Trends in Digital Commerce in Sub-Saharan Africa
Market growth for digital technologies in key Sub-Saharan Africa (SSA) markets is “changing traditional services and manufacturing sectors by making firms more productive, improving cost competitiveness, and creating new distribution channels for products and services”, according to the U.S. International Trade Commission (USITC) in a newly-released report (“the Report”).
Last week, the USITC made public its report to Congress on U.S. Trade and Investment with Sub-Saharan Africa: Recent Trends and New Developments. The Report devotes an entire chapter on the Digital Economy in Sub-Saharan Africa, documenting both the rapid expansion of digital services in the region and identifying areas where more can be done to facilitate the digital transformation in the local economies.
This post showcases a few key findings, and discusses how these observations contribute to ongoing developments on digital trade in SSA and beyond.
The SSA region is increasingly adopting technologies including cloud computing, financial technology (fintech), e-commerce, digital streaming video, and harnessing the Internet of Things (IoT) to develop “smart cities” technologies such as drone delivery. There has also been innovation in the agricultural sector, with the adoption of digital management tools through blockchain technologies. These services are provided by both foreign and domestic companies, with U.S. firms being the prominent providers in the cloud computing and digital streaming sectors.
The use of digital technologies is aided by increased Internet access, both fixed and through Internet-enabled mobile devices. From 2012-2017, the number of people in SSA using the Internet grew at an average annual rate of 20.2%, from 85 million to 213 million. However, access remains an issue and more can be done to increase connectivity across the region.
In the case of e-commerce, Africa is one of the world’s fastest-growing e-commerce markets globally. The Report cites a McKinsey study that estimates that by 2025, e-commerce will account for 10% of total retail sales in Africa’s largest economies. This growth in e-commerce can “help SSA countries make the transition away from the informal economy, boost employment, spur local manufacturing and services growth, and particularly benefit SMEs.” Leading platforms include Jumia, Takealot, MallforAfrica, Konga, and Kilimall.
Growth of e-commerce in the African region was also a key theme discussed at last week’s virtual meeting of the UN’s Trade and Development e-commerce week. Research presented by the International Trade Centre during one panel showed the landscape of Business-to-Consumer (B2C) online marketplaces for physical goods in Africa, which was estimated at $20.8 billion in 2019 and is projected to grow in the coming years.
The Report also documented certain policies and market conditions that affect the SSA digital economy. These include: data localization requirements that can fragment global networks that service providers depend on; complex financial and telecom regulations that affect fintech; customs requirements and deficiencies in delivery logistics and payments that place asymmetric burdens on foreign services; high data costs for streaming video content; and regulatory requirements on drone delivery services.
As countries continue their digital transformations around the world, there is corresponding growth of available markets for digital services and Internet-enabled commerce. The creation of new, and modernization of existing trade agreements and partnerships to account for the role of digital commerce will continue to be critical.
The Report no doubt will inform how the U.S. approaches future trade in the region.
In March, the United States announced its intention to negotiate a U.S.-Kenya Free Trade Agreement. Digital trade will continue to play a key role in these discussions. Per the USITC’s report, cross-border imports of telecommunications, computer, and information services by Kenya grew from 2012 to 2017, at a compound annual growth rate (CAGR) of 23.4 percent.
With the extensive comments filed with the Office of the U.S. Trade Representative’s consultation on negotiating priorities, it is clear that a wide range of industries have an interest in increased trade in the region.
Countries are also looking at how they can feed e-commerce and digital priorities into regional agreements illustrating how central these concerns are to trade within the region. An e-commerce protocol is expected to be included in the implementation of the African Continental Free Trade Agreement.