Digitalising trade in Africa: A new way of doing business

by Asmita Parshotam

Digitalised trade represents “digitally-enabled transactions of trade in goods and services that can either be digitally or physically delivered, and that involve consumers, firms, and governments.”^[1] COVID-19 has highlighted the need for agile and innovative replacements for manual cross-border trade practices. The pandemic has led to disruptions in regional and global value chains, shrinking international trade levels, and negative impacts on economic growth across the continent. Policymakers increasingly recognise needs to stimulate intra-African trade, to fast-track administrative processes, and to simplify cross-border trade procedures.

Trade facilitation measures involve the simplification, harmonisation and transparency of cross-border trade processes. The resulting standardization of cross-border procedures reduces clearance delays at borders and ports.^[2] Digitising custom procedures is also an important step on the path to online information sharing among border agencies. Some of Africa’s regional economic communities (RECs) are digitising cross-border trade processes. However, adoption is slow, as detailed below.

National governments already identify and address internal barriers to harmonization of laws and regulations across a wide range of industry sectors.^[3] However, coordination and cohesion at the regional and continental levels are weak. The policy and regulatory reforms needed to facilitate inter-connectivity of networks across borders are inadequate. In many African states the legal framework for data protection and e-commerce is in its infancy. Few states provide clear guidelines for data privacy, consumer protection, electronic contracts or online payments.^[4] Such gaps lead to hesitancy to adopt e-commerce opportunities. Similarly, a lack of adequate protection mechanisms tends to deter the private sector from participating in digitally enabled trade with their neighbours.

This policy brief analyses the potential for digitalisation to enhance intra-African trade. The focus is on the benefits of e-certificates of origin (e-COs) to governments and the private sector. Procedures for digital payment and clearance systems include the use of electronic systems of origin. This data provides a sound foundation for modernising trade facilitation efforts across Africa. The African Continental Free Trade Area (AfCFTA) currently does not commit African Union (AU) member states to accept or issue electronic certification. This is left to member states.^[5] Rules of origin are central to any free trade area (FTA) agreement. Thus, a commitment by member states to include e-COs in ongoing trade facilitation reforms is a potential game changer. This brief provides an overview of the potential for digital trade across Africa and the contributory role of digital technology towards Africa’s development. It then discusses the benefits from digitising trade facilitation applications, and the important role this step will play in deepening intra-African trade and encouraging greater private sector investment and participation in African economies. 

1. What are the benefits from digitalising trade in Africa?

While the trend to digitalise trade rose steadily over the past few years, the COVID-19 pandemic accelerated it as the ‘new norm’ in 2020. This trend reinforces the importance of widely available and reliable ICT infrastructure.  However, the barriers to adoption of this innovation are high.

An overview of the state of Internet connectivity and digital trade in Africa

Trade facilitation measures apply to a broad range of importing and exporting practices, and encompass reforms to hard and soft infrastructure in four focal areas: physical infrastructure, ICT and digital technology, the business environment, and border and transport efficiency.^[6] Improved trade facilitation leads to positive impacts on bilateral trade, export diversification, productivity levels and economic welfare.

Africa lags much of the world in both the reach and quality of its ICT penetration. Large portions of its population have little to no access to the digital economy. For example, Internet users account for 51% of the global population – nearly double the proportion in Africa, and African users are disadvantaged both in terms of access to the Internet and prohibitively high data costs.^[7] Addressing this challenge would require up to US$ 3 billion – and other resources that many African countries are unable to afford.^[8] Another challenge is the absence of ICT skills and innovation ecosystems amongst poorer communities, which are necessary to take advantage of such infrastructure.^[9] In addition, some experts argue that ICT infrastructure is predicated on the existence of more basic infrastructure (such as road, electricity and rail). In the absence of these, there is little justification for ICT infrastructure beyond 2G connectivity.^[10] This attitude has restricted connectivity to urban areas and further worsened the rural-urban divide. Bridging this growing digital divide will require skills development, technology training, and educational interventions for adults and children alike.

