Building capacity to help Africa trade better

How might Africa benefit from e-commerce technology?


How might Africa benefit from e-commerce technology?

How might Africa benefit from e-commerce technology?

World trade has entered a new mode; one that is to international trade what the ‘fourth industrial revolution’ is to traditional manufacturing. Digital tools now make it possible for a micro enterprise based on one side of the globe to sell even low value items to a customer on the other side, with minimal transport cost markups. Never before have retail markets been more contestable and accessible than now, there is a sense in which retail has been ‘democratised’ in the same way that digital music tools democratised the music industry at the start of the 21st century.

Underlying this revolution is ‘e-commerce’ – technologies that put marketing, communicating, transacting and customer service into the virtual domain and greatly reduce costs. The trade that relies on the e-commerce infrastructure is known as ‘e-trade’ and it has huge potential to contribute to the participation in modern markets even by micro entrepreneurs and the market activities that exist on the fringes of the formal economy. Enter the era of the ‘micro-multinational’ enterprise – millions of micro businesses distributed globally and connected to their clients only by means of internet technology. A quantum leap in trade has clearly been made, not one dominated by large, scale-economy driven multinational but rather the micro enterprise connected to a global market via a sales portal and international payments gateways.

How might Africa benefit from these new trade modes? Africa largely does not have the brick and mortar establishments that are the main victims of the disruptive effects of new e-trade methods and markets. Instead it can build into an existing technological market framework and benefit from the relative maturity of the electronic trade sector. This is analogous to how Africa leapfrogged the fixed-line phase in connectivity and went directly to feature phones and now smartphones.

Besides the obvious requirement for reliable internet connectivity, e-commerce requires secure payments gateways, reliable shipping & postal services and an effective customs and excise service. The first item has been taken care of – multinational e-commerce portals already exist and only require integration with a domestic payments system. In fact, Africa’s leader in mobile payments – Kenya’s M-PESA service – has already shown the rest of Africa the way by integrating its service with global electronic payments giant, PayPal. In April this year, the Safaricom ISP in Kenya announced the initiative, which will allow two-way transfers of funds, allowing Kenyan businesses and consumers to both buy and sell internationally. Not even South Africa, which in other respects is Africa’s ICT leader, has progressed this far.

When it comes to the other two items mentioned above – reliable shipping & postal services and an effective customs and excise service – these certainly require attention in many African nations. This refers to countries where institutional limitations and infrastructure challenges inhibit shipping effectiveness and customs processes are often slow and corruptible. E-Trade also requires penetration of mobile devices among the economically active population but Africa’s rate of progress here continues to impress.

A large proportion of e-commerce actually involves no exchange of physical product but rather a payment for services. Software, cloud services, hosting, offshoring, online outsourcing, business consulting, digital design and media are just some of the 21st century services bought and sold in the digital space. There are now no borders to this market, only a requirement for bandwidth, data and a payments mechanism. The classic success story in the field of digital services trade is that of India, which is the largest exporter of ICT services in the developing world. However, there are many smaller and localised success stories too, down to the micro enterprise providing software or web development services via electronic freelancing portals such as fiverr.com. According to the World Bank, exports of ICT services as a proportion of the balance of payments from sub-Saharan Africa (SSA) grew by 50% between 2006 and 2014, indicating that Africa is rapidly getting on board with digital services trade. Africa also boasts more than 300 tech hubs – nodes of technological innovation – in countries as diverse as Senegal, Uganda, Tunisia, Ghana, Egypt, Kenya and South Africa. These tech hubs produce innovations that make possible new digital services trade in the domestic, African and international markets. If Africa could create a Thawte success story, it can certainly create more digital services export successes in the future.

Africa therefore has only a few boxes left to check before it can consider itself well prepared to exploit the potential of e-trade technology. The entrepreneurial flair that Africa is well known for could therefore soon find new expression and outlet in a globalised electronic trading world.

About the Author(s)

John Stuart

John Stuart is an economist and policy analyst with special interests in trade, economic integration, technology & ICT and economic modelling. He began his career in academia at Rhodes University and later the University of Cape Town, after which he entered private consulting first with AFReC (Pty) Ltd and subsequently with management consultancy PBS (Pty) Ltd, where he served as Chief Operations Officer. Following his time at PBS he created agri-tech startup AgriDrone, one of the first UAV startups in Africa. He has subsequently researched and written extensively for tralac and also consulted to various organisations including the UN Economic Commission for Africa and the OECD. He holds an M. Com degree in Economics from the University of Natal (Durban).

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