Karishma Banga (Senior Research Officer, ODI)
5 June 2018
An African digital industrial strategy is needed to consolidate a common stance on data governance and control; build digital trust in African countries for regional e-commerce; re-equip workers with suitable skills; and protect digital labour against exploitation.
Africa in the digital era
In March 2018, 44 countries signed the African Continental Free Trade Agreement (AfCFTA), as an important step towards increasing market integration, infrastructure development and industrialisation. It is, however, increasingly important to look at regional trade through a ‘digital lens’. Digitalisation presents important opportunities to boost the historically low intra-Africa trade but also important challenges.
Not only is there a digital gap between African countries and others but also Africa benefits less from digital technologies, once installed (Banga and te Velde, 2018). There are many reasons for this – poor internet access, limited information on e-commerce platforms, lack of e-payment services and cost-effective logistics, lower purchasing power, unreliable power supply and basic infrastructure, poorer ICT infrastructure and skills and an inconducive legal and fiscal framework. Africa thus lags behind in the digital era as a result of a poorer ‘systems infrastructure’.
To leverage the benefits of digitalisation, African countries need to ‘think globally’ but ‘act locally’. Growth in e-commerce has remained low compared with in other regions, and mainly serves foreign demand. If this continues to be the trend, AfCFTA will not be able to deliver on the continent’s much-needed economic transformation. Countries need to address issues pertaining to and develop collective actions on 1) governing data- the ‘new oil’; 2) building consumers’ digital trust – the ‘new currency’ and 3) protecting digital labour – the ‘new commodity’ in the digital economy.
Collective actions on data governance
In recent years, Big Data has emerged as a key aspect of the digital economy, as essential as oil is to the industrial economy. Mined freely from developing countries, it is converted into ‘digital intelligence’ in developed countries, further feeding the power of giant e-commerce platforms- such as Amazon and eBay (and also Alibaba in China). Earlier, these platforms operated on a ‘lean economy’ model – they owned data but not any actual physical assets. However, such models are not sustainable in the long run, and these e-commerce platforms are slowly transforming into ‘intelligent infrastructures’. For example, Amazon has started buying planes and Alibaba is investing in physical stores.
While international rules on e-commerce can help foster trade in the digital era, there has been resistance to some of the recent proposals developed countries have made to the World Trade Organization, on the grounds that these threaten to further increase the control of powerful monopolies. Several common provisions in such proposals aim to create an even more digital and borderless economy. These include:
- liberalisation or removal of tariffs on digital goods and services and removal of preferential treatment for domestic companies or products and services
- free cross-border flow of data, which can prohibit countries from ensuring their data remains within their borders (in this case, data is governed not by the country that owns it but by the laws of the country where it is held)
- removal of localisation laws that require foreign providers to set up in host countries and
- removal of compulsions on technology transfers – for instance through sharing of source code – from foreign providers to host countries.
Such rules may be detrimental to job creation and infant industries in African economies, and risk deepening the digital divide across countries. They threaten to increase ‘platform capitalism’, making it even more important for African countries to ensure data-sharing arrangements that will increase their competitiveness globally.
African sellers can sell on third-party international e-commerce platforms, but 75% of the time Amazon will push its own product first, and there is also a hefty commission charge in getting on these platforms, sometimes as high as 45%. Domestic or regional ownership of e-commerce platforms is thus important. African countries must take a continental approach and put in place regional strategies ensuring ‘collective rights to collective data’, with AfCFTA as an effective platform to consolidate a common stance on e-commerce rules.
This can also make AfCFTA significantly more effective in boosting regional integration, as it will help countries attain commodity diversification– a long-standing challenge in intra-Africa trade. At present, intra-Africa trade remains at only about 10%, mainly because of the higher costs of trading within Africa, which means primary products dominate such trade: the share of manufacturing in fact declined from 18% in 2005 to 15% between 2010 and 2015 (AFDB, 2017). If most African countries continue to export raw materials, and not processed goods, regional demand for their products will remain low. Having deindustrialised prematurely, and in the context of the increasing extractive nature of powerful monopolies in developed economies, Africa faces key development challenges related to export diversification and commodity dependence.
