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Thursday, 29 March 2018 10:57

Where next for e-commerce in Africa? Featured

Written by Jamie MacLeod and Bogolo Kenewendo
Where next for e-commerce in Africa? Canva

The rise of e-commerce presents considerable opportunities and challenges for international trade, but with stalemate at the World Trade Organisation (WTO), global trade governance looks set to fall behind this growth. As ever more trade occurs through the production, distribution, marketing, sale and delivery of goods and services by electronic means, this blog post reflects on where next for e-commerce in Africa.

MC11 post-mortem

At the WTO’s Eleventh Ministerial Conference (MC11) in December 2017, trade ministers failed to agree to a ministerial declaration; as well as to advance on any of the “new issues”, including e-commerce. 

Given the challenging dynamics in the negotiations, ambitious agreements are proving harder to make. Comparing the proposals for e-commerce in 2016 with those in the immediate months before MC11 in December 2017, it is clear that proponents – mostly the developed countries – were willing to limit the breadth of an agreement on e-commerce to one that was merely timely and which opened the door for a rule-making process. This trade-off between ambition and timeliness could be taken further. If the proposals for rules are further watered down they will become more agreeable. This could amount to, for instance, an approach that seeks merely to define the scope of e-commerce in the WTO context, and proposing softer rules. 

While a multilateral agreement on e-commerce may be more possible if it is less ambitious, that may not satisfy proponents of e-commerce rules who desire something more meaningful. 

An alternative approach is the one taken with the trade facilitation agreement (TFA). By matching technical and financial assistance to commitments, the TFA was able to create innovative and mutually beneficial solutions that could be agreed to by all. The approach also allowed a finer level of differentiation by level of development than that afforded by the traditional Special and Differential Treatment (SDT) approaches. An arrangement on e-commerce could benefit from following such a model, matching commitments with technical and financial assistance for digital infrastructure, for instance.

However, the most likely pathway ahead is that of plurilateral deals. By the end of MC11 a joint ministerial statement on e-commerce had been issued by 71 members of the WTO, including Nigeria. This group will “initiate exploratory work together towards future WTO negotiations on trade-related aspects of electronic commerce”. Such an approach ostensibly allows willing countries to move ahead on issues in which they find agreement and conclude plurilateral agreements, which other countries could subsequently join when ready. However the challenge, as articulated in the DNA Discussion Paper that prefaces this blog, is that plurilateral agreements cement the rules and norms over which non-participating countries have had no say or influence. 

Having broader discussions about the way forward would ensure that the path is charted inclusively, rather than by small sub-groups. 

Getting to an agreement with the WTO Work Programme on E-commerce

One of the decisions made by ministers at MC11 was to continue and “reinvigorate” the WTO Work Programme on Electronic Commerce – a platform in place since 1998 for exploratory discussions, but not negotiations, on the topic of e-commerce. This, therefore, leaves no room for the General Council to introduce a negotiating mandate on e-commerce in between Ministerial conferences as some would have wished. 

If the proponents of new rules are serious about transforming these discussions into a multilateral agreement on binding rules by MC12 they must listen carefully to and answer the concerns of African and other developing countries. It is not enough, as has been the approach until now, to merely speak anecdotally about the benefits of e-commerce for Micro, Small and Medium Enterprises (MSMEs) or share a few African success stories. These benefits are understood. What is needed now are honest answers to some of the difficult, deeper and bigger picture implications of e-commerce.

Firstly, countries are worried about the distributional implications of the growth of e-commerce. E-commerce is perceived as amounting to skill-biased technological change: that which favours skilled over unskilled labour. Within countries there is concern that this may lead to increased inequality with growing wages for skilled labour and falling wages, or unemployment, for unskilled labour. 

Secondly, there is the related fear of the distributional implications between countries. Developing countries lack the number of skilled workers developed countries have; meaning there is the corollary concern that e-commerce will benefit the latter at the expense of the former. 

Thirdly, there are concerns that e-commerce can lead to market concentration and in turn lead to anti-competitive issues. For instance, large e-commerce platforms such as Amazon – which accounts for half of all online expenditure in the US – collect vast amounts of increasingly valuable data about their customers. This data can then be used to provide more targeted services and in the process outcompete smaller rivals which lack access to such data.

Fourthly, there is concern that cross-border e-commerce may make it easier for international companies to distort their taxable income through transfer pricing. The risk may be greater for developing countries: if the intellectual property and operating expertise behind cross-border e-commerce is located abroad, then the cost of this may be deducted from locally generated sales to reduce taxable income in that country.

Finally, what does e-commerce and the growth of the digital economy more broadly imply for the traditional export-oriented industrialisation strategy that has historically fuelled many countries’ development? Some worry that these technologies will make it less attractive for businesses to invest in manufacturing in developing countries where labour costs are low.

Many of these concerns can be reasonably summed up as “fear of the unknown”. The best solution is to help countries better understand these issues and their implications, as well as the policy solutions where applicable. Technical assessments and more detailed research on these concerns can help countries to determine or better articulate the impact of any rule-making in this area.

A regional way forward for e-commerce in Africa?

If progress is impossible at the multilateral level, negotiations on e-commerce may move at the regional level. A regional approach is a reformulation of the plurilateral way forward posited above, but through which countries can build upon their regional similarities and existing regional integration infrastructures to find agreement more easily.

African countries, for instance, are aware that their small and fragmented domestic markets will impede the long-term development of their own e-commerce enterprises. They understand that as a regional grouping, they also stand on a more even footing when it comes to e-commerce capability than when they stand by the full spectrum of WTO members. Opportunities exist for infra-Africa trade where a programme on e-commerce can complement trade facilitation and in turn reduce the cost of doing business within Africa. Perhaps most pertinently though, they already have the ideal platform: as negotiations for the first phase of the African Continental Free Trade Area have come to a close, negotiators are willing to look to phase two issues, including investment, intellectual property, competition, and potentially also e-commerce.

Recommendations for policymakers in Africa

The digital economy is experiencing rapid expansion and becoming an important vector of global economic growth. It is seen on the one hand as a key driver of trade for sustainable and inclusive development but on the other as also implying challenges for developing countries. 

The expansion of e-commerce will not wait for African and other developing countries. Having considered the benefits and challenges of e-commerce, and its inevitability; policymakers must seek to integrate e-commerce into their development planning. 

Some African countries are currently actively involved in the United Nations Conference on Trade and Development’s eTrade for All initiative. This is one platform through which policymakers can deepen their appreciation of the opportunities, challenges and solutions relating to leveraging e-commerce for development. Others have utilized the resources of the International Trade Centre to develop e-Strategies.

Once the knowledge gap is closed and e-commerce is better integrated into the development planning of African and developing countries, then such countries can contribute meaningfully to the formulation of negotiating positions on e-commerce beyond MC11.

Regional platforms can provide a testing ground. African countries may consider exploring e-commerce as a topic in the phase two negotiations of the African Continental Free Trade Area. Doing so would help address the challenges of small fragmented markets in Africa, ensuring that African e-commerce enterprises are better positioned for competition globally.

Jamie MacLeod is a Trade Policy Fellow with the United Nations Economic Commission for Africa and Bogolo Kenewendo is a specially elected Member of Parliament in Botswana

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