According to the Organization for Economic Co-operation and Development (OECD), digital trade has been impactful in connecting many businesses to consumers at a global level. Digital trade has significantly cut the costs of cross-border transactions, promoted coordination amongst value chains globally, and encouraged diffusion of technologies and ideas through innovations. By definition, digital trade entails digitally-enabled transactions of trade in goods and services involving governments, firms and consumers; where the traded product can be digitally delivered in the case of electronically transmitted (ET) products or physically delivered through online marketplaces.
New business models are being adopted each day from the fast-paced and interconnected digital economy which makes sophisticated trade transactions and related policies necessary. This realization pushes governments to think ahead and formulate rules and regulations to not only manage issues emanating from digital disruption; but also create mechanisms to recognize and share in the opportunities and benefits that digital trade offers.
On 10th February 2020, African Union Heads of State and Government Assembly gave the African Continental Free Trade Area (AfCFTA) the mandate to negotiate on an e-commerce protocol under the AfCFTA. The protocol which is also referred to as the protocol in Digital Trade was scheduled for Phase III of the negotiations and was fast tracked in January 2021. Negotiations for a digital trade protocol under the AfCFTA provide a unique opportunity for member states to operate under harmonized digital economy regulations with the goal of collective economic growth from a trade perspective.
E-commerce penetration in Africa
In the African context, e-commerce is identified as digitally-enabled transactions of trade in goods and services that are physically delivered within individual economies. E-commerce in Africa is often focused on business-to-consumers (B2C) transactions. The International Trade Centre (ITC) in 2020 identified about 630 B2C e-commerce marketplaces operating on the continent.
The advent of the novel COVID-19 pandemic highlighted the importance of digital trade, as witnessed through the spike in digital shopping. A 2020-2021 online survey revealed that 81% of consumers in Nigeria shopped more online from the beginning of the pandemic. Kenya and Ghana registered an increment of 79% in online purchases, while South Africa recorded a 68% growth in online shopping. During the survey period, over half of the consumers reported to have spent more on food products, household essentials and medical supplies.
However, the continent’s e-commerce development remains stunted as a result of the continent’s weak digital economy which limits cross border digital trade. 94% of the e-commerce transactions in Africa are accounted for by only 10 countries due to marketplace structures that are domesticated and country focused. The digital economy is also marred with challenges such as complicated taxation and digital trust issues. In addition there is a general lack of well-structured e-commerce related rules and regulations that touch on data protection and privacy, consumer protection mechanisms among other salient digital trade issues.
E-commerce provisions that the AfCFTA should focus on
While AfCFTA is perceived to be the mainstream channel that will promote a harmonized digital economy by addressing the aforementioned challenges, trade negotiations relating to e-commerce have to be narrowed to specifics. Negotiations on the protocol on e-commerce get more complex as it is enabled and affected by many areas of law such as consumer protection, data protection, intellectual property rights, competition policy and tax-related issues, among others. Existing trade agreements scope e-commerce and its related provisions and commitments in three main categories:
- Market access: Customs duties, treatment of digital products, cross-border information flows, electronic supply of services
- Rules and regulations: Consumer protection, protection of personal information, domestic electronic transactions frameworks
- Facilitation: Paperless trade administration, cooperation, transparency, electronic authentication.
In promoting a harmonized digital economy that will facilitate economic growth though intra-Africa e-commerce, the AfCFTA should look into the following provisions:
- Electronic Trade Facilitation
Harmonized electronic trade laws can catapult intra-Africa digital trade. However, only 33 out of 54 African countries currently have formal e-transaction legislation; that mostly focus on technology and communication aspects. Electronic trade is facilitated by measures aimed at leveraging digitization and automation to simplify trade. Such measures include promoting paperless trading through legally recognizing e-signatures and e-authentication and digital certificates which are common provisions under the (South – South) S-S trade agreements.
