The digital economy is now the economy. This refers to
the permeation of digital technologies into practically all spheres of
business, finance, trade, education and government. While Africa initially
lagged behind the developing world in adopting technology and migrating
commerce modes to the new digital forms, in the last several years Africa has
taken several leaps forward.
This Trade Brief provides an update on the
situation of Africa’s progress in assimilating into the global digital economy,
addressing the most pressing current challenges and reviewing several of the
most exciting current initiatives underway.
The
potential for digital trade to drive economic development and transformation in
Africa remains largely unexplored. With the African Continental Free Trade Area
(AfCFTA), which came into effect on 30 May 2019, there is now wider scope to
pursue regional strategies to develop Africa’s digital economy. AfCFTA presents
itself as a “new dawn” for Africa and aims to bring together 55 African
countries to create a single market with a combined GDP of USD 2.5 trillion
covering market 1.2 billion people.
Digital Trade can influence Africa Positively
While
e-commerce is thriving in some African countries, for example we have witnessed
the money market boom in Kenya and the robust growth of e-commerce platforms in
Nigeria, these good outcomes are often confined to the domestic market with
limited regional success.
Essentially,
digital trade, and its benefits for development can be derived in two ways.
Firstly, through e-commerce, that is the use of digital platforms to facilitate
trade in goods and services capable of both physical and digital delivery. The opportunities
for African economies come through the increased connectivity of both local and
foreign markets.
Growing
internet use in Africa has been instrumental in providing an alternative route
to market for SMEs and entrepreneurs who were previously hindered by the lack
of connectivity, high transaction costs and information asymmetries. E- commerce
offers firms and entrepreneurs visibility at a low cost and businesses are
increasingly able to leverage social medial platforms to market their products
and services. Increased connectivity also reduces the proximity barriers
previously encountered when accessing new markets, especially for services
capable of digital delivery.
Secondly,
digital trade extends to the use of innovative technologies to enhance overall
economic efficiency and productivity. The diffusion of digital technologies in
sectors of prime importance for African countries, such as manufacturing and
agriculture, could increase productivity and efficiency, making these sectors
more competitive.
Digital
trade should also be truly inclusive in order increase economic development in
Africa. This requires African countries to build local capability, eliminate
the digital divide and develop home-grown skills. Digital trade is essentially
skills biased and relies on an adequate supply of labour that is equipped with
the right expertise, literacy and creativity to perform high level digital
tasks. Digital trade also requires consumers and firms who are comfortable to
use digital platforms and technologies.
If African countries do not embrace digital trade and begin to implement strategies to equip themselves to engage and compete with other digital economies, they will be left behind. With this in mind, the strategy going forward should be to place a strong focus on building capabilities on a regional level in Africa. These considerations should be addressed when further negotiations on AfCFTA take place in the next few months.
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