Scaling up intra-African trade through digital public infrastructure
September 21, 2023
Njeri and Afua are business partners located 7,000 kilometres away from each other. From her factory in the highlands of Kenya, Njeri makes organic cosmetics that are distributed in East and Central Africa. Her inputs come from all over Africa, including whipped shea butter from Afua, on the coast of West Africa. Thanks to the African Continental Free Trade Area (AfCFTA), tariffs on goods produced in Africa, such as cosmetics, are being progressively reduced by countries. As such, these products can be competitively positioned and priced against imports from other parts of the world.
Digital Public Infrastructure (DPI) can contribute to the realization of the full potential of the AfCFTA, especially for micro, small and medium sized enterprises (MSMEs) that account for most registered businesses in Africa. Producer-traders like Njeri and Afua rely on a range of digital tools to explore market opportunities, perform transactions and complete trade formalities. While these digital tools reduce the time and cost of their business processes, the disparate nature of these tools means they have separate and overlapping costs and processes for each transaction.
Afua and Njeri’s journey to becoming business partners began at a trade exhibition organized by their national business associations. The African Trade Observatory provides broad information on trade trends, from which others like Afua and Njeri can get a sense of potential opportunities. Similarly, they can check the AfCFTA e-tariff book to calculate the tariffs applicable on their products. However, both Afua and Njeri largely rely on trade fairs and expos to explore market opportunities and engage with prospective business partners. In some situations, they contact business groups/associations and governments to provide market information, as well as identify suppliers or distributors. Sometimes they trawl business pages on social media. A publicly available digital directory of businesses producing and trading within the AfCFTA would aid Afua and Njeri as they search for opportunities and partners in more African countries.
Afua can apply for a certificate of origin (indicating where a good was manufactured) via the chamber of commerce’s website in her country. This website is connected to the customs portal where the goods are cleared for export. However, Afua will also need to separately download and send the certificate of origin to Njeri, who will then upload it to her country’s customs agency portal for import formalities. DPI that connects digital systems for trade formalities can reduce costs and compress time for businesses. This kind of DPI can also enable closer monitoring of trade flows, to highlight and foster cooperation among governments as envisaged in the AfCFTA Agreement.
Both Njeri and Afua generate formal invoices, receipts and other documentation needed to clear goods at national borders. Transactions are negotiated on email and social media channels, with payments and logistics arrangements completed separately. Both are also active on digital marketplaces that operate within their countries. However, these platforms do not yet enable cross-border transactions, as they do not have operating licenses in multiple African countries. Also, they are not linked to the customs portals for clearance of goods. DPI that enables that link between digital marketplaces and portals for the clearance of goods can unlock increased levels of trade among African countries. In addition, these kinds of DPI can reduce incidences of invoicing oversights, where inaccurate figures are provided to authorities by businesses. With sight of the original transaction, the correct tariffs and taxes can be applied on transactions.
There are already DPI solutions that enable the emergence of the One African Market being created through the AfCFTA. The AfCFTA e-tariff book of the AfCFTA Secretariat, the Non-Tariff Barriers Monitoring, Reporting and Elimination Mechanism supported by United Nations Conference on Trade and Development (UNCTAD), and the African Trade Observatory supported by the International Trade Centre address important information and systemic elements of cross-border trade.
However, as the volumes and scale of intra-African trade increase, DPI should be future-ready and prepared to respond to emerging trade practices and dynamics. First, it is critically important to address gaps in the interoperability of existing digital platforms. African governments are increasingly embracing digitalization for trade facilitation, especially in the form of digital portals. These various existing portals can be improved to interact with/connect to others around the continent. In this light, the African Union Commission is leading efforts on regional interoperability, that can be supported to scale-up and accelerate.
In addition, DPI is urgently needed to connect MSMEs to markets – and facilitate commercial exchanges. DPI can integrate the diverse digital tools and channels that MSMEs already use. Beyond technology, concerted efforts for regulatory cooperation to enable cross-border operation of digital services and solutions will be crucial moving forward.
These kinds of trade-enabling DPI will enable traders like Njeri and Afua to conduct transactions seamlessly. Interoperable platforms will ease the burden of completing trade formalities and reduce the cost of using diverse digital services. They will also be better equipped to explore new markets, engage with potential partners, expand their production and trade networks, and thus unlock the immense potential of the African market.
The AfCFTA Agreement, through its mechanisms for regulatory cooperation and a forthcoming dedicated Protocol on Digital Trade, aims to streamline trade procedures and encourage digitalization of trade formalities. These aims are aligned with the prioritization of DPI at the global level; the UN Secretary-General announced in September 2023, Digital Public Infrastructure: Scaling inclusive and open digital ecosystems for the Sustainable Development Goals (SDGs) as a high impact initiative to get the SDGs back on track. Similarly, G20 Leaders in August 2023 recognized DPI as an accelerator of the Global Goals. With the UN’s ambition to empower 100 countries with people-centred DPI solutions by 2030, the lives and livelihoods of people like Afua and Njeri all around the world can be improved for the better.
Within the UNDP portfolio to support market access for MSMEs, the UNDP Regional AfCFTA Portfolio and AccLabs Network are building a DPI map that highlights the frictions in digitally-driven, intra-African trade, showing country-specific opportunities to connect government portals, digital platforms and MSMEs trading across borders. This DPI will present concrete opportunities to onboard MSMEs to digital marketplaces that can enable access to the African market. Through this tool, UNDP is contributing towards the realization of a transformational and digitally enabled AfCFTA that works for all, especially MSMEs.