In considering electronic trade facilitation, the AfCFTA should not limit itself to the existing laws but should explore other important contractual terms such as use of automated message systems, receipt acknowledgement among others. On international digital trade, a common area of conflict that AfCFTA should address in relation to e-transaction laws should be the choice of law. Also the adoption of an easily accessible single common digital certificate of origin (CoO) system as a standard platform among trade participants can be impactful.
AfCFTA can borrow insights into design and implementation of such a platform from regional blocs; particularly SADC which launched a piloting phase for an electronic certificate of origin (eCoO) to integrate registration automation, issuance and transmission of the CoO.
2. Digital Business Taxation
A survey amongst Africa countries revealed that harmonized taxation rules are key in promoting cross border ecommerce. A balanced approach to taxation will encourage growth among firms which will in turn benefit governments’ revenue baskets. Since many digital business models focus on having an online presence and reach out to their customers remotely, they render the existing international taxation frameworks which are based on physical presence ineffective; especially for global digital firms. Africa still faces administrative challenges due to limited resources, and the digitization of tax will be an uphill task.
A framework for taxing digitally traded goods can be a good starting point for AfCFTA. In 2014, South Africa amended its VAT tax to include digital trade services where foreign suppliers of products such as music and internet games were to account for output tax if their turnover met the 1 million rand threshold. Kenya and Nigeria came up with laws for taxing certain electronic transactions too.
The AfCFTA while structuring the digital business taxation should highlight digital customs duties and principles around most-favored nation (MFN) (nondiscrimination against exporters from different countries) and national treatment (nondiscrimination between domestic and imported forms of e-commerce) as they are common in trade negotiations.
3. Data protection and privacy
Concerns about data privacy of individuals is driving the inclusion of personal data protection measures in trade agreements. According to the United Nations Conference on Trade and Development (UNCTAD) Global Cyberlaw Tracker, only 27 African countries out of 54 currently have national legislations on data protection and privacy; nine have draft legislation and 13 countries have no legislation yet.
With the digital economy shifting from targeted advertisements in which personal data is key to database intelligent management of sector-wide activities using Artificial Intelligence (AI) and Internet of Things (IoT), nations will have to come up with laws relating to legal protection and ownership rules for such kinds of data. The AfCFTA is yet to have specific provisions in the area of data protection or privacy, other than what is adopted from the General Agreement on Trade in Services (GATS) in relation to Protocol on Trade in Services.
The AfCFTA can be instrumental in establishing common principles and frameworks for African countries in the areas of implementing personal data protection, data privacy and cyber-security to ensure a harmonized regulatory regime for African firms and working with Regional economic blocs (RECs) on the enforcement.
4. Cross-border data flows and data storage
Africa accounts for less than 1% of data center capacity globally. There are only six major commercial data centers located in East Africa (five in Kenya and one in Tanzania). Most of the content consumed continent wide originates from external parties. Investing in digital infrastructure through data centers will promote the growth of a local digital industry. Some countries have made strides in coming up with restrictions relating to data privacy; but Nigeria stands out for having established data localization laws requiring local storage of consumer, government and subscription data, as well as local processing of sales data and ATM transactions data.
The case of Nigeria demonstrates the differences in development and data governance framework status in African nations; an issue that the AfCFTA should address from a regional perspective to achieve desired results. The protocol on Digital trade should therefore build on existing principles under the African Union (AU) Convention on Cyber Security and Personal Data Protection on enabling free movement of data within regions. The principles are aligned with Regional Economic Communities (RECs) interests on data privacy, cooperation on cyber-security, and defining commonly agreed-upon principles. More resources should be channeled towards building capacity for data collection, storage and processing.
In conclusion, the digital trade economy will spur economic development through cross border e-commerce transactions. Trade negotiations under AfCFTA relating to this protocol should be narrowed down to specifics and emulate the provisions and commitments that existing trade agreements have as its building blocks towards the set goals.
Author: Inzillia Sasi