Building capacity to help Africa trade better

2019 Conference of Ministers: Fiscal policy, trade and the private sector in the digital era – a strategy for Africa


2019 Conference of Ministers: Fiscal policy, trade and the private sector in the digital era – a strategy for Africa

2019 Conference of Ministers: Fiscal policy, trade and the private sector in the digital era – a strategy for Africa
Photo credit: Maria Gropa | UNESCO

The 52nd session of the Economic Commission for Africa and the Conference of African Ministers of Finance, Planning and Economic Development will be held in Marrakech, Morocco from 20-26 March 2019.

The fifty-second session of the Commission will focus on the theme of “fiscal policy, trade and the private sector in the digital era: a strategy for Africa”. The Conference of Ministers provides a suitable opportunity for African Ministers to examine the fiscal policies necessary for the implementation of the African Continental Free Trade Area within the frameworks of the 2030 Agenda and Agenda 2063 and the critical role of private sector in the era of the digital economy.

The Committee of Experts will commence on Wednesday, 20 March and end on Friday, 22 March 2019. The ministerial segment of the Conference of Ministers will take place on Monday, 25 and Tuesday, 26 March 2019. The plenary sessions of the Conference of Ministers will commence with a high-level policy dialogue on the theme for 2019, followed by plenary sessions on a series of sub-themes.

Contributions from seasoned and high-level panellists from within and outside Africa will guide the discussion, which will be informed by recent findings in the concept note and technical background materials towards building consensus on priority areas for action.

Inspiring discussions are anticipated to arise from 20th session of the Regional Coordination Mechanism for Africa (RCM-Africa) and a number of side events scheduled to take place on 23 and 24 March 2019.

Issues paper: Fiscal policy, trade and the private sector in the digital era

African countries have a little over a decade to achieve the 2030 Agenda for Sustainable Development, which aims to lift millions of Africans out of extreme poverty, reduce inequality and enhance sustainable development. However, despite fiscal reforms that raised revenue to gross domestic product (GDP) ratios to an average of above 15 per cent between 2000 and 2017, there remains a significant financing gap to bridge in order to meet the Sustainable Development Goals. Experiences across the globe demonstrate that fiscal policy effectiveness and efficiency can significantly benefit from digitization processes. African countries have the potential to increase tax revenues by between 3 per cent and 4 per cent, by bringing into the tax bracket the “hard to tax” sectors such as agriculture and the digital economy, and the informal sectors. The use of digital technology alone has the potential to raise fiscal revenue by a similar percentage.

The use of digital technology in revenue mobilization and management could potentially strengthen the capacity of African Governments to implement and monitor more effective tax and expenditure policies. Digital technology, especially in big data analytics, has the potential to increase revenue and improve tax administration through lowering the cost of compliance, lowering the cost of tax collection, and increasing compliance. Through big data analytics, revenue authorities can identify new sources of revenue, in addition to being able to deepen engagement with current and potential taxpayers, in a cost-effective way. In tax policy, the availability of detailed data could strengthen the policy and decision-making processes. Similarly, digital technology can enhance fiscal discipline in public expenditure through better monitoring, ensuring that expenditures are in line with budgets and are aligned with medium-term frameworks at the national level.

Indeed, digitization has the potential to widen the tax base by boosting growth and by facilitating private sector development and trade, including intra-African trade in particular. In 2011, digitization impacted the GDP of Africa by US$ 8.3 billion, in addition to creating over 600,000 jobs in Africa. Digitization provides important benefits and opportunities for Africa’s development. In particular, small and medium-sized enterprises, which are the backbone of Africa’s private sector and which employ over 70 per cent of the workforce, stand to gain from lower entry barriers to markets and value chains, as well as support services for trade, finance and logistics.

Digital applications are already being leveraged to promote innovation and entrepreneurship, including the empowerment of traders who are women and young people, and mobile and digital solutions are contributing to filling credit gaps, and offer possibilities for productive job creation for young people. Though important progress is being made, there is a need to increase public and private investment in the development of information and communications technology and related capabilities, to help overcome various challenges faced by trade and the private sector. There is also a need to adapt and harmonize legislation on technology, including intellectual property and data privacy, to rapid technological and social changes so as to maximize the benefits of digitization.

