In the 21st century, digitally-enabled transactions of trade in goods and services rely on efficient supply chain management facilitated by the smooth flow of goods, services, capital, and data. Data flows that enable and compliment digitalisation are a central feature of industry-wide business model and product innovations. The exponential volumes of data generated and utilised to create insights for multiple industry use cases are powered by information and communications technology (ICT) innovations that facilitate an extensively higher degree of real-time transactions and information exchanges, across geographical boundaries — Resulting in cross-border data value chains, often driven by data dominant firms that collect and transform machine readable data into valuable insights, which can be commercially monetised.
While there is significant economic potential associated with the rise in data-driven commercial activity, not all regions are able to capitalise the economic welfare gains associated with a data-driven digital transition. Figure 1 below illustrates the uneven global platform landscape, across the various platform types that also reflects widening inequalities and power imbalances between hyper-digitalised and under-connected regions.
Figure 1: Geographical distribution of the main global platforms in the world, 2018
Source: UNCTAD 2019
The monopoly platforms that reap the benefits of data through using complex mathematical models and algorithms, often also have global vertical market power over infrastructure (data centres, internet connectivity, computer hardware including smartphones) and operating systems (web browsers and other user-level software, and online services). These platform-based firms are largely concentrated in a few countries, this means that many other countries that do not have a competitive advantage in these ecosystems, risk becoming mere providers of raw data while potentially having to pay the data dominant multinational firms for the digital intelligence formulated by propriety algorithms from their citizen’s user-generated data, collected under claims of platform functionality.
Why are digitalisation, disruptive technologies and cross border data flows crucial for digital trade and ecommerce in Africa?
Digitalisation, disruptive technologies, and data-driven digitally enabled international trade have changed the way economies function — They have been beneficial to consumer welfare by giving access to a wider range of goods and services at a lower cost. Micro-small medium enterprises (MSMEs) are also potentially major beneficiaries of digital trade if they can access disruptive technologies, such as cloud computing, global e-commerce marketplaces, and enhanced data enabled trade logistics. Lastly, the tertiary sector and digitally enabled services trade, which increasingly contribute the largest share to domestic gross domestic product (GDP) for many developing countries, are underpinned by the free movement of data.
Africa’s digital economy is expected to grow to over $300 billion by 2025. Cross-border movement of data is essential to many aspects of this growth, particularly ecommerce and digital trade, which can be important catalysts for various economic development initiatives. But, digital trade and e-commerce do not exist in isolation, they intersect with a multiplicity of overlapping priorities needed to create and govern public value from data and facilitate sustainable structural economic transformation. Policies related to cross-border data flows not only affect international trade opportunities, but also determine the scope to leverage digital connectivity and technological advancements needed to realise the potential of data for development.
The international regulatory landscape for data flows, however, is increasingly complex, many countries with nascent data ecosystems unilaterally seek to balance the need to allow free movement of their data between jurisdictions against concerns for privacy, cybersecurity, protecting infant industries, and creating shared prosperity from unprecedented profits gained by data dominant firms, which usually collect data with little regard for consent and compensation when using the platform.
Which factors influence the realisation of a Pan-African Digital Single Market (DSM) ?
Beyond regulating data and digital services trade, facilitating equitable digital transformation that can support a Pan-African Digital Single Market (DSM), depends on numerous factors. These include, existing data related endowments that are complemented by policy coherence and a transversal approach to regulating emerging technologies, such as: ensuring access to open- source technologies, developing trusted interoperable electronic payment and digital identity systems, stable electricity supplies, formulating human rights respecting cybersecurity responses, upgrading human capital, and harmonisation of technical standards in the digital technology landscape.
At the continental level, the African Union Commission’s (AUC) Digital Transformation Strategy for Africa 2020–2030 (DTS) aims to induce such policy coherence and regulatory harmonisation, the DTS is intended to guide a common, coordinated response to reap the benefits of technological advances, disruptive technologies, and digitalisation. The DTS highlights e-commerce, digital trade, and digital financial inclusion, particularly in relation to accessible digital payment systems as the basic enablers of the DSM.
The DTS also presents policy objectives that align the DSM with the “offline” coordination efforts facilitated by the African Continental Free Trade Area (AfCFTA). Although now operational, in its current state the AfCFTA lacks a cohesive framework to address important digital economy issues. Advancing the AfCFTA to facilitate digital transformation will require multi-stakeholder effort including continued technical support and involvement from geopolitical allies that shape the digital economy and partnerships with multinational firms that operate in growth inducing industries across the continent.
What are the challenges that might hinder progress of achieving the DSM, by 2030?