The contributory role of technology to spur trade in Africa

Private sector participation in advancing digital trade opportunities can spur innovative solutions to a wide array of challenges across the continent. For example, m-Pesa (a branchless, mobile money service that first appeared in Kenya) is now available across the continent, and provides millions of Africans with access to the formal financial system. It has been particularly successful at connecting informal cross-border traders to the formal banking system. Similarly, SokoWatch enables informal traders across East Africa to order products via SMS or mobile app, and receive free same-day delivery to their outlet. The COVID pandemic has also spurred private sector actors to innovate in terms of supplies for essential goods and medical products to remote, rural areas. In some African countries, both the police and logistics companies use drones to deliver healthcare safety information and supplies to rural villages.^[11] Drones deliver personal protective equipment, medical supplies, blood and coronavirus test samples in Ghana and Rwanda.^[12] Likewise, in Senegal, the Ministry of Trade and SMEs partners with the private sector to facilitate delivery of essential goods and services through e-commerce.^[13]

These innovations point to a larger trend: using technology to leapfrog gaps in Africa’s current infrastructure to enable delivery of public goods and services.  They illustrate the use of technology to reach the ‘furthest mile’, i.e. communities that are isolated, rural and lack access to public goods and services. Better transportation, quicker delivery mechanisms and improved infrastructure can overcome these deficits. Improvements in trade infrastructure can enable the private sector to play the important role of bridging poverty gaps within societies, and make important contributions to improved livelihoods. Lastly, increasing Internet penetration across African can play an important role in creating new jobs. World Bank estimates suggest that if Internet use across Africa expands at the same rate as in high-income countries, 140 million new jobs and US $2.2 trillion will be added to the African gross domestic product (GDP).^[14] The next section examines how trade facilitation can be digitalised, and the important benefits that this will offer the private sector.

2. Digitising trade facilitation: benefits for the private sector

Rules of origin certificates (COs) play an important role in cross-border trade. A CO defines the product origin and payable import duties. A manual certificate of origin is a physical document accompanying an imported product. Lengthy paperwork submissions and the need to obtain approvals from multiple government agencies make manual CO processes cumbersome and time-consuming. An e-CO is a virtual online document, forwarded in digital format to the importer and customs administration in the country of final destination. The e-CO trend promises to improve trade facilitation by simplifying customs processes, both for border officials and the private sector.^[15]

To enhance trade facilitation, a growing number of countries seek to dematerialize certificates of origin. In the current crisis, this also reduces physical interaction among participants (i.e. exporter/producer, issuing authority, importing customs and importer).^[16] Globally, participants view complications with cross-border delivery as the major challenge to e-commerce adoption, as seen in Figure 1. Thus, e-CO adoption is an important step towards easing burdensome regulatory and administrative requirements for African companies engaged in cross-border trade.

Figure 1:

RECs emerge as key players in digitalising customs processes. For example, the East African Community (EAC) introduced a pre-customs clearance system and simplified duty agreements, which significantly reduced customs clearance delays.^[17] The Common Market for Eastern and Southern Africa (COMESA)’s digital free trade area initiated a regional initiative to digitise customs and border procedures. This included enabling legally valid e-signatures, Trade Single Windows (TSW) that require document submission only once per country at a single entry point, and e-COs underpinned by blockchain.^[18] The benefit of blockchain technology is the assurance of a permanent record that can be altered only by the agreement of all parties to the transaction.^[19]

Manual processes increase costs, delay cross-border trades, and reduce the efficiency of trade facilitation processes. For example, customs and administrative procedures related to rules of origin were identified as the top non-tariff barriers to intra-COMESA regional trade in 2017.^[20] In a paper-based regime, cross-border traders must provide physical COs issued by designated authorities to ensure that all traded goods meet rules of origin criteria. However, this leads to delays and costs for employee time and travel to the offices that issue the certificates.

Digitalising trade processes benefits private sector actors, by streamlining administrative processes, improving security, and traceability. E-COs can reduce concerns around the authenticity of these certificates, as a well-designed system prevents tampering with the certificate of origin or the information contained therein once the e-CO has been issued.^[21] It also enables digital information on a widely accessible platform shared amongst border officials. The issuance procedures therefore reduce opportunities for completion errors by authorities. Such errors can either result in shipments being denied timely clearance, or goods being returned to the country of origin for verification.^[22]

Digitised trade facilitation contributes to reduction of corruption at borders. First, when payments are digitalised, cross-border traders can pay in advance. Second, simple and transparent rules of origin enhance cooperation and trust among government agencies and the private sector. This can reduce origin fraud.^[23]  The above measures require open reporting mechanisms between traders and the government, and provision of company data to government agencies for verification. Consequently, trust and mutual cooperation are essential for enhancing the effectiveness of an e-CO system. A paperless system of notifications that does not require stamps and signatures from issuing authorities helps speed clearance processes for the private sector.^[24] This also reduces opportunities for corruption. The e-CO reduces the need for traders to self-certify, a process that requires resources from border officials to verify and authenticate. Table 1 below provides an overview of the different types of authentication systems associated with a manual clearance process.

