In September 2020 Wamkele Mene, the secretary-general of the African Continental Free Trade Area (AfCFTA) Secretariat, told a conference in South Africa that AfCFTA negotiations on e-commerce and digital trade would be fast-tracked, with the Covid-19 pandemic heightening the need for an adequate legal and governance framework. These talks were initially planned for phase three of the trade zone’s implementation, but were moved up to the second phase alongside competition policy, intellectual property rights and investment protocols. It is also expected that signatories will move forwards on the taxation of e-commerce platforms.
Negotiations on AfCFTA’s e-commerce protocol began in January 2021, and leaders set an end-of-year deadline for an agreement. The focus on digital trade will include efforts to speed up Customs clearance procedures, as border delays slow regional trade. Initially agreed in March 2018 and subsequently signed by 54 of the 55 member countries of the African Union, AfCFTA aims to create a single market across the continent.
Digital Boost
E-commerce and digital payment systems have taken on greater importance following the outbreak of Covid-19. For example, shortly after the pandemic began the Kenyan government encouraged citizens to use online or mobile payment methods instead of cash, with the central bank announcing in March 2020 that banks would waive fees for financial transfers completed via mobile banking.
Similar trends have been observed around the world, with the global digital payments market reaching $5.4trn in 2020. This expansion is expected to continue in the short term, with an estimated compound annual growth rate of 11.2% between 2021 and 2026, when it will be valued at $11.3trn. “The Covid-19 pandemic will encourage more people to move away from cash transactions to the extent that they have a choice,” Juliet Anammah, chairwoman of online marketplace Jumia Nigeria and head of institutional affairs at Jumia Group, told OBG. “This choice is based on multiple factors, such as access to devices that allow digital payments, the cost of the transaction and payment solutions. It is important to address all these elements to make sure the cost of digital transactions is low enough to encourage more people to go digital.”
Business Impact
The shift towards digital payments has also had an impact on businesses, with many updating their online offerings and services. “For those who did not believe in electronic banking or e-commerce, the pandemic has demonstrated that having those options is now a necessity,” John Addo, managing director of Prudential Bank, told OBG. “Most banks had already begun the process of digitalisation, and Covid-19 has provided a clear sense of urgency.”
Beyond providing alternative payment options, digital platforms are impacting the way companies move products. “People are finding different solutions for their businesses in light of travel restrictions, such as digital payment platforms that do not require people to travel from one place to another, and that allow them to receive their goods and hopefully pay in their local currency,” Solomon Asamoah, CEO of the Ghana Infrastructure Investment Fund, told OBG. “This new way of conducting trade should be developed a lot faster than previously expected.”
Beyond Borders
The post-pandemic recovery in Africa will also require boosting intra-regional trade, which suffered from restrictions on production and mobility in 2020. The continent’s GDP contracted by 2.1% in 2020 but is expected to grow by 3.4% in 2021, according to the African Development Bank.
In light of this, AfCFTA is seen as a valuable tool for stimulating economic activity. According to US research group the Brookings Institute, in 2017 intra-African trade accounted for just 17% of all business activity on the continent, far below comparative levels in Europe (69%), Asia (59%) and North America (31%). When fully operational by 2030, AfCFTA is expected to cover a market of 1.2bn people and a combined GDP of $2.5trn.
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