Digitalisation expected to boost business in the African Continental Free Trade Area
Beyond COVID-19, however, digitalisation has been seen to provide the opportunity for Micro, small and medium enterprises (MSMEs) in Africa MSMEs to leverage the benefits of the recently implemented African Continental Free Trade Area (AfCFTA).
The AfCFTA delivers a channel for the region's fragmented countries to unite to seek alternative paths to development by harnessing combined strengths and resources to support digitalisation.
One AfCFTA commentator noted that "There is a concern about whether the AfCFTA will ensure an equitable spread of digitalisation gains. This will depend on how it responds to competition, antitrust and cross border taxation arising from the digital economy."
Observations by the proponents of the AfCFTA are keen on seeing synergies between the objectives of the initiative and the harmonization of the digital space for trade development.
This is so especially in relation to business in the period of Covid. “While at the same time, the COVID-19 crisis has accelerated the adoption of digital technologies across the world.” They say the lockdown restrictions created a rare opportunity for many Medium to Small MEs and households to engage with digital technologies, allowing businesses to stay operational and access new markets Unfortunately, given the enormous Digital divide in terms of skills and infrastructure, the benefits of this digitalisation have been unevenly distributed.
It is common knowledge that MSMEs play an essential role in the overall growth of the industrial economy of AFRICA. They constitute about 95% of African businesses and contribute 80% of regional employment. Therefore, they are a vital industry for inclusive socio-economic development.
Therefore, the rapid migration to digital technologies as a result of COVID-19 has continued into the recovery phase in Africa, and augmenting MSMEs’ capacity and ability to keep pace with the new digital expectations that have emerged will be critical to driving COVID-19 recovery on the continent.
AfCFTA followers have observed that, only a few MSMEs are capable of navigating and integrating into digital platforms and may survive the prolonged effects of the crisis. “Many firms are not capable of embracing digital initiatives, particularly in the informal sector. Differences in technological, social and networking capabilities further exacerbate the digital divide,” they say.
It is important to realise that digitalisation’s potential contributions to MSME survival include wider customer reach, cost reduction, and opportunities to optimise products, sales and revenue. Some encouraging phenomena show that social media platforms such as Facebook and Instagram are now being used to interface directly with customers and effectively acquire new ones.
“MSMEs should efficiently market their products and services for social media platforms, which have an estimated user base of over two billion users, while reducing traditional overhead costs and technically reducing the distance between MSMEs and their customers.” MSMEs can also leverage digital innovations for survival by restructuring their enterprise towards remote working, migrating to e-commerce and reorganising their production lines towards goods and services with higher demand.
According to interested parties and keen followers of the intra Africa trade, this AfCFTA can be leveraged in many ways: While more than 500 million Africans (39% of the total population) are connected to the internet they say, the spread and scope of digitalisation have not translated to economic development and structural transformation on the continent. One reason for this is the small economic size of many African countries and their fragmented nature.
“Individually, most African countries lack the economies of scale and investment capacity needed to drive down costs and mobilise mass adoption. This also partly explains the weak and uneven development of domestic digital platforms in Africa. Regional integration can alleviate these problems by promoting investment in aids to trade, of which digital technology is a key component. With the AfCFTA, the continent becomes a single market, thereby diminishing economic size and fragmentation issues.”
Most business players agree that regional integration also has the potential to resolve another constraint to widespread digitalisation in Africa: citizens’ weariness of the potential abuse of digital platforms for surveillance and restrictions on their constitutional rights.
“Given the role social media played in the Arab Spring, there have been many attempts by African states to shut down the internet or control access to the digital space in response to protests or dissent. In 2019, about 25 cases of partial or total internet shutdowns were documented in Africa, representing a 47% increase from 2018. Given this trend, expansion in digital footprints like digital identification systems and facial recognition has faced scepticisms and outright rejection from citizens and civil society.
Again, the panacea is regional integration which can help in this regard. This is so because uniform data governance that is likely to ensue within the free trade area will separate business cases for digitalisation from the political ones. Moreover, regional integration will make it economically costly for states to arbitrarily shut down the internet, as this will have broader continental effects.
Notwithstanding the foregoing comments, commentators contend that for the benefits of AfCFTA to accrue inclusively, it is essential to narrow the uneven development of digitalisation in Africa. “Some of the recent growth in domestic digital platforms in African has been concentrated in a few relatively rich countries like Nigeria, South Africa and Kenya. Therefore, there is a concern about whether the AfCFTA will ensure an equitable spread of digitalisation gains. This will depend on how it responds to competition, antitrust and cross border taxation arising from the digital economy.”
Overall, the African Continental Free Trade Area (AfCFTA) provides a unique opportunity for countries in the region to competitively integrate into the global economy, reduce poverty, and promote inclusion. Although Africa has made substantial progress in recent decades in raising living standards and reducing poverty, increasing trade can provide the impetus for reforms that boost productivity and job creation, and thereby further reduce poverty. Digitalisation therefore should be one of the pillars for this to happen seamlessly.