"Digital trade protocol for Africa: Why it matters, what\u2019s in it and what\u2019s still missing"

" \r\n \r\n Digital trade protocol for Africa: Why it matters, what\u2019s in it and what\u2019s still missing \r\n In February 2024, African heads of states adopted\u00a0 a draft protocol to regulate digital trade \u00a0within the continent. This significant yet challenging course for Africa\u2019s digital economy fits into the\u00a0 broader trade agreement , designed to create a single continental market for free movement of goods, services, capital and people. Franziska Sucker explains the protocol, why it matters and what still needs to be done. \r\n\r\n What is digital trade, and how big is it in Africa? \r\n\r\nDigital trade refers to cross-border exchange of goods, services and other tradable items that is enabled by digital technologies.\r\n\r\nAfrica\u2019s\u00a0 market share of the digital trade globally \u00a0is small. But it has expanded rapidly, outpacing the global average. For example, between 2005 and 2021, global digital service exports increased by 40.52%, while Africa\u2019s surged by\u00a0 91.53% . This, coupled with low intra-continental trade, the presence of\u00a0 11 of the world\u2019s fastest-growing economies , and a young, digitally eager population of almost\u00a0 1.5 billion , positions Africa as having the world\u2019s largest untapped digital growth potential.\r\n\r\n What\u2019s in the protocol? \r\n\r\nThe protocol represents a consolidated pan-African approach on digital trade issues, paving the way for regulatory convergence and common standards.\r\n\r\nIt stipulates rules for both traditional trade and digital trade-specific issues. Digital trade-specific issues include data governance, business and consumer protection, digital trade facilitation and digital inclusion.\r\n\r\nFor most of these specific issues, the protocol establishes a series of national-level implementation obligations. Sometimes it is quite specific. For example, it mandates governments to ensure private entities adopt and disclose their personal data protection and cybersecurity policies. In other areas it grants wide discretion such as determining the adequate level of data protection.\r\n\r\nThe state parties are required to specify the protocol\u2019s regulations on a range of topics. These include digital payments, data transfer, source codes, digital identities, financial technologies, emerging technologies and online safety.\r\n\r\nImportantly, the protocol sets a default allowing the free flow of data. This means that, generally, firms must be allowed to transfer data, including personal data, outside Africa. Also, it bans data localisation, meaning firms cannot be required to store and process data locally.\r\n\r\nIt also bans customs duties on digitally transmitted products. And it prohibits governments from forcing firms to reveal their software\u2019s source codes.\r\n\r\n Why does it matter? \r\n\r\nIt\u2019s significant because there aren\u2019t global rules governing digital trade. Ninety countries are discussing regulations under the World Trade Organisation\u2019s\u00a0 Joint Initiative on E-commerce , but so far without results.\r\n\r\nThis leads to two primary issues.\r\n\r\nFirst, existing trade categories (services, goods and intellectual property) don\u2019t cover all items whose trade is digitally enabled. Some are left unregulated. Examples include smart devices (like smartphones and smartwatches), value packs (like combined internet and TV services), and purely digital items (such as files for 3D printing, electronic books and video games).\r\n\r\nSecond, existing WTO agreements don\u2019t address the digital trade specific issues such as data protection, cybersecurity or digital payments. This complicates digital transactions across borders.\r\n\r\nThis fragmented regulatory landscape leads to legal uncertainties and high compliance costs. The protocol thrashed out for Africa aims to address these gaps.\r\n\r\n What are the three biggest benefits for African countries? \r\n\r\nFirst, it will strengthen African digital firms.\r\n\r\nGreater alignment of national regulations across Africa will increase legal certainty and increase interoperability across the continent\u2019s systems. This will enable smoother cross-continental data flows, and in turn:\r\n \r\n \t reduce compliance costs, especially benefiting smaller enterprises \r\n \t improve access to regional and global supply chains \r\n \t foster collaboration across jurisdictions \r\n \t build online trust. \r\n \r\nImproving the business climate in this way will help position African digital firms and start-ups for growth and possibly disrupt monopolistic markets. It is also likely to lead to international firms setting up local operations.\r\n\r\nSecond, it will level the playing field between African countries.\r\n\r\nIn the absence of common standards and regulations, firms can be tempted to gravitate towards regions with less stringent rules to reduce cost and increase profits. This can undermine policy objectives. This is particularly true in critical areas like data protection, which safeguards user privacy. Some countries might lower their standards to attract foreign direct investment. Having a set of rules for everyone reduces the risk of a regulatory race to the bottom.\r\n\r\nThird, it would increase Africa\u2019s impact in global digital trade rule making.\r\n\r\nGlobal digital trade rules are mostly shaped by a small group of developed countries. By consolidating their position and forming a cohesive bloc, African countries can:\r\n \r\n \t strengthen their collective voice and increase their influence in trade discussions, for example about digital infrastructure, capacity building and equitable access to technology \r\n \t participate more confidently in various trade negotiations, pushing for developmental-focused agreements \r\n \t better withstand external pressures for advanced commitments in bilateral deals. \r\n \r\n What are the potential drawbacks? \r\n\r\nThe biggest concern is that integrating African digital economies might exacerbate the unequal distribution of benefits. This could lead to heightening inequalities on three fronts: between Africa and other regions; between different African states; and within African countries themselves.\r\n\r\nA key issue is that the protocol may trigger competition among African countries. They could enter individual free trade agreements with external parties that initiate a race to the bottom in regulatory standards as countries attempt to attract foreign investment. This may result in the creation of regional \u201cdata hubs\u201d favouring established dominant digital players. In turn, this could expose the African market to market power abuses, with detrimental effects on local economies and intra-African equality.\r\n\r\nThe US-Kenya\u00a0 Strategic Trade and Investment Partnership \u00a0is an example of a deal that might have unintended consequences.\r\n\r\nWhat\u2019s needed are complementary policies in areas such as competition and tax law, alongside special and differential treatment provisions to ensure equitable development.\r\n\r\nAnother significant issue is the potential reduction in a government\u2019s ability to protect its citizens.\r\n\r\nFirst, the protocol\u2019s preference for unrestricted data flow as default is at odds with shifting global standards. It might prevent countries from controlling how their citizens\u2019 personal data is sent abroad. As a result, major tech companies from outside Africa, but operating within it, could end up controlling this data.\r\n\r\nSecond, the ban on mandatory software source code disclosure may limit the ability of countries to regulate AI technologies effectively, and hinder technology transfers that benefit local start-ups. It could also restrict the ability to\u00a0 scrutinise social media algorithms to protect children from harmful content .\r\n\r\n What are the biggest barriers to implementation? \r\n\r\n Capacity constraints. \u00a0Many countries \u2013 particularly less developed ones \u2013 face significant challenges due to a lack of knowledge and budgetary constraints needed to develop supportive regulatory national-level frameworks. Countries lacking current laws will need substantial help.\r\n\r\n Pending detailed annexures. \u00a0The protocol calls for further details in yet-to-be-developed annexures on key issues. The absence of these detailed guidelines could delay the full implementation of the protocol.\r\n\r\n Infrastructural barriers. \u00a0Many African countries have infrastructural barriers to digital trade. These include poor broadband and internet connectivity, unstable electricity supply, unreliable payment systems and general logistical challenges.\r\n\r\nThe path to making the protocol effective is indeed long. It requires addressing these substantial hurdles to ensure successful implementation.\r\n\r\n \r\n "

"Digital trade protocol for Africa: Why it matters, what\u2019s in it and what\u2019s still missing"

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