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AfCFTA’s success hinges on frictionless online trading environment

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 20 Jul 2022

The African Continental Free Trade Area (AfCFTA) is expected to uplift e-commerce and digital payments in Africa.

However, its success will largely hinge on governments stepping up their policies and frameworks to build a safe and frictionless digital trading ecosystem.

After six years of planning, strategy and coordination, the AfCFTA became effective on 1 January 2021. Now just 18 months since its inception, payments ecosystem players believe creating a conducive regulatory environment is the next critical hurdle – and probably the most difficult part of its implementation.

The AfCFTA is a free trade agreement among the 55 African Union nations. It is the largest in the world, in terms of participating countries, since the formation of the World Trade Organisation.

The agreement was established by the African Union and requires members to remove barriers to trade in Africa, such as removing tariffs from 90% of goods, allowing free access to commodities, goods and services across the continent.

Discussing how successful intra-African trade will be achieved on a continent with diverse central banking systems in over 2 000 languages and over 41 currencies, industry insiders are adamant new regulations and a common, single currency are among the requirements that will make it thrive.

Emmanuel Khisa, project manager of Smart Africa, tells ITWeb that while the organisation recognises that online selling would be a driving force of the AfCFTA, it also acknowledges the myriad of challenges faced by e-commerce and cross-border payments players on the continent.

Smart Africa, a partner of AfCFTA, is a network of 30 African heads of state and governments, including SA, that seeks to accelerate sustainable socio-economic development on the continent, through affordable access to broadband and ICT.

“Cross-border payments and the volatility of national currencies is one of the main challenges. E-merchants also face antiquated customs procedures, with long delays at borders; bad transport infrastructure for deliveries, which excludes most rural areas; national non-tariff barriers that discriminate against foreign firms (like tax regulations which distinguish between local firms and importers); the ‘digital divide’ which prevents many citizens from accessing the internet,” explains Khisa.

“We understand that some online businesses experience over 33% return rates due to insufficient addresses in most African countries. Differences in national laws (including the absence of basic consumer protection laws) prevent e-merchants from being able to trade on a level playing field.”

According to Khisa, new laws and policies introduced by governments should seek to bring together the national central banks, and envision the collaboration of private banks and switching systems, as well as e-commerce initiatives.

Onerous payments systems

The new policies should be premised on resolving challenges of fragmented digital trade-related regimes by establishing clear, coherent, transparent, predictable and mutually advantageous rules to govern digital trade among state parties, he adds.

“They should also create an expanded and secure digital market in Africa by establishing rules and regulations that promote consumer confidence and trust in digital trade.

“The AfCFTA Secretariat intends to draft a protocol on digital trade later this year. Smart Africa, as a partner of AfCFTA, is supporting this protocol development process. The issues to be covered include e-contacts, e-documentation for customs clearance, addressing systems and basic regulations on e-commerce, among other issues,” states Khisa.

Successful implementation of the AfCFTA could see 30 million people lifted out of extreme poverty, while raising the incomes of 68 million more, according to the World Bank.

Karen Nadasen, CEO of PayU South Africa, and chairperson of the E-commerce Forum South Africa, believes that, as with the North American Free Trade Agreement and the European Union’s free trade agreements, a common, or single African currency used by member countries will play an important role in making payments seamless.

Karen Nadasen, CEO of PayU South Africa, and chairperson of the E-commerce Forum South Africa.
Karen Nadasen, CEO of PayU South Africa, and chairperson of the E-commerce Forum South Africa.

“To create an environment for AfCFTA to thrive, African countries will need to look at implementing initiatives that make it less expensive and difficult to send money across borders, and look at the possibility of a centralised currency, similar to the euro in the EU region.

“Initiatives such as the Pan-African Payments and Settlement System and the work of Smart Africa on the Pan African Blueprint already point the way to easier and cheaper payment services within the continent.”

According to Nadasen, currently, legacy payment systems mean there are hundreds of ways for people to make and receive digital payments, which becomes onerous at a merchant level.

“The implementation of new policies, with respect to open banking will ensure banks work with payment service providers, switches, and ensure open APIs, transforming the banking sector within AfCFTA.

“Data protection policies will harmonise data protection. Companies will be required to implement more advanced data protection and cyber security measures to their organisation’s data infrastructure.”

The continent will also need robust infrastructure to deliver access, quality connection and good internet speeds, she notes.