By Rahul Bhatnagar, of Bhatnagar Advisers, and Julien Gourdon, Senior Economist at Agence Française de Développement
In February 2024, the African Union Ministers of Trade adopted the draft African Continental Free Trade Area (AfCFTA) Digital Trade Protocol. The Protocol seeks to establish a comprehensive legal framework for digital trade across Africa, and makes provisions for the treatment of digital products, data governance, consumer protection, emerging technologies, innovation, and more.
This is significant because digital trade, or e-commerce, offers major benefits for the continent’s economic and socio-economic development. A Google/IFC study estimated that the internet economy could add up to $180 billion to Africa’s combined GDP by 2025.
Read more: What’s holding back Africa’s digital trade revolution?E-commerce and the expansion of the digital economy can:
– help African micro, small and medium-sized businesses improve discoverability and expand their market reach within the regional African market;
-facilitate integration within the B2B segment;
-accelerate intra-African trade, which currently accounts for just 15% of total trade in Africa;
-help bridge the urban-rural divide and promote economic integration for landlocked areas, and;
-help entrepreneurs test and bring products to market.
Increasing mobility and a young, dynamic population are key factors in this growth trajectory, which will also depend on the scale and speed at which sectors like agriculture, education, financial services, healthcare and supply chains can digitise.
Despite these potential gains, Africa’s participation in e-commerce remains limited: the continent accounted for just 0.9% of global digital services exports in 2022.
Changing this requires overcoming several challenges.
At perhaps the most basic level, Africa’s policy makers often need help determining which policies to promote. They must manage multiple regulatory priorities while keeping on top of evolving technological and financial barriers, and business and market dynamics that progress at different rates.
Relatedly, there is a significant knowledge gap regarding the broader implications of e-commerce. Policy makers may hesitate to pursue harmonisation, fearing it could further widen the gap between less developed economies and countries like South Africa, Nigeria, and Kenya, which enjoy advantages in production, manufacturing, and trade relationships. But in areas like data sovereignty and localisation, the lack of a unified approach and the prevalence of fragmented, nationally focused laws risk undermining efforts to establish a cohesive African e-commerce market. The answer may lie in pursuing a phased approach to regulatory harmonisation coupled with capacity development at the national level.
Logistics, too, are a significant challenge. While more established e-commerce companies have invested in logistics, smaller ones are unable to provide services beyond several dozen kilometres. Even when companies partner with international couriers, uncertainty around border fees and customs clearance poses a significant problem. Cross-border returns are another sticking point. In the apparel and fashion sector, for instance, return rates can average around 30%. African customs authorities simply do not have the regulations and procedures in place to manage returns according to international best practices. A predictable, harmonised framework is needed for businesses to navigate cross-border logistics with ease.
Countries must also overcome cash dependency and the logistical problems that arise from cross-border cash transfers. New digital payment models are needed, and implementing them will require substantial technical upgrades to each African state’s e-commerce ecosystem.
Given these challenges, what are the ways forward?
Set policy priorities: AU policy makers must assess the gaps in their e-commerce ecosystems to determine which actions to take. Here they can leverage the African Union E-commerce strategy, adopted by the AU Ministers of Trade in 2024. It helps African economies identify the legal, technical, and capacity-related requirements necessary to implement the Protocol, and proposes a ‘menu’ of short- to medium-term measures and pilot ideas.
Participate in international and regional negotiations: These internal assessments must underpin discussions in multilateral fora with strong African participation. The perspectives and concerns of late e-commerce entrants must be heard and factored into wider negotiations on digital taxation and data governance, including data protection and cross-border data flows.
Update customs rules: Procedures are needed to ensure predictable and rapid clearance of B2C shipments. Legal harmonisation is essential if e-commerce businesses are to operate across Africa with confidence.
Improve cross-border payment infrastructure: While the development of payment infrastructure across Africa has continued at a brisk pace, further work is needed to address regulatory inconsistencies, high transaction costs, and limited technological interoperability. Strengthening regulations to combat money laundering and the financing of terrorism, promote adherence to international payment standards (e.g., SWIFT, ISO 20022), and expand the role of pan-African payment systems like the Pan-African Payment and Settlement System (PAPSS) are just some key areas of focus.
Today, the absence of comprehensive continental policy, strategy, and legal frameworks is preventing Africa from reaching its e-commerce potential. But the timing is right to synchronise solutions with the implementation of the AfCFTA. The draft Digital Trade Protocol and E-commerce strategy are positive steps, and demonstrate that the appetite for change is there.