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

Digital trade is currently gaining significant traction in Africa. A recent analysis by the Overseas Development Institute (ODI) explored the impact of the Protocol on Digital Trade of the African Continental Free Trade Area (AfCFTA), amid criticism from Bilaterals. A new discussion paper from the Kenya Institute for Public Policy Research and Analysis (KIPPRA) delves into the effects of trade digitalization on Kenyan exports and trade with other AfCFTA member states, offering policy recommendations applicable to other African nations.

Completed in 2023 and recently published on the KIPPRA website, the paper investigates the impact of information access, ICT infrastructure, digital payments, and cybersecurity on export flows to other African countries. Unsurprisingly, the study finds that access to information can significantly boost export growth within the AfCFTA framework.

In the context of the KIPPRA study, “access to information” encompasses more than just having information about trade procedures and regulations. It also involves the availability of robust IT infrastructure, such as high-speed internet, a supportive e-commerce regulatory environment, and platforms like Single Windows that streamline trade-related formalities.

Furthermore, it includes access to online financial services and digital payment options. Enhanced regulatory frameworks for data protection, cybersecurity, and consumer protection also play a crucial role in boosting online transactions by increasing user confidence and safeguarding against misuse.

For example, research cited in the paper indicates that secure cyberspace deters the trade of counterfeit goods and promotes transactions involving genuine, high-quality products. These factors collectively lower transaction costs and stimulate trade activity. The paper specifically references a study by Milner and McGowan, which highlights that countries with lower trade transaction costs tend to have a larger share of global exports.

Enhance human capacity

Digitalization plays a crucial role in enhancing market access for exports within the AfCFTA framework, as highlighted by the Africa Union Digital Transformation Strategy for Africa (2020-2030). This strategy aims to boost intra-Africa trade by leveraging digital technologies and innovations to transform African societies and economies, thus advancing regional integration.

It calls for African nations to develop and improve their digital infrastructure and prioritize socio-economic development supported by digital tools. However, the paper cautions that merely increasing Internet access, encouraging digital tool usage, and creating a secure online environment may be insufficient. There is also a need to enhance human capacity, particularly by developing digital skills among younger generations.

Based on the analysis, several policy recommendations are proposed, especially pertinent to the AfCFTA implementation.

Firstly, it is essential to harmonize data protection laws among AfCFTA members to prevent disparities in data integrity measures between African countries. Secondly, regulations should be developed and enforced to bolster digital trade facilitation, including digital business registration, e-payment, e-tax administration, digital interoperability, customs border processes, cybersecurity, consumer protection, and dispute resolution.

Lastly, all trade, investment agreements, and economic partnerships negotiated by African States should include a chapter on digital trade, with a particular emphasis on technology transfers to micro, small, and medium-sized enterprises to enhance their digital readiness and capacity. This trend is already evident in new Preferential Trade Agreements, which commonly incorporate such a chapter.