AFCFTA is a boon for Africa’s digital economy

If effectively implemented, the AfCFTA can enable the digital transformation of the Continent, leading to sustainable socio-economic development and significantly contributing to prosperity in Africa.

With the launch of the operational phase of the African Continental Free Trade Area (AfCFTA) in Niamey, Niger on 7th of July 2019, African Heads of State and Government firmly set the continent on the path towards economic integration and global competitiveness. The AfCFTA, which has been described as an “economic game changer” for Africa, creates a single African market of 1.27 billion consumers and is one of the largest free trade areas to be formed in decades. It is estimated that under a successfully implemented AfCFTA, Africa will have a combined consumer and business spending of $6.7 trillion in 2030. It therefore has great potential of changing the economic trajectory of the continent.

The urgency to make intra-Africa trade the driving force behind economic growth on the continent has never been greater, as African countries have to a large extent not exploited opportunities to trade with each other. As a  consequence, they have lagged behind their European and Asian counterparts that leveraged similar “mega-regional” free trade agreements (FTAs) to grow their economies. The landmark FTA therefore offers the promise of increasing intra-African trade by 52.3 percent (US$34.6 billion) by 2022 through the removal of barriers to trade, thus paving the way for job creation, sustainable development and economic growth. Hopes are high this ambitious initiative will help to unlock Africa’s economic potential by boosting intra-regional trade, foreign direct investments, diversification and structural transformation of the continent’s economy.

While the AfCFTA is expected to have a significant impact on manufacturing and industrial development across the continent, it is becoming increasingly clear that the it will also have a catalytic effect on Africa’s nascent digital economy, in particular cross-border electronic commerce. Speaking during the 2019 e-Commerce Week in Geneva, UNCTAD’s Deputy Secretary-General Isabelle Durant observed that the AfCFTA offers Africa the opportunity to build its digital infrastructure for conducting electronic trade – both at the national and regional level. In this respect, Ms. Durant stressed that the AfCFTA represents a godsend as “digitalization could be to Africa what coal and steel have been to the European Union”.

Incidentally, there are a number of exciting continent-wide initiatives currently underway which are geared towards digitalising Africa’s trade and bringing African markets closer together. One of these is the diaspora-led Africa Electronic Trade (AeTrade) Group, which in working in collaboration with the AU Commission to rollout e-commerce solutions that will help African small and medium-sized enterprises (SMEs) to expand across borders and to penetrate more advanced overseas markets. In a continent where SMEs account for around 80 percent of the region’s businesses, their e-commerce platform will enable them to tap into both regional and overseas markets.

Another interesting initiative is a recently-launched digital payments platform developed by the African Export-Import Bank (Afreximbank) that seeks to facilitate payments for goods and services in local currencies across the continent. According to Afreximbank President Benedict Oramah, the Pan-African Payment and Settlement System (PAPSS) will allow each African country use its own currency in any transaction, doing away with the traditional reliance on the US dollar as the sole currency for cross-border trade payment.

A third continental initiative is the “Policy and Regulation Initiative for Digital Africa (PRIDA)ˮ, a joint initiative of the African Union (AU), the European Union (EU) and the International Telecommunications Union (ITU) that seek to foster the development of a fully integrated digital infrastructure to support connectivity across the continent. It is expected to serve as a cornerstone for the creation of favourable conditions for the development of an African digital market and a key enabler of the Africa digital transformation agenda.

While the architecture of Africa’s digital economy is gradually taking shape, the continent is still very far from unlocking its full potential for the benefit its population. A lot of hard work lies ahead as no one entity can build a functional digital ecosystem alone. There’s therefore need to involve all relevant stakeholders within and outside the continent in order to realize the promise of economic and digital transformation. This calls for a broad-based, digital economy partnership to harness the enormous opportunities for sustainable development and inclusive growth afforded by the CFTA. Key to this effort will be putting in place the right policies, frameworks and strategies at the continental, regional and national level to address the challenges of digital transformation.

About Author: Peter M. Mwencha (Ph.D) is an advisory board member at Viffa Consult