have a multiplier effect on the growth of exports within the AfCFTA context.

Within the meaning of the KIPPRA study, “access to information” is intended not only as availability of information on procedures and regulation governing trade operations, as it includes the possibility to utilize adequate IT infrastructures (e.g., broadband connections), the existence of a conducive e-commerce regulatory environment, the availability of platforms (such as Single Windows) that facilitate the completion of formalities related to trade, and the possibility to access to on-line financial services and digital payments, among others. In addition, data protection, cybersecurity and consumer protection regulatory frameworks further enhance online transactions, both nationally and cross-border, as they increase confidence of users in the use of digital trade tools, protecting them from their illicit use. For instance, some studies quoted in the paper are reported to have documented that a secure cyber space discourages trade in counterfeit products and encourages transactions on genuine and quality products. All these factors reduce the transaction costs, incentivizing trade activity. The paper mentions in particular a study (Milner and McGowan) that notes that countries that incur low trade (transaction) costs account for a larger share of world exports.

In other words, digitalization is key in facilitating market access for exports in the context of the AfCFTA, as recognized by the Africa Union Digital Transformation Strategy for Africa (2020-2030), which aims at strengthening intra-Africa trade by harnessing digital technologies and innovation to transform African societies and economies and promote Africa's integration. The strategy urges African countries to develop and improve digital networks and services and to give high priority to digitally supported socio-economic development. However, efforts by African countries to increase Internet penetration, incentivize the use of digital tools and build a safe and trusted cyberspace may not be enough, warns the paper. There is also a need to develop human capacity, through the development of improved digital skills especially in the new generations.

Based on the analysis conducted, a series of policy recommendations are formulated, some of them particularly relevant in the context of the AfCFTA implementation.

First, the need to promote the harmonization of data protection laws among AfCFTA members to avoid gaps or significant differences in data integrity defence mechanisms between African States. Second, the development and implementation of regulations capable to strengthen digital trade facilitation, registration of digital businesses, e-payment, e-tax administration, digital interoperability, digitalization of customs border process, cyber security, consumer protection, and dispute resolution.

Last but not least, all trade, investment agreements and economic partnership frameworks negotiated by African States should include a chapter on digital trade with a specific focus on technology transfers between micro, small and medium-sized enterprises to improve their capacity and digital preparation. On the other hand, this is already a trend in the new generation Preferential Trade Agreeements, that usually always include such a chapter...