A digital Free Trade Agreement for Africa
Wed 11 Jul 2018 | Michael Mudd
The African Continental Free Trade Area (AfCFTA) was signed into being on March 21st, 2018 in Kigali, where 44 African heads of state and governments met and agreed the binding commitment. The AfCFTA will come into effect after ratification by at least 22 countries. Each country has 120 days after signing the framework to ratify.
This will be one of the world’s largest free-trade areas comprising 55 countries with 1.2 billion people generating over $4 trillion in combined consumer and business spending. The AfCFTA will therefore open up a significant number of countries to create a single continental market for goods and services, as well as a customs union with free movement of capital and business travelers across their borders. According to the U.N. Economic Commission on Africa, intra-African trade is likely to increase by 52.3 percent under the AfCFTA and will double upon the further removal of non-tariff barriers.
In 2013 the first Transform Africa Summit was held in Kigali that resulted in the ‘Smart Africa Manifesto’, which recognised information and communication technology (ICT) as a crucial enabler of growth across all economic sectors. Significant achievements have been made over the past five years in enabling ICT, in particular addressing mobile infrastructure and access to the internet.
Technology and connectivity will play a key role in driving intra African trade. In Europe just over 70% of trade is between EU countries, many share a common market also for digital trade. The figure is less in more fractured regions without a strong trading agreement; 51% in Asia and only19% in Latin America. In Africa, the figure is lowest of all with intraregional trade accounting for only 15% of the total. In manufacturing for example, local input requirements (value added) depress economic activity as there are only a few countries that can scale. Digital trade on the other hand, using hyperscale computing can scale almost infinitely.
The potential for growth has been well documented and can add between 2 and 4% to GDP of countries that embrace digital trade. Digital information flows—which were practically nonexistent just 15 years ago—now exert a larger impact on GDP growth than the centuries-old trade in goods, according to a new McKinsey Global Institute (MGI) report, Digital globalization: The new era of global flows.
To fully achieve the vision outlined in the “Smart Africa Manifesto”, as well as to drive intra-African trade flows, an African wide recognition of the importance of the free flow of information for digital trade within the AfCFTA will also be critical for businesses to fully realise the AfCFTA by accelerating continental integration. In addition to transmitting valuable streams of information and ideas in their own right, data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.
First and foremost are the challenges of accessibility. According to the ITU, in 2017 half the world’s population already had access to the internet; however Internet user penetration for Africa was only 21.8% some private sector sources using different statistical criteria, put the figure higher, but still well below the world average. Novel technologies, such as the use of TV White Space frequencies have shown promise in a number of trials in Africa.
There are considerable variances, in particular for the landlocked countries where costs are higher due the ‘last thousand miles’. In general there is a correlation between the wealth of a country, usually expressed as GDP and internet usage, which is similar for example, in Asia – Pacific economies. Affordability is therefore a question that also needs to be addressed.
The benefits however are clear. A U.S. International Trade Commission global study showed that cross-border data flows and the business trends that they enable generate enormous value globally:
- More globally connected economies increase their gross domestic product (GDP) growth by up to 40 percent more than less connected economies.
- ICT usage enables growth, particularly in emerging economies, by giving new and small businesses ready access to global service delivery platforms.
- Removing trade barriers faced by digitally intensive firms would markedly increase GDP, wages, sales and employment. Embracing cross-border data flows reduces physical trade barriers and reduces the impact of geographical isolation from major export markets.
Technology companies have a major role to play here and the great enabler for this will be Cloud Computing Services (CCS) that offers the potential for huge economies of scale that can drive increasing higher levels of innovation and service delivery.
Visionary computing proponents claimed some years ago that Cloud computing will “transform the way IT is consumed and managed, promising improved cost efficiencies, accelerated innovation, faster time-to-market, and the ability to scale applications on demand”2.
Cloud computing is mature and delivers on the promise of enhancing economic, political and cultural interdependence among African nations by dramatically accelerating cross border information flows and services exchange. Just as important as trade in agricultural products and industrial/manufactured goods, trade in information or “bits” can assist in enhancing overall economic growth and potentially growing regional integration within Africa. Moreover countries without an established manufacturing base or limited agricultural production for export, can enhance their income via digital trade services throughout the region and globally.
The US National Institute of Standards and Technology (NIST) a research and standards organisation, defines the Cloud as having the following essential characteristics: on-demand self-service, broad network access, resource pooling, rapid elasticity or expansion, and measured service.
The advent of the Cloud provides some challenges, but multiple opportunities for African countries. The Cloud further opens the door for African businesses to compete globally and to improve the delivery of health and education services on a national and regional basis that are fundamental to future economic growth and social development.
The successful development of Cloud computing throughout Africa also depends on the development of a regional market for both services and innovation which will result in greater job creation, in particular of the youth, and growth in GDP.
The ‘pay as you use’ model of CCS also enable more accurate predictability in budgeting, typically delivering benefits within 12 months of adoption. The World Economic Report from the IMF, April 2018 in part stated that a shift in employment from manufacturing to services need not hinder economy-wide productivity growth, quite the opposite. The report concludes that prospects for developing economies to gain ground toward advanced-economy income levels are attainable and technology is a key driver of improvements in income and standard of living.
Education is both a challenge and an opportunity in Africa that may be enabled by affordable access to the Internet with content delivered economically by the Cloud. The fact is that today anyone with a reasonable internet connection can access vast amounts of knowledge from agricultural techniques to literally rocket science on the World Wide Web.
Among the subject areas that need to be addressed are concerns on privacy, competition policy, standards-setting, security, data sovereignty, and IPR/copyright. While some of these issues are not exclusive to the Cloud, beginning cross-jurisdictional discussions in the context of Cloud computing development, may create a conducive environment toward closing some gaps in regulations today.
If implemented, the AfCFTA that recognises trade in digital services will be a more inclusive trade block for the 21st century, potentially equal to that of the EU/EFTA for Europe or ASEAN/APEC for Asia.
This is the digital chapter of the AfCFTA that has yet to be written.
1. Hofheinz, Paul, and Michael Mandel. Bridging the Data Gap: How Digital Innovation Can Drive Growth and Create Jobs (Brussels/ Washington, DC: The Lisbon Council/ Progressive Policy Institute, 2014)