Table 1 – Systems of certification of origin ^[25]

African RECs are gradually digitalising cross-border trade processes. COMESA’s Council of Ministers adopted the e-CO model in 2014. COMESA believe this will speed clearance times for registration, application and submission of certificates and in the post-verification of origin.^[26] The COMESA e-CO system prototype was developed in accordance with various COMESA protocols. The prototype seeks to establish a standardized regional e-CO process that enables all connected, competent authorities to perform self-verification through access to the documentation processes and data stored on its servers.^[27]

The COMESA e-CO is designed to be a simple, user-friendly system. It provides for pre-arrival clearance,^[28] which will speed border clearing processes. The system also provides end-to-end procedures for exporter registration and renewal, application for and issuance of certificates of origin, checking and verification of certificates of origin, registration and circulation of designated issuing authorities and their authorized signatories, and other relevant information, such as guidelines and reports.^[29]

Enhancing intra-regional trade within the COMESA FTA is another role of the e-CO. Despite adoption of the COMESA FTA in 2000, intra-COMESA trade has remained stagnant, accounting for only 8% of all trade among its member states, compared to the intra-African average of 15%.^[30] To date, the use of electronic certificates is yet to gain traction with COMESA member states. This resulted mainly from the absence of enabling regulations under the COMESA Protocol on Rules of Origin. In November 2019 the COMESA Council of Ministers adopted a set of draft regulations to govern e-CO implementation. Recent (May 2020) COMESA guidelines for handling cargo at ports of entry encourage member states to accept electronic documents for required permits, licences and certificates related to cross-border trade.^[31]  Other COMESA efforts to move member states towards greater digital processes include the COMESA Virtual Trade Facilitation System, an electronic trade facilitation initiative developed to monitor the flow of consignments along transport corridors in member states; and its Regional Customs Transit Guarantee Scheme, which aims to reduce the time and costs to clear goods at border crossings.^[32] The Trade Facilitation System is in use in the Northern Corridor States,^[33] while Rwanda, Kenya and Uganda adopted the latter.^[34]

Developing complex new digital systems requires resources and takes time. In 2016 the Southern African Development Community (SADC) opened discussion on reducing the cost of doing business through implementation of an e-CO, under SADC’s Trade Facilitation Programme.^[35] In June 2019, the SADC approved its Regional e-CO framework. In March 2020 SADC member states adopted guidelines for cross-border trade, which highlight the need for automated trade documents and certificates.^[36]

Both SADC and COMESA member states experienced delays in rolling out their e-CO systems. Fifteen COMESA member states^[37] indicated (as recently as June 2020) their preparedness to pilot the e-CO. However, none of them have practically adopted the use of e-CO as a measure to contain the spread of COVID-19, reduce transaction costs, or facilitate the expeditious movement of cargo across the borders. At best, SADC countries are at the pilot stage of the e-CO process implementation.^[38] To date, only Mauritius (which has dual COMESA and SADC membership) provides completely developed e-CO facilities.^[39] SADC member states (nine of whom have dual membership with COMESA) could reap double benefits through the implementation of e-COs for both the COMESA and SADC regional economic groupings. SADC and COMESA should therefore take advantage of this opportunity to implement a compatible system that enables cross-border trading across their regions. ^[40]

The AU’s Draft Digital Transformation Strategy for Africa is a guide to “a common, coordinated response to reap the benefits of the fourth industrial revolution”. This promises to foster “policies that create an enabling environment for productive digital trade and digital payment and clearance systems to advance opportunities for digital work, fair competition for digital businesses.” The AU strategy aims to reduce regulatory red tape and other procedural barriers to cross-border trade.^[41]

By reducing transaction costs and delays associated with manual CO processes, e-CO use within the AfCFTA supports this AU strategy.  The AfCFTA already has several provisions designed to support digital trade facilitation. These include customs modernisation, e-customs, and lodgement in electronic forms. Ideally, regional bodies will cooperatively develop and implement a single, standardized and easy to use digital certificate of origin system. All exporters and administrative agencies will need access.^[42] The use of an e-CO within the AfCFTA can enable the development of a single, standardized digital CO system, which can easily be accessed by all exporters and administrative agencies in all state parties.^[43]