The digital economy, however, also presents several challenges that make it difficult for governments to collect revenue. It has certain distinct features, including the use of data, which in most cases is difficult to assign a value to; and the ability to conduct business without having a physical presence. Current tax policies in most African countries are aimed at a more traditional economy, and do not take into account the distinctive nature of the digital economy, resulting in loss of revenue for governments. Governments will thus need to rethink the current taxation frameworks, to accommodate the digital economy.

The aim of the present report is to articulate and frame key policy issues and imperatives for African Governments to address challenges and maximize the efficiency and effectiveness of fiscal policy in a digital economy, with special emphasis on the link between trade, the private sector and fiscal performance in a digital era. In particular, the present report analyses how fiscal policy can leverage digitization to increase revenue collection and management, the benefits of digitization to the economy and fiscal policy through private sector and trade, and the challenges of administering the current revenue frameworks in the digital era.

Assessing the status of regional integration in Africa

Regional economic communities continue to be the main building blocks of the African Union, as envisioned in the 1980 Lagos Plan of Action and the 1991 Abuja Treaty. The key objective of regional economic communities is to facilitate regional integration and cooperation through various activities and programmes, which has culminated in the establishment of the African Economic Community.

Despite having similar objectives, the regional groupings in Africa were established independently of each other and their integration processes have progressed unevenly. While some Regional Economic Communities have achieved tangible outcomes with regard to many of the dimensions of regional integration, others have continued to struggle to meet even the basic objectives of their respective treaties and the targets of the Abuja Treaty. Despite this heterogeneity in RECs regional integration processes, monitoring and evaluating progress on the levels of implementation of their integration agendas remain a priority for them and for the African Union.

Africa, in general, has registered remarkable progress in various dimensions and aspects of regional integration. Arguably, the historic signing of the treaty to establish the African Continental Free Trade Area (AfCFTA) in Kigali in 2018 has been the greatest achievement in the continents’ integration efforts in recent years. Beyond the establishment of AfCFTA, however, a number of impediments to regional integration continue to linger, including, among them, an infrastructure deficit, low levels of macroeconomic convergence and continued threats to peace and security.

The present paper contains an assessment of the current trends in regional integration in Africa, with a particular focus on progress in the areas of macroeconomic convergence; trade, investment and market integration; free movement of persons; infrastructure, including for landlocked countries within the framework of the Vienna Programme of Action; governance, peace and security; and mining.

Trade, Investment and Markets Integration

Trade, Investment and markets integration play a key role in promoting regional integration in Africa. The implementation of AfCFTA, whose key objective is to boost intra-African trade by forging a single continental legal regime, has potential benefits, including employment creation, industrial linkages, economic diversification and structural transformation, which would contribute to efforts to achieve sustainable development.

Many regional economic communities are making progress in their efforts to promote intra-African trade. The launch of AfCFTA in 2018 is an important milestone, as it provides African countries with a safeguard mechanism in an era dominated by uncertainty following the rise of protectionism. The tables below show some trends in African exports and imports over the period 2010-2017.

The continent continues to trade more with the outside world than internally, with the European Union holding the largest share of exports from Africa, which exceeded an average of 30 per cent from 2000 to 2017.

Only the Arab Maghreb Union (AMU), the Community of Sahel-Saharan States (CEN-SAD) and ECOWAS, have continued to import more from the European Union than from Africa. EAC and SADC have increased their intra-community trade, registering an annual average of 17 and 16 per cent, respectively, during the period under review.

E-commerce, digitalization and integration in Africa

E-commerce has become a key area of interest for governments because of its impact on economic growth and sustainable development. The General Assembly has committed to harnessing the potential of information and communications technologies (ICT) towards achieving the 17 Sustainable Development Goals. The digitalization of economies presents opportunities and challenges for many countries. Shifting from traditional forms of trade to e-commerce can contribute towards lowering transaction costs and the remote delivery of goods and services. It can also spur innovation and job creation. A well-known example of this in Africa has been the emergence of mobile money solutions from which services have been extended to previously unbanked areas.

Worldwide e-commerce sales in 2015 reached $25.3 trillion, 90 per cent of which were in the form of business-to-business e-commerce and 10 per cent in the form of business-to-consumer sales. The cross-border business-to-consumer e-commerce in 2015 was estimated at $189 billion, with some 380 million consumers making purchases on overseas websites. However, e-commerce is hard to measure, and few developing countries can collect e-commerce data and statistics. The International Telecommunication Union estimates that only 18 per cent of African households had access to the Internet at home in 2017 and, on average, there are only 26 active mobile-broadband subscriptions per 100 inhabitants in Africa.

