Introduction
The conclusion and approval of the Protocol to the Agreement Establishing the AfCFTA on Digital Trade (the Protocol on Digital Trade (PDT) or e-commerce) climaxes the Phase III of the AfCFTA.[1] The PDT, which was approved alongside the Protocol on Women and Youth, follows the earlier conclusion and approval of the Phase I and Phase II of the AfCFTA. The PDT continues the treaty-making practices in regional trade agreements (RTAs) defined by the inclusion of digital trade or e-commerce chapter in the covered agreement. The PDT was concluded against the backdrop of the Decision Assembly/AU/4(XXXII) of the Assembly of the Heads of State and Government of the African Union (AU) during its Thirty-Third (33rd) Ordinary Session held in Addis Ababa, Ethiopia, from 9 to 10 February 2020 which called for the negotiations of e-commerce in the AfCFTA. Similarly, the PDT keys into the aspirations of the AU Agenda 2063 and the Digital Transformation Strategy for Africa (2020-2030), and digital trade related matters incorporated in the relevant instruments of the AU, Regional Economic Communities, as well as international instruments and agreements. The PDT consistent with the overall thrust of the AfCFTA protocols seeks to deepen intra-African trade and investment, deepen the economic integration of Africa, transform African societies and economies, generate sustainable and inclusive economic growth, stimulate job creation, reduce inequality, and eradicate poverty for the attainment of socio-economic development in line with the objectives of the AfCFTA. While diverse business models in Africa will be impacted by the PDT, the fate of the micro, small and medium-sized enterprises (MSMEs) is shrouded in uncertainty. Although the PDT embodies provision for the protection of the interest of the MSMEs, implementation lethargy could impede underlying objectives and projections. Against this backdrop, this paper explores how digital trade can impact MSMEs and the modalities for the effective operation of MSMEs within digital trade ecosystem in Africa.
Protocol on Digital Trade: An Overview
Digital trade means digitally-enabled transactions of trade in goods and services that can either digitally or physically be delivered, and that involve natural and juridical persons. Like other protocols, the PDT is underpinned by general and specific objectives. The general objectives are to attain the objectives of the AfCFTA provided in Article 3 of the AfCFTA Agreement and to enable and support digital trade for sustainable and inclusive socio-economic development and digital transformation of Africa. The specific objectives include: elimination of trade barriers; development of transparent and predictable digital trade principles, ecosystems and legal frameworks; cooperation; digital transformation; promotion of digital skills development, innovation, entrepreneurship and digital industrialization; and related matters. While the PDT extends to measures maintained by State Parties affecting digital trade, the PDT is inapplicable to government procurement and sensitive (privileged) information concerning government, and does not emasculate the right to regulate.[2]
The market access principles of PDT follow the conventional approaches (with adjustment to reflect the peculiarity) which was replicated in the AfCFTA protocols on goods and services. Hence, the PDT is defined by rule of origin; taxes, fees and charges; non-discrimination; and trade facilitation measures. Moreover, the PDT is governed by provisions on data governance covering cross-border data transfer, data protection, data localization and innovation. Furthermore, the PDT not only provides but also obliges State Parties to cooperate in many areas such as: consumer protection, cybersecurity, digital payments, digital inclusion, financial technology, digital interoperability and infrastructure, anti-money-laundering and combatting the financing of terrorism, and MSMEs.[3]
Digital Trade and MSMEs
The PDT poses significant opportunities for MSMEs as well as challenges in intra-African trade.[4] According to the United Nations, both formal and informal MSMEs make up over 90% of companies worldwide, accounting for 70% of total employment and up to 50% of global GDP.[5] In particular, African economies are dominated by MSMEs. The PDT presents veritable opportunity for MSMEs to accelerate the use digital technologies to overcome the peculiar barriers in intra-African trade. The digital technologies that can leverage MSMEs doing business landscape are diverse including: ‘cloud computing, optical character recognition, the Internet of Things, big data analytics, artificial intelligence, quantum computing, distributed ledger technology and application programming interfaces’.[6] Equally, MSMEs require webhosting, web pages, effective digital networks and elimination of trade barriers to foster participation in digital trade.[7] Certainly, an enhanced connectivity of MSMEs to the internet and the broader digital economy constitutes a vital step in realizing the sustainable development and the UN Sustainable Development Goals.
While digital technologies pose significant potential for MSME prospects, cooperation under Article 43 of PDT is fundamental to catalyse successful outcome. Consequently, parties must cooperate in the areas of standards, cross-border data transfer, cybersecurity, digital payments, logistics, digital identity, digital divide, digital inclusion, digital innovation and others. Crucially, MSMEs must not only have digital connectivity but also the device and other digital services required for operation.[8] Secondly, customers must have trust in the use of online services and stakeholders must be able to address risks arising therefrom. Thirdly, the devices (and the attendant maintenance costs) for digital economy must be affordable to MSMEs to enhance usage. Also, MSMEs must possess the knowledge of latest digital tools and their employees must have the relevant skills to operate them and constantly innovate.