In addition to these continental efforts, intra-regional trade gains through the rollout of e-COs in SADC and COMESA can be further bolstered through the Tripartite FTA. The Tripartite FTA is an FTA incorporating SADC, COMESA and EAC member states. Use of a comprehensive, shared system for digital trade stretching from South Africa to Egypt will benefit the private sector across all of these countries, by improving and simplifying their engagement in cross-border trade. This would actualise the goals and ambitions of the AfCFTA because the AfCFTA is intended to incorporate and include ongoing efforts for integrated trade at a REC level. Therefore, the TFTA and the AfCFTA can allow for e-COs to impact a broad range of countries, enabling harmonisation for countries partied to different RECs. Harmonisation of requirements will assist in improving cross-border procedures and facilitating the widespread use of e-COs amongst African countries. Increased inter-operability among e-payment platforms sector will therefore benefit government and the private sector, reducing the operating costs for businesses, reduce friction in e-commerce transactions, increase ease of use for consumers and reduce costs for platform operators.^[44]

These developments point out the use of digitalisation by all African countries and highlight the future policy trajectory.^[45] However, much work remains to be done. As illustrated below, Figure 2 highlights the advances made by each African region towards improved digitalised trade facilitation, and identifies bottlenecks where the progress toward digitalisation lags.

Figure 2:

3. Enhancing digitised trade processes to benefit the private sector

Even prior to the pandemic, winds of change across the African continent aligned the interests of the public and private sectors to the digitisation trend. The AU Draft Digital Transformation Strategy emphasises the importance of cooperating with the private sector to stimulate innovation and digitalisation at national levels. Proposed measures include opening opportunities for public-private sector consultations and dialogues (PPDs), creating an enabling environment for private sector investment in ICT infrastructure, and designing e-COs to be accessible by and responsive to the needs of informal cross-border traders and small enterprises.

Creating more effective opportunities for PPDs and public-private consultations

Government efforts towards increased digitalisation of cross-border trade require support through private sector engagement. The private sector must inform policymaking, by providing inputs on barriers to digital trade and challenges they face when engaging in cross-border trade with neighbouring African states. Private sector stakeholders (which include corporate and individual traders, logistics firms, banks, insurance companies and civil society organisations)^[46] must form an integral part of a long-term consultative process that ensures that governments adopt regulatory best practices that stimulate demand for digital solutions and create an enabling environment for digital trade across the continent.^[47] Combined efforts from both sides can stimulate solutions that are both digital and ‘human-centred’, and meet the needs of the private sector.^[48] For example, on rules of origin, “COMESA provides a good approach to addressing constraints in production patterns by allowing members to ask for more liberal rules of origin for specific products…it might allow members to use a 25% value added rule, if economic interests are substantiated.”^[49] This is both practical and useful, as many intermediate materials are imported into Africa, or may not be available at competitive prices due to high transportation costs.

PPDs, enhanced communication tools and transparency play important roles in improving public-private relations. For example, COMESA recently introduced a text messaging notifications option for reporting and resolving non-tariff barriers. This mobile tool enables users to address problems in cross-border trade in a timely manner.^[50] Real-time notification facilitates immediate problem solving and reduces opportunities for corruption. Private sector associations, industry bodies, business chambers and the COMESA Business Council can play a pivotal role in disseminating best practices, providing capacity building to their members, and promoting online tools. These actions can minimise compliance costs for businesses.^[51] According to the World Customs Organisation, business chambers across the world increasingly invest in digitalising certification of origins applications: By 2019, 65% of chambers providing e-CO services offered either an e-CO application or a full e-CO issuance process, compared to only 55% in 2016.^[52]

Encouraging private sector consultation with National Trade Facilitation Committees (NTFCs). This mechanism enables direct inputs by the private sector to a wide range of trade facilitation reforms. NTFCs are important platforms that enable PPDs and implementation of trade facilitation reforms, as required by the Trade Facilitation Agreement. PPDs are a critical part of successful policymaking, and NTFCs provide a natural venue and structure for cohesive public-private decision-making.

Creating an enabling environment for private sector investment in ICT infrastructure

Fixed expenses for ICT infrastructure and access to financing drive the costs of providing broadband. Generally, costlier ICT infrastructure leads to higher prices for broadband services, and thus to lower Internet penetration rate in a country.^[53]However, commercial internet uptake, even via smart devices rather than desktops, is driven by commercial opportunities. The private sector has an important role to play in furthering investments in ICT infrastructure. Therefore, the correct regulatory environment, (i.e. investment-friendly regulatory environment, policies that enable private sector participation in ICT infrastructure construction, and well-designed competition laws that build a competitive, healthy environment for Internet services at affordable rates for consumers) can spur moves towards digital trade and adoption of digitalised trade facilitation mechanisms.

The development of cross-border ICT infrastructure requires that countries participate in lesson sharing on the successful implementation of equitable ICT access programmes in the region, such as spectrum innovation eco-systems and infrastructure sharing.^[54] Learning from each other will help governments better understand how regulatory frameworks enable private sector participation in ICT infrastructure development. These frameworks can act as a catalyst for greater private sector investment in Africa.

