Comments to the U.S. International Trade Commission Regarding the Digital Economy and Trade in Sub-Saharan Africa

Nigel Cory August 19, 2019
August 19, 2019
ITIF’s submission focuses on the ITC’s interest in recent developments in the digital economy for key SSA markets, including national and regional regulatory and policy measures and market conditions that affect digital trade.

The foundations for a vibrant digital economy are appearing in the large and diverse set of countries that make up sub-Saharan Africa. Obviously, these countries face many challenges—better ICT infrastructure and more affordable ICT services, improved digital literacy and skills training, an open and effective payments network, and clear and effective institutions, laws, and regulations, among others—to fully benefit from digital technologies and a more prosperous domestic, regional, and global digital economy. Of course, neither digital technologies nor digital trade are a shortcut to development. But they can certainly help sub-Saharan Africa close the considerable gap with the world leaders in the global digital economy. The United States can play a supporting role in helping develop the infrastructure, institutions, and policies that support digital development and trade. On the latter, this includes by advocating for those policies that support an open, competitive, and innovative digital economy and trading environment, many of which this submission highlights.

Africa (still) needs to fully embrace and harness the unfolding data revolution. The full benefits of e-commerce and digital trade will only be realized when Internet connectivity becomes ubiquitous and people and firms have the digital skills, with governments providing the right policy frameworks, to help them succeed in the digital economy. Most domestic digital markets in sub-Saharan African countries are small and fragmented and of insufficient size to attract investment or provide the market for technology-driven companies to rapidly scale. Countries need to work together to do this. Regional integration efforts are underway in some areas, but progress has been haphazard. For example, African Union (AU) members adopted the AU Convention on Cybersecurity and Data Protection in June 2014. However, the AU Convention has not currently taken effect as it has, to date, not been ratified by 15 out of the 54 AU member jurisdictions. The AU Convention does provide a personal data protection framework which member countries may potentially transpose into their national legislation, and encourages African countries to recognize the need for protecting personal data and promoting the free flow of such personal data.
Removing barriers to digital trade and enacting compatible frameworks and principles for digital and digitally enabled goods and services would provide the region’s firms with the critical economies of scale needed to succeed in the global digital economy. Digital trade opens up new economic opportunities (by lowering the costs of trade) and new and better ways of doing things (via innovation in developing, providing, or accessing new digital services). Digital trade policies that protect data flows also support data innovation—the use of data to create value—which has become increasingly important to economic growth, competitiveness, scientific discovery, and social progress as new technologies and methods have made it easier to collect, store, analyze, share, and use information.

The risk is that without a shared, ambitious approach the opportunity for a more-integrated African digital economy will slip away as countries head in the other direction toward digital protectionism. There is a potential for these barriers to emerge as some sub-Saharan African countries are set to enact new or revised digital-related laws and regulations. For example, there is no unified approach to personal data protection across the African continent, with some countries having comprehensive personal data protection legislation in place, while others have no legislation or constitutional protection, and some consider or enact misguided local data storage policies. These barriers are not only a barrier to digital trade with the United States, but prevent the critical economies of scale and network effects offered by a larger regional market, which would help bridge the digital divide faster within their respective countries and within the region in relation to the global digital economy.

The region’s generation and use of data remains underdeveloped, in part due to the lack of a clear legal and regulatory regime to support the free flow of data across borders as well as interoperable data protection and privacy regimes to ensure the security of personal data while specifying that protections should travel with data, wherever it is processed and stored. The production of data, and use of digital services, in the region’s 21st century digital economy is held back by some very 20th century trade issues—high tariffs and taxes on information communication technologies (ICTs) and related services. Prices of ICTs are a major determinant of their use. Reducing or eliminating these would ensure more people and firms use ICTs, which would spur digital development and trade. The region is a world leader in some new, mobile-based digital financial services, but local data processing requirements and other market restrictions, along with the lack of interoperability and high fees for cross-border digital transactions, discourages regional and global e-commerce and digital trade.
Similarly, the region’s ability to fully realize the benefits of digital technologies and economic activity come down to the fact that many people in SSA countries lack reliable and affordable Internet connectivity, especially those in landlocked countries, which rely on a limited number of expensive terrestrial connections (as opposed to costal countries which may have a submarine cable connecting them to the global Internet). The benefits of addressing the infrastructure and regulatory barriers to greater connectivity go beyond those most closely associated with the digital economy and trade, but extend to greater levels of economic productivity.

Take sub-Saharan Africa’s largest economy, Nigeria, for example. The development challenge facing Nigeria is considerable, so it’s no surprise that Nigeria has many areas to improve upon with regard to the digital economy. The United Nations Conference on Trade and Development’s (UNCTAD’s) B2C E-commerce Index ranks Nigeria 75th in the world and 2nd in Africa (behind Mauritius). Improving infrastructure for the power grid and ICT connectivity is a key challenge. Deloitte estimates that expanding Internet access in Africa to match levels in high-income countries could enhance productivity by as much as 25 percent, generating $2.2 trillion in gross domestic product and more than 140 million new jobs. Mobile penetration in Nigeria reached 49 percent in 2018, which lags behind the levels of other large emerging economies, such as 53 percent in India and 73 percent in Indonesia. Currently, 44 percent of mobile subscribers in Nigeria are using 3G technology and 4 percent are using 4G technology, as compared to over 18 percent 4G penetration in South Africa and 16 percent in Angola. However, the situation is improving: in 2017, the continent saw the largest global increase in Internet users—20 percent.

However, despite these challenges, Nigeria is emerging as a dynamic and growing digital economy. The considerable market potential from a young and growing population, rapid urbanization, rising incomes, and widespread technology adoption has led to Nigeria becoming home to some of the biggest e-commerce and digital firms in Africa. Nigeria’s digital economy and trade potential is already evident despite these challenges. Data analytics firms like Terragon, Mines, and Paga are using big data and proprietary artificial intelligence systems as part of new services that are allowing them to expand across the region and the globe.

Similarly, 54gene is aiming to build and use the first and largest collection of genetics data in Africa. Supported by improving network coverage and more advanced connection speeds, e-commerce and m-commerce offerings are helping consumers to leapfrog formal retailing in Nigeria and the region. While hard to estimate, the e-commerce sector in Nigeria is estimated to be worth over $10 billion and is growing rapidly. Nigeria is also home to 55 active tech hubs, accelerators, and incubators (ranking it second, just behind South Africa, which has 59). Nigeria has already seen considerable success in establishing startup ecosystems—as demonstrated by the startup success of Yabacon Valley—and attracting significant amounts of venture capital, but needs to address various issues around the supporting framework for it to become the startup center of the Africa.

Nigeria exemplifies the challenge, but also the opportunity, that digital technologies present in Africa. However, whether people and policymakers fully realize the potential benefits of digital technologies and trade will depend in part on whether they’re able to enact the right supporting policy framework. This submission highlights some of these issues and specific cases where sub-Saharan countries are enacting policies which act as a barrier to both digital development and digital trade with the United States.