Regulatory Supplementation
Regulatory supplementation possesses the capacity to fast-track digital transformation, explosion of digital businesses, digital inclusion and MSMEs’ participation in digital economy. The preceding keys into the drive to bridge the digital divide in which Africa is at the lowest ebb of internet connectivity and digital inclusion. Thus, regulatory supplementation would involve deliberate promulgation of law and policy to favour business participation in digital economy. Accordingly, national governments must support MSMEs across diverse frontiers including, considerate tax policy, customs procedure supportive of efficient delivery of goods ordered online across borders, effective transport infrastructure, internet penetration, and infrastructural connectivity. The preceding is necessary for the MSMEs to optimize digitalization of business landscape. Also, it can help MSMEs to fast-track importing and exporting, connect supply and demand, and reduce information constraints or asymmetry related to trading in different markets.
Additionally, regulatory supplementation can assist MSMEs to integrate in the regional and global value chains. Indeed, pro-business policy can help MSMEs to optimize the digital transformation and integrate into the value chain trade and the world economy.[9] MSMEs can take advantage of value chain trade by specializing in specific segments of production and providing supplies or such specialization to larger firms and transnational corporations.[10] This could deepen their capacity to customize and differentiate products, as well as to respond to rapidly ‘changing market conditions and increasingly shorter product life cycles’. [11] Furthermore, MSMEs can benefit from regional and global value chains through more access to competitively priced imports, as well as by receiving technology or knowhow spillovers from the bigger firms in their supply chain.[12]
Hence, African governments have crucial roles to play in leveraging the PDT to create pro-MSMEs environment to facilitate MSMEs participation in digital economy. Key recommendations include: upscaling the number of MSMEs engaged in national, regional and global market places; assisting MSMEs to connect buyers and sellers across the region and globally in order to increase MSMEs sales, supplies and competitive imports;[13] simplifying the custom procedures; provision of digital logistics; enhancing access to finance as financial constraints can dictate the difference between prosperity and bankruptcy for MSMEs;[14] concretizing technical assistance and capacity building embodied in PDT, and efficient cross-border digital payments.
Conclusion
The PDT provides vast opportunities for all business models in general and MSMEs in particular to leverage technology and participate in the digital economy. The PDT embodies diverse provisions to upscale the participation of businesses in digital economy as well as to benefit from the opportunities afforded therefrom. Given that African economies are dominated by MSMEs, it behooves on national governments to promulgate law and policies consistent with the thrust of the PDT and the AfCFTA Agreement to foster full participation of MSMEs in digital economy. Contextually, the PDT is constitutive of a legal (treaty) roadmap which must be concretized by actions to ensure full maximization of its objectives and potentials by the MSMEs and economy.
*This research is funded by the Alexander von Humboldt Foundation, Germany, as part of the return fellowship grant.
[1] Collins C. Ajibo, The African Continental Free Trade Area Agreement: Legal and Policy Frameworks (Routledge 2024).
[2] Article 3-4 of the PDT.
[3] Article 43 of PDT.
[4] Collins Chikodili Ajibo, ‘AfCFTA, Micro, Small and Medium-Sized Enterprises and Barriers: Prospect for Optimization of Preferences’ (2024) 21(1) MJIEL 54.
[5] World Economic Forum, ‘How digital connectivity can empower MSMEs’ (2023) https://www.weforum.org/agenda/2023/12/empowering-msmes-through-digital-connectivity/, accessed 22 May 2024.
[6] WTO, ‘Accelerating Trade Digitalization to Support MSME Financing’ https://www.wto.org/english/res_e/publications_e/tradedigitaltomsmes_e.htm, accessed 22 May 2024.
[7] Javier López-González, ‘Fostering Participation in Digital Trade for ASEAN MSMEs (2019) OECD
[8] World Economic Forum, ‘How digital connectivity can empower MSMEs’ (2023) 4-5, https://www.oecd-ilibrary.org/docserver/63561b11-en.pdf?expires=1716349074&id=id&accname=guest&checksum=0E4A4E71416F2276951CC29991862253, accessed 22 May 2024.
[9] OECD, ‘The impact of digitalization on trade’ https://www.oecd.org/trade/topics/digital-trade/, accessed 30 May 2024.
[10] Javier López González, Mapping the participation of ASEAN small- and medium-sized enterprises in global value chains (2017) OECD, https://www.oecd-ilibrary.org/trade/mapping-the-participation-of-asean-small-and-medium-sized-enterprises-in-global-value-chains_2dc1751e-en, accessed 30 May 2024.
[11] OECD, ‘Making it easier for SMEs to trade in the global economy’ https://www.oecd.org/trade/topics/small-and-medium-enterprises-and-trade/, accessed 22 May 2024.
[12] OECD, ‘Making it easier for SMEs to trade in the global economy’ https://www.oecd.org/trade/topics/small-and-medium-enterprises-and-trade/, accessed 22 May 2024.
[13] Kati Suominen, ‘Alliance for Etrade Development: Accelerating MSME Ecommerce in Africa: Roadmap (2021) https://www.allianceforetradedevelopment.org/msme-ecommerce-in-africa, accessed 22 May 2024.
[14] WTO, ‘Accelerating Trade Digitalization to Support MSME Financing’ https://www.wto.org/english/res_e/publications_e/tradedigitaltomsmes_e.htm, accessed 22 May 2024.