The private sector will play an important role in developing IT infrastructure and undertaking research on innovative IT solutions.^[55] Private sector financing for ICT investments is increasingly important in helping African countries bridge their digital gaps. Of the US $7.1 billion committed to ICT investments in Africa in 2018, US $4.8 billion originated in the private sector; in comparison, African governments committed US$ 1.1 billion.^[56] The private sector’s interest in ICT reflects its profitability, providing an opportunity for cooperation between firms, across the continent and with the public sector through public-private partnerships (PPPs).^[57] Therefore, African governments should deploy PPPs to draw on expertise and investments from the private sector to develop the infrastructure needed to improve cross-border trade and related activities.

Finally, part of designing inclusive ICT infrastructure is to ensure that the ‘last mile’ (i.e. rural communities that are unable to connect to infrastructure) caters to rural needs for connectivity. A possible solution could be to engage a wider range of private sector players, which will enable ICT services to be competitively priced and offer poorer communities appropriately-priced products.^[58] Competitive pricing of data by mobile operators, Internet service providers and/or affordable broadband policies is essential for enabling rural community network operators.

Designing e-COs to be accessible and responsive to the needs of informal cross-border traders and small enterprises

Lastly, availability of the e-CO to the smaller private sector players – many of who often bear the administrative and taxation brunt of a complicated trade facilitation system – should not be overlooked. For individual importers, small enterprises and vulnerable groups such as small-scale farmers, women and youth, use of the e-CO can help level the playing field to enable their full participation in the economy. Encouraging the uptake of digital trade by the informal sector requires sensitisation, capacity building and training to understand the benefits that digital trade can offer the informal sector. Much like the m-Pesa system and other simplified digital systems, e-CO systems must be safe and simple enough for smaller players to use to process their e-COs online, using mobile phones and simpler computer systems.^[59] This will ensure e-CO adoption can increase inclusion of small enterprises and vulnerable groups in the formal economy.

4. Conclusion

Although digitalised trade remains a work in progress, it is a game changer for both the private sector and policymakers. It can level the playing field, by promoting cost-efficient, transparent processes that reduce the costs of cross-border business for small-scale and informal traders. This can bring them into the formal economy over time.

The first step to develop this process going forward would be for African RECs that have not yet started developing e-CO mechanisms to do so, in consultations with African RECs such as SADC and COMESA, to ensure harmonisation and standardization with already-ongoing processes. RECs should also develop trade facilitation rules in consultation with each other – this will simplify administrative requirements and enable digital processes to become widespread, which will aid transparency, prevent corruption and facilitate greater private sector participation in cross-border trade. Findings from the piloting stages in COMESA and SADC member states should also be shared with other RECs, to facilitate shared learning amongst African countries. These efforts should be undertaken in conjunction with PPDs and consultations within the NTFCs. Cross-border rules must be designed by policymakers in accordance with the on-the-ground feedback received from private sector actors. For countries that do not yet have PPD structures, it is important that such processes are established at both regional and national levels, and meetings must be held on a regular basis (for example, on a quarterly basis), to ensure that inputs from the private sector feed into the preparation of policies by government.

Enhanced ICT infrastructure and improving digital access are already cornerstones in the AU’s Programme for Infrastructure Development in Africa. Making widespread ICT and digital infrastructure a reality for African consumers requires joint efforts from both public and private actors. The private sector has a critical role to play in the development of ICT infrastructure, which requires a well-designed regulatory framework that includes structures for PPPs, enabling their competitiveness and ensuring Internet connectivity for the last mile at affordable rates. Developing frameworks for PPPs and construction and design of ICT infrastructure remains a long-term goal for both public and private sector. Nevertheless, momentum and roll-out of ICT infrastructure must remain a top priority for African governments to ensure that gaps in existing digital divides are reduced and mitigated as part of long-term efforts towards greater digital skills and development in Africa.

Developing, implementing and adopting digitised trade measures will require private sector commitment and support. Government use of PPDs can ensure that digitised trade facilitation frameworks speak to the needs of the private sector and that policy and regulatory frameworks adequately address their concerns. Properly undertaken, PPPs can spur private sector engagement and investment in the ICT infrastructure needed to ensure service and infrastructure delivery to poorer and rural communities. This will help close the rural-urban divide in access to digital services and skills, which plagues many developing countries. The above measures will contribute to the long-term goals of improving infrastructure across the African continent. Digitising trade facilitation will increase the competitiveness of Africa’s private sector, and make doing business on the African continent easier, simpler and more attractive to stakeholders.