The continent is still lagging with respect to the indicators Cognizant of the growing importance of e-commerce, countries and regional groupings, with support from bilateral and multilateral partners, such as ECA, have been developing strategies and adopting policies to deal with issues related to e-commerce. The African Information Society Initiative, launched by ECA in 1996, was instrumental in developing a comprehensive regional ICT network, which contributed to the adoption by many countries of national information and communication infrastructure plans and strategies.

Some countries have made progress in implementing e-commerce projects. For example, Egypt set a national e-commerce strategy at the end of 2017 to support efforts to expand the country’s expanding digital economy and to carry out the implementation of the 2030 Agenda. Similarly, South Africa framed a policy debate around e-commerce in a document issued in 2000 entitled “Green paper on electronic commerce for South Africa”. That paper is not a policy document, as it was designed to serve as a consultative document and to raise awareness on issues that needed to be addressed during the government policy formulation processes. In it, the benefits that can be gained from e-commerce through the implementation of successful strategies and the contribution that e-commerce can contribute towards the achievement of sustainable socioeconomic growth are highlighted.

Overview of the recent economic and social development performance of Africa

Recent economic developments in Africa

As compared with 2017, economic growth in Africa declined slightly from 3.4 to 3.2 per cent in 2018. Strengthening global demand and a moderate increase in commodity prices, sustained investment in infrastructure, higher oil prices and production, particularly from new fields, strong private consumption and favourable weather conditions are key factors supporting the economy.

Some of the largest economies in Africa, such as Angola, Nigeria and South Africa, are rebounding on the back of private consumption, but their levels of economic growth remain relatively low. Growth in non-resource rich countries, such as Cote d’Ivoire, Ethiopia, Kenya and Senegal remains strong, driven largely by high public investment, especially in infrastructure. The projected GDP growth rate of 3.2 per cent is not sufficient to achieve the Sustainable Development Goal, including Goal 1 of eradicating poverty.

Africa needs to accelerate its rate of growth to double-digit figures between now and 2030 by increasing the level of investment to 30 to 35 per cent of GDP and substantially improving productivity. Investment is currently 25 per cent of GDP, much lower than that of East Asian and the Pacific economies, which were about 32 per cent in 2017. Productivity growth remains low relative to the rest of the world, and is below the levels needed for the continent to speed up economic diversification and enhance its competitiveness in the world market. African countries must embark on reforms that would help build resilience, raise potential growth and inclusiveness and contribute towards the achievement of the Sustainable Development Goals.

Accordingly, it is important to note that despite the uptick in growth since the commodity price-slump that commenced mid-2014, the per capita growth rates of the subregions of Africa have been below their population growth rates. In 2017, North Africa was the only subregion in which its population growth rate, 1.8 per cent, was below the subregion’s per capita growth, standing at 4.8 per cent. However, if Libya is excluded, the subregion’s growth rate was only 1.4 per cent, putting North Africa in line with the rest of the African subregions of reporting an economic growth rate that was less than their population growth rate. This indicates the need for African countries to enhance efforts to finance programmes that would further strengthen economic growth to accommodate population growth. Any effort related to this should be coupled with activities aimed at making government expenditure more efficient through improved public financial management and efficient allocation of expenditures. Specifically, in Africa, there is a need to widen fiscal space by enhancing resource mobilization through effective tax policy and administration and widening the tax base.

Narrowing current account deficits as exports from Africa pick up

Current account deficits continued to narrow in 2018, to 3.1 per cent as compared with 3.9 per cent in 2017, underpinned by shrinking current account deficits in oil-exporting and mineral-rich countries. Those countries have benefited from the increase in oil and commodity prices and oil production. The continent’s largest oil exporters, Angola and Nigeria, recorded improved current account balances. However, some countries, such as Mauritania, Mozambique, the Niger and Seychelles, reported widened current account deficits because of increased demand for capital imports, high fuel prices, especially in oil-importing countries, high price of food imports and increased interest payments on government debts.

