How Recent Regulatory Policies are Driving a Tech-Trade Nexus in Africa
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How Recent Regulatory Processes are Driving a Tech-Trade Nexus in Africa
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By Gerald Kilimo and Martin Nkonge, Researchers at Botho
August 28, 2023
In recent years, Africa has witnessed a remarkable surge in efforts to foster regional integration and economic growth. Recognizing the potential benefits of enhanced trade relations among African countries, policymakers and stakeholders have taken proactive measures to develop and implement tech-driven policies that facilitate cross-border trade among countries in the continent and beyond.
It is foreseeable that recent tech-focused regulatory policies will propel the continent toward a more integrated digital and trade transformation. Compared to earlier tech policies that were seemingly oblivious to the tech-trade nexus in Africa, some of the most recent policy frameworks are increasingly trade-facing, even when they are predominantly rooted in the tech sector. The new regulations are honed to reduce trade barriers within the continent and help African industrial products stand out on the global market. The recent trajectory of tech initiatives will also enhance the structured transformation of regional value chains in the continent.
Three policies that stand out in the quest to galvanize Africa’s tech-trade landscape: the Pan-African Payment and Settlement System (PAPSS), the Single Digital Market initiative, and the Digital Transformation with Africa (DTA).
THE PAN-AFRICAN PAYMENT AND SETTLEMENT SYSTEM (papsS)
PAPSS was officially launched in January 2022 under the umbrella of the African Continental Free Trade Area (AfCFTA) in collaboration with the African Export-Import Bank (Afreximbank) to facilitate intra-African trade of goods and services across the continent. One of PAPSS’s purposes was to create a harmonized system of payments where African traders could pay for intra-African transactions using their local currency. Before the launch of the PAPSS, African traders had to manage transactions using correspondent banks and external currencies such as the US dollar or the Euro.
The implementation of PAPSS is expected to reduce transaction expenses and expedite the processing of trade across the continent. By using this system, African businesses are expected to save up to $5 billion in transaction costs annually due to the instant and simplified payment models introduced by PAPSS. Further, the enforcement of PAPSS will potentially increase African exports by $560 billion and increase Africa’s income by $450 billion by 2035 according to World Bank estimates. PAPSS is set to expand to all five regions in Africa by the end of 2023. By the end of 2024, all central banks are expected to have joined the system, followed by all commercial banks by the end of 2025.
THE DIGITAL TRANSFORMATION WITH AFRICA (DTA) INITIATIVE
Launched on 14th December 2022 with a financial pledge of over US$800 million, the new Digital Transformation with Africa (DTA) Initiative is intended to build on the existing framework of the African Union’s Digital Transformation Strategy to expand digital access and literacy and strengthen digital enabling environments across the continent. The initiative, supported by the Biden-Harris Administration, will specifically harness Africa’s digital environment to boost trade relations between the United States and the continent.
This will be achieved through its core pillars of human capital development, digital enabling environment, digital economy and infrastructure. Firstly, by opening up new markets for exchange of commodities between the U.S. and Africa as well as facilitating seamless geographical integration, trade between the two regions is expected to rise further. Secondly, the initiative focuses on deepening partnerships not only between Africa and the U.S, but also with the African Diaspora, which will create a positive impact on trade through its annual remittances totalling nearly US$90 billion. Thirdly, the initiative’s investment in global infrastructure, including digital connectivity, under the Partnership for Global Infrastructure and Investment, will boost digital entrepreneurship and create countless job opportunities.THE FUTURE OF RESOURCE-RICH COUNTRIES IN AFRICA.
THE SINGLE DIGITAL MARKET (SDM) INITIATIVE
During the Dakar Financing Summit held in February 2023, the African Union, through its Single Digital Market (SDM) initiative, announced its plans of building a secured single digital market by 2030. With support from the World Bank’s Digital Economy for Africa (DE4A) initiative, the SDM aims to create a secure digital market across Africa alongside free trade areas on the continent. By doing so, the SDM will develop regional links to eliminate mobile roaming charges and consequently lower transaction costs.
Africa still lags behind other continents in terms of digital connectivity, as only one-third of its 1.2 billion population has access to the internet. In 2022, the Western and Central regions in Africa reported that only 34% of the population had access to broadband connectivity. Hence, the aforementioned initiative calls for financing and investment towards regional internet connectivity. The SDM initiative will enhance trade efficiency by promoting seamless communication between trade partners and ultimately opening up African markets to global trade value chains. This will consequently improve cross-border trade within Africa through information sharing and cost-effective regional services.
In conclusion, these notable initiatives, once fully implemented, will not only help enhance trade relations, but also curb Africa’s overdependence on foreign currency, promote regional value chains, and position the region as a significant global trading bloc. Effective implementation of these initiatives calls for coordination among all key stakeholders including African governments, African businesses, and external partners.
Gerald Kilimo and Martin Nkonge are Researchers at Botho Emerging Markets Group.