In this regard, important lessons can be learnt from Asia. Here, online trade has not only reduced the costs of trading and coordination but also led to successful diversification of exports in some least developed countries. Research by the International Trade Centre looks at demand for e-commerce products on Alibaba in five Asian LDCs – Bangladesh, Cambodia, Lao PDR, Myanmar and Nepal – and finds that products in which these countries have comparative advantage, such as textiles and agriculture, feature prominently in online trade, but that new products are also emerging . For example, in Bangladesh, apparel and clothing dominate offline trade (accounting for 86% of total exports), but online demand is much lower (47%), and the country has diversified into agriculture, food and beverages and consumer electronic products. In Cambodia, e-commerce has enabled diversification into higher value-added segments; fresh mangoes and cashew nuts have replaced cereals as top-demanded agricultural products in online trade.
Collective actions on building digital trust
Domestically or regionally owned e-commerce platforms are not enough; for successful regional integration through e-commerce, African countries also need to boost demand for products sold through online trade. African e-commerce platforms such as Jumia and KiliMall have gained popularity, but the consumer ‘digital trust’ remains a crucial factor constraining growth. For example, privacy concerns in Kenya grew by 19% from 2014 to 2016, which may in part explain why there is still a 40–50% gap between the proportion of Kenyans with access to the internet and that using it for e-commerce.
As transactions become increasingly digital, affecting several aspects of people’s lives, so does the importance of digital trust. Tufts University ascribes four dimensions to digital trust: 1) the trustworthiness of each country’s digital environment, 2) the quality of users’ experiences, 3) attitudes towards key institutions and organisations and 4) people’s behaviour when they interact with the digital world. Countries where digitalisation is highly evolved, or evolving rapidly, typically have strong government/policy support. Again in Kenya, the government is taking steps to build digital trust: government services are increasingly being digitalised to familiarise consumers with using the internet for making payments in a ‘cash-less’ culture. Policy challenges remain context-specific, but all African countries need to develop laws on data protection and privacy.
Collective actions on re-skilling labour and protecting digital labour
If Africa takes no collective actions to address the issues of the digital economy, labour will continue to face a two-pronged threat. Job losses in manufacturing are likely to increase as tasks are re-shored to the advanced developed economies. Meanwhile, there may be a further fall in the bargaining power of African workers engaged in digital labour platforms.
The possible decline in jobs can, to some extent, be offset if Africa can leverage digitalisation to increase regional integration. As intra-Africa trade increases, so will the demand for skills, since such trade has a higher skill and technology content than does Africa’s trade with others (UNCTAD, 2017). Successfully selling to regional markets through e-commerce platforms will thus require investment in skilling the workforce. This not only can make labour more productive directly but also may increase the impact of internet penetration on labour productivity (Banga and te Velde, 2018). For e-commerce in particular, labour needs to be re-skilled with an ‘e-commerce skills set’, which includes ICT and digital skills but also skills pertaining to strategy, sales and advertising, project management and social media. Collective actions on reorienting curricula in African institutions around STEM subjects and TVET can be effective, along with integrating local knowledge of the private sector within curricula.
In terms of digital labour – labour performing digital tasks that are outsourced online – demand comes mainly from wealthy countries, with workers across the world competing. This distributed supply and concentrated demand have led to a significant increase in competition, and poorer or unfair work. Digital labour is increasingly being treated as a commodity, with online work being re-outsourced under worse conditions. African countries have no compensating mechanisms in place, and thus need to promote unions and social protection for digital labour, and through this workers’ collective bargaining power.
Photo credit: © Arne Hoel / The World Bank. Licence: CC BY-NC-ND 2.0.