Beyond issues related to inadequate continental coordination and unequal capacity of AUC Member States, multiple demand side and supply side obstacles hinder the achievement of the 2030 vision of the DSM. Many African economies are characterised by various challenges that hinder the benefits of digital transformation, such as fragmented data ecosystems, digital divides, informal markets, and differences in digital trade and e-commerce readiness, to name a few. Several complex cross-cutting challenges for regulatory convergence and policy reform need to be addressed in order to leverage digitalisation, disruptive technologies, and cross border data flows for the realisation of a trusted, secure, equitable, and transformative Pan-African DSM.
Another point of contention is that technological advancements are disrupting many industries faster than most countries can legislate internally or negotiate externally, and many African countries are not ready or able to debate effectively on multilateral rules to govern digital trade, particularly, cross-border data flows and e-commerce.
Consequently, many countries that participate in the global trading system have resorted to adopting unilateral protectionist digital trade policies, in an attempt to amass an important resource — data. However, accumulation of data alone has little to no economic value and requires complementary investments and activities to create a virtuous data cycle where accrued quality data is used to create digital intelligence that enhances product innovation, drives incentives to construct and rely upon a universe in which everything is powered by data, and informs interventions to improve both commercial and public interest outcomes.
These challenges point to the need for trans-geographical harmonisation of regulation and coherent policies that will help create a fairer distribution of digital dividends from the ongoing process of data-driven digital transformation and increased reliance on e-commerce.
How can Africa leverage digitalisation, disruptive technologies, and cross-border data flows to facilitate DSM aspirations ?
African countries are more likely to harness innovations and see the emergence of positive industry-wide disruptions linked to new technologies and data, only if they are able to address overlapping structural economic challenges and provide an enabling environment for the majority of Africans to thrive in the Pan-African DSM. Reaping equitable benefits from data is highly dependent on coordinated and transversal regulatory and policy frameworks that facilitate a conducive data ecosystem, which depends on obtaining quality machine readable data; enhancing human, institutional, and technical capabilities to regulate and create value from data; encouraging data sharing and interoperability of data systems; investments in data ecosystem infrastructure , supporting data enabled entrepreneurial activity and innovation, and; increasing legitimacy and public trust in the state to manage citizens’ data in a responsible manner.
The success of the DSM will also depend on mobilising capacity and capability to deploy disruptive technologies — such as 5G, cloud computing services, and Artificial Intelligence (AI) to stimulate and scale up new opportunities that boost technology induced socioeconomic transformation. As shown in Figure 2, creating greater regulatory coherence in an increasingly complex dynamic data ecosystem and interlinked policy context, across overlapping developmental priorities requires a holistic approach that strengthens adequate prerequisites and an understanding of how value is created from data — A more coherent economic theory of data as a factor of production and a means to measure that value would assist governments with designing more effective strategies in the context of the fourth industrial revolution (4IR).
Figure 2: Framework to facilitate greater regulatory and policy coherence in a complex dynamic data ecosystem
Source: Authors own
Global inter-dependence and the controversy regarding multilateral rules, standards and principles that underpin issues related to data-driven digital trade , highlight that international cooperation is important to develop progressive globally coordinated approaches to formulating comprehensive rules, for: regulating disruptive technologies, global data governance, semi-conductor value chains, AI dominance , and ecommerce (amongst other issues) — These issues are also crucial “external” aspects that influence aspirations of the Pan-African DSM. In this regard, continental coordination is necessary to advocate for an equitable global digital trading system and that decisions at multilateral fora are aimed at ensuring that the consensus based “unified approach” adopted to address common global challenges doesn’t place African countries at a point of relative weakness when navigating the complex and evolving data-driven digital trade landscape.
Realisation of the DSM, depends on addressing multidimensional overlapping challenges. African countries need to develop common approaches to digitalisation and rules to govern disruptive technologies and the movement of data. These rules need to simultaneously align to domestic country contexts, regional requirements, the global rules-based system, and operate alongside existing trans-geographical laws and policies. Not an inconsequential challenge considering the diverse technological, economic, social, political, institutional and cultural conditions across the continent , current inadequate cooperation amongst continental actors, incoherent policy and regulatory alignment, and a weak framework for monitoring implementation of the DTS.
Finally, considering non-trade related aspects of the digital economy, such as better internet connectivity, safeguarding privacy, national security, and developing digital capabilities are crucial elements to create African digital entrepreneurs and innovators who can participate and thrive in a transformative Pan-African DSM and the broader global data-driven economy.
This blog was first published here in January 2022.