Harnessing the Potential of Digitalisation in Building an Efficient Free Trade System in Africa
Share this
By Oluwatobi Ojo
The emergence of digitalisation has spearheaded the most impressive advancement in the global economy. Digital platforms and disruptive technologies have changed how the global economy functions, connecting local businesses with the global supply chain and integrating regional and continental economies for increased trade. In its commitment to the digitalisation of trade, the United Nations Economic Commission for Africa (UNECA) launched two key publications in December 2022, making a case for Africa’s participation in global value chains by leveraging digitalisation to further trade under the African Continental Free Trade Area (AfCFTA).
African countries are making strides to capitalise on the incredible potential of digitalisation as it relates to free trade on the continent. The widespread use of mobile and smartphones has aided the progress of the digital economy in Africa over the past decade. However, this progress must manifest in building an efficient free trade system that transcends borders. It is worth noting that significant headway has been made in adopting digitalisation to address trade barriers for optimal efficiency in some African States. For instance, Tanzania implemented the Pre-Arrival Declaration (PAD), a facility in the clearance system that allows the importer/agent to start the clearance procedures of the goods before the arrival of the goods at the entry point. The Kenya Revenue Authority has also linked its electronic data interchange system with an e-cargo tracking system for seamless customs clearance. Although some African countries still lag in adopting digitalisation and technology in easing import and export activities, it is clear that they cannot afford to tarry any longer.
As Africa continues to scale up the implementation of the AfCFTA agreement, many of the issues including logistical challenges, access to financial services, and customs clearing will be surmounted with the full adoption of technology and automation of the free trade system across the continent.
Regional integration and the Informal Sector
Poised to connect over 1 billion people, the AfCFTA has a better chance of success by going fully digital. To connect with the global economy, there is a need for stronger digital connectivity and effective policies that promote the free flow of data among member states to facilitate knowledge sharing and market integration.
More particularly is the inclusion of the informal sector to take advantage of the benefits of continental free trade through access to market information. The informal sector, which is often ignored, plays a significant role in the African economy, especially in areas such as production, employment, and income generation. According to the International Labour Organization, “85.8% of Africa’s employed population are in the informal sector.” In 2020, African Export-Import Bank (Afreximbank) reported that informal cross-border trade in Eastern Africa is projected to be worth as much as 80% of the value of formal trade. With intra-African trade hovering around 15% in the past five years, Africa can no longer continue to pass on the potential of the informal sector as it contributes to regional economic integration.
Through the use of mobile phones and digital platforms, Africa can formalise all trade and build up tractions across the continent.
Illustration of online advertising, digital marketing and mobile advertising. Credit Hiclipart
Transformation of Border and Customs Service
Intra-African trade depends on the movement of goods and services across borders and through ports in a region. Many of the structural challenges subduing intra-African trade are mainly logistical challenges faced by importers and exporters. African countries must look inward to fully digitalize border and port operations for maximum efficiency. The AfCFTA’s article 3, annex 4 on Trade Facilitation Agreement (TFA) “urges State Parties to adopt ICT in customs and related procedures, such as the provision of customs information, submission of documents and goods inspection, in order to facilitate the efficient and low-cost movement of goods across borders.”
With the aid of digital platforms, Africa can combat border and customs challenges such as manual-based processes, longer turnaround time (TAT) in granting permits, and cooperation between border agencies. For instance, in 2017, Angola replaced its manual processing of custom declaration and capturing of custom-related payment and cargo receipts with the Automated System for Customs Data World (ASYCUDAWorld) system. With this singular move, the Angola Revenue Authority (AGT) revenue increased by 44% in 2018 and 13% in 2019. The electronic single-window system, now adopted by the likes of Ghana, Rwanda, and Kenya, has helped all parties involved in trade to submit custom documents and other regulatory requirements to get clearance in a shorter time. It has also reduced the cost of entry to new markets and access to market information. Another area in digitalisation that can help transform border operations is the cargo electronic tracking system.
Financial and Payment system
Unlike the European Union countries that operate with a common currency, Africa still struggles to make cross-border payments because of differences in currencies and exchange rates. Digitalisation has revolutionised payment infrastructure through mobile-phone-based payment and transaction platforms. Recently, the launch of the Pan African Payment and Settlement System (PAPSS) by the Afreximbank has simplified cross-border payment by sending and receiving payment in corresponding local currencies. This has not only reduced TAT as compared to using the SWIFT platform but has also reduced complexities associated with exchange rates faced when working with foreign currencies.
Also, as a means of financial inclusion, digitalisation has paved the way for access to financial services. Through access to online grants, loans, and savings, the often-excluded vulnerable, especially women, can now contribute to trade activities across the continent.
The potential of digitalisation in revolutionising and building a sustainable trade system cannot be overemphasised. In light of challenges including infrastructure deficit, government regulation, and lack of political will, governments of member states and the AfCFTA secretariat must enact the political will needed to fully digitalize intra-African trade.
Oluwatobi Ojo is a Nigerian writer. You can reach him via email, oluwatobimojo@gmail.com