Merchandise exports in Africa increased in 2017, after slowing for four consecutive years, as global exports increased by 10.6 per cent, the largest increase since 2012. Exports expanded globally in 2017, with Africa registering the highest increase of 18.3 per cent compared to the Americas, Asia and Europe. The expansion in African exports was mainly on the back of higher commodity prices, and investment and consumption expenditure. As a result, the continent’s share of total world exports increased from 2.2 per cent in 2016 to 2.4 per cent in 2017.

The increase in export receipts has helped to stabilize the level of foreign reserves in Africa. As a percentage of GDP, reserves increased from an average of 6.8 per cent in 2017 to 7.1 per cent in 2018, underpinned by economic growth in oil-exporting countries. In general, however, reserves remain below the levels before the decline in commodity prices in 2014.

Intra-African trade remains more diversified and industrialized

Primary commodities and raw materials still represent the lion’s share of merchandise exports from Africa. Fuels alone accounted for 39.4 per cent of the value of the continent’s total exports in 2017. The share of manufacturing exports of total exports from Africa has remained relatively stable over time. It ranged between 24.3 per cent in 1996 to 26.2 per cent in 2016 and then decreased slightly to 23.9 per cent in 2017. Over the period 2015-2017, on average, South Africa, Nigeria and Algeria were the top African exporters to the rest of the world.

In contrast, merchandise imports to Africa paint a considerably different picture, with total manufactured goods representing 66 per cent of total merchandise imports in 2017, most of which were imported from the rest of the world. This is a reflection of the continent’s comparatively low technology base, low productivity and continued dependence on external partners to meet its industrial needs.

Regarding intra-African trade, it is important to note that three quarters of African exports to African partners are concentrated in only 13 African countries, with South Africa alone capturing about 45 per cent of that share. Over the period 2015-2017, South Africa was the leading exporter to other African economies of food items, ores and metals, and machinery and transport equipment, accounting for shares of 28.9, 25.4 and 60.2 per cent, respectively. Eswatini was the leading exporter of raw agricultural materials, averaging 20.1 per cent of total exports in that sector, and Nigeria was the leading exporter of fuels, averaging 30.7 per cent.

When reviewing imports from African partners, the picture tends to be relatively less distorted, as 19 African countries are the recipients of three quarters of intra-African imports. As with exports, South Africa had the largest share, however, its domination in intra-African imports is considerably less pronounced. On average, over the 2015-2017 period, South Africa was the leading intra-African importer of food items, agricultural raw materials and fuels, Zambia was the leading intra-African importer of ores and metals and Namibia was the leading intra-African importer of machinery and transport equipment.

Intra-African services exports increased from $95.7 billion in 2016 to $109.1 billion in 2017, with travel, transport and other business services being the most predominant exports, accounting for 44.4, 28.3 and 14.4 per cent of the continent’s total services exports in 2017, respectively. This supports the call for trade policies aimed at enhancing the performance of the services sector, especially modern services, that have proven to have a significant impact on both developed and developing countries’ productivity. Regulatory frameworks are needed for the services subsectors that comprise a greater proportion of the sector’s exports, such as travel and transport, to boost the performance and productivity of those sectors through increased and fair competition.

Establishment of the African Continental Free Trade Area

Taking into account, the characteristics of trade in Africa discussed in the previous paragraphs and the current uncertain global context, deepening regional integration in Africa is becoming more and more necessary. Empirical analysis conducted by the Economic Commission for Africa (ECA) indicates that the establishment of AfCFTA could help boost intra-African trade and its industrial content, thereby contributing significantly to the transformation and development of Africa.

It is expected that AfCFTA would also attenuate the domination by the largest economies of Africa of the intra-African market. Indeed, the ECA analysis shows that all countries would benefit from trade expansion following the removal of tariff and non-tariff barriers within the continent and that least-developed countries would likely reap the most benefits in relative terms, especially with regard to expanding industrial exports.

The emergence of mega-regional trade agreements being negotiated without Africa could negatively affect the continent’s trade performance. Some examples of those agreements are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, signed on 8 March 2018 in Santiago, and the Regional Comprehensive Economic Partnership, which is expected to be signed soon.

In that context, the AfCFTA reforms – on which Africa has full control – can be seen as powerful tools that could help mitigate the possible negative effects from external shocks on African economies. They can also contribute towards enhancing the continent’s trade performance by making African economies more competitive and enabling the development and upgrading of regional value chains that can assist African countries in integrating into global value chains.


Email This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel +27 21 880 2010