The eagerly awaited African Continental Free Trade Area (AfCFTA), formally under way in January 2021, sets out to boost intra-African trade for goods, services, investment, and intellectual property. At the same time, the impact of rapidly accelerating digital transformation across key sectors such as agriculture, finance and healthcare necessitates a holistic and digitally driven approach to getting the most out of the potential that the AfCFTA offers.
Digital and virtual services deliver value, widen access, and drive enormous efficiencies to businesses – they also serve to make intra-African trade faster, cheaper, and easier. As such, they will expedite the progress of key AfCFTA objectives to connect 1.3 billion people across 55 countries with a combined GDP of US$3.4 trillion. This will ultimately contribute to closing the trade finance gap in Africa.
On a granular level, the AfCFTA’s scope also includes reducing tariffs among member countries, work in policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade. All of these can be advanced with digital solutions.
Digital and virtual services
There are still a number of areas that need to be addressed for the continent to fully realise the benefits of digitization and contribute towards AfCFTA goals. They include the need for harmonization of standards, closer integration and visibility of legal frameworks, data protection regulations and cybersecurity. Agreement of, for example, the facilitation of electronic transfers between AfCFTA member states, will make it easier, faster, and cheaper for companies in different countries to trade. This is where fintech solutions can really benefit SMEs, exporters, traders, and investors that seek opportunities across the continent.
Naturally, if investors and businesses can engage with each other easily through digital platforms, it becomes easier for African entrepreneurs to source funds, which accelerates business growth, innovation, job creation and value-chain enrichment. Digital platforms can also help originate and process deals between investors, intermediaries and businesses across the continent, matching companies at opposite ends of the continent. The investor intermediary of tomorrow can already be found today with platforms like Orbitt, which uses analytics, transaction automation and smart deal matching to increase deal flow and success rates. These sorts of platforms are digitizing Africa’s investment ecosystem, making it easier for businesses to access capital, scale their operations and broaden their horizons to trade freely with other AfCFTA member states.
That growth potential demonstrates that digitalization improves competitiveness, enables trade, and creates new opportunities for businesses – and it engenders intra-African trade as new tradeable goods and services rise. E-commerce is a good example. The success of e-commerce rests upon speed and efficiency. Good ICT connectivity makes it possible to shop online, pay online (securely) and receive delivery efficiently: good IT infrastructure allows for analytics to manage stock inventory so that the customer knows in real-time if a product is in the stockroom and ready for delivery. E-commerce is a great equalizer – it enables anybody to sell anything to anybody anywhere. Yet in some countries less than 10% of the population uses the internet and only 18% of households have access to it at all. The United Nations Conference on Trade and Development (UNCTAD) Deputy Secretary-General Isabelle Durant says that in most African countries, less than 5% of the population currently buys online. If this can be turned around, every African has the potential to become a cross-border trader in an Africa where trade barriers have been broken down by the AfCFTA.
In many respects Africa has leapfrogged the hurdles and mistakes of the developed economies, which forged ahead during the age of the first industrial revolution. As the digital transformation and the AfCFTA work in synchronicity to bring fragmented African economies closer together, it may well be the fourth industrial revolution that unlocks Africa’s full potential.