Digitization: Facilitating the implementation of AfCFTA
Africa Connected: Issue 6
The African Continental Free Trade Agreement (AfCFTA) is an agreement among African Union (AU) Member States who have signed and ratified the agreement, to create a single liberalized African market. The combined African market (GDP) of the 55 Member States is valued at USD3.4 trillion with a population of 1.3 billion people, the majority of which are youths and women.1
AfCFTA represents a potential turning point for the African continent, as it could deepen, transform and accelerate intra-African trade and consequently promote Africa’s global market position by unifying the continent under one voice, especially in the space of global policy trade negotiations. The establishment of a unified African market creates a cooperative and collaborative environment that facilitates trade, movement and overall accessibility to African markets, goods and services, firstly, by regulating the export taxes and duties charged and secondly by facilitating the movement of supplies and people.
AfCFTA is aligned with Agenda 2063. Agenda 2063 is the AU’s blueprint for transforming the African continent into a global player that prioritizes and actively and strategically invests in inclusive growth and sustainable development, good governance, the rule of law, African peace and security, and a united and common African cultural identity. Pursuant to Agenda 2063, the AU intends to create platforms of empowerment and utilize the power of a united Africa to accelerate the continent into being a resilient global player and partner.2 One of the aspirations of Agenda 2063 correlates with the objectives of AfCFTA; namely, a continental market that enables the free movement of people, capital, goods and services.3
At present, 54 of the 55 AU Member States have signed the AfCFTA, and as at February 2021, 36 AU Member States had deposited their instruments of ratification.4
Can digitization provide solutions to facilitate the implementation of AfCFTA?
Digitization and the use of technology presents a major opportunity for the African continent in the implementation of AfCFTA. Pre-existing challenges in the nature and extent of infrastructure on the continent can be avoided. Efficiencies can be leveraged. Innovative solutions suitable to the African continent can be harnessed.
The point was recently demonstrated by the global COVID-19 pandemic, which caused most of the world to close its borders and limit the movement of people and in some cases, goods, ultimately delaying the operational commencement of trading under AfCFTA. However, the pandemic resulted in a societal shift to digital platforms and an online world, which is now a way of life for many.
Inclusive digital technology and value chains will be key to integrating African countries into one major market and scaling up the movement of goods and people, and an opportunity to mobilize African youths into self-employment. In this regard, while the rest of the world faces an aging population, Africa has the most youthful population in the world, accounting for an approximate 20% of the world’s youth. Africa’s youth bulge is predicted to grow exponentially over the coming years.5
African youth maintains a solid presence in digital innovation. The ability of the youth to champion digital migration was demonstrated recently in the development of the “Stop Corona” contact tracing App developed by El Hacen Dia, Mamadou Dia, Aliou Dia and Abdellahi Dia from Mauritania and other homegrown African innovations for tackling COVID-19.6
In African countries where economic resilience must be strengthened, jobs must be created and entrepreneurship must be facilitated, digitization and AfCFTA provide tools to these ends.
At present, Africa does not have one uniform currency.
The ambitious trade objectives of AfCFTA present an opportunity for the use of cryptocurrency to facilitate the ease of trade across the territories of state parties – without the need to implement a uniform African currency.
Cryptocurrency can be used for the reliable flow of funds that can fast track economic activity and efficiency, without the limits of geographic boundaries and without the expense of structures required by the traditional banking system. It can also mitigate the trade effects of fluctuating exchange rates, which sometimes adversely affect emerging markets and cross-border trade.
Financial technology and digital currency can reduce the waiting time for implementation of cross-border transactions, which results in efficiencies for businesses and better service delivery to consumers.7 Cryptocurrencies can be developed in light of the needs of a particular market. There are many different cryptocurrencies with different design goals.8 However, cryptocurrency will likely only be relied upon by mainstream corporate players if it is properly regulated. Regulation (and not over-regulation) should be considered by the AU members states soon, in order to facilitate intra-African trade.
Digital passports will facilitate ease of movement for people across states that are members of AfCFTA.
The global transition to digital passports has been taking place since 2005. As of mid-2019, more than 150 states around the world have begun issuing digital passports.9 Electronic passports have a microprocessor which stores a digital version of what would be found in a paper passport. It also stores digital versions of identity photographs and can store digital fingerprints, referred to as a “biometric passport.”10
Countries such as South Africa have already seen the efficient transitioning to smart identity documents (Smart ID), although not yet digital passports. The adoption of Smart ID, launched in July 2013, has enhanced government department efficiency and citizens’ access to government services through faster turnaround time, reduced fraud and fortified identity theft protection due to high levels of security and a superior data protection mechanism.11
The transition from paper to digital passports requires robust technology infrastructure to mitigate identity theft and fraud. It will require a dual smart- and paper-based system from government departments at border entry ports but in the long-term, the smart system can be adopted alone.
Although officially launched in 2016, the roll-out of the AU passport is expected to take place during 2021 at the earliest. The aim of the passport is to exempt AU passport-holders from the need to obtain visas for all of the 55 Members States. This again ties into the objectives of AfCFTA and Agenda 2063 to aspire to one integrated Africa and African people. Provided the necessary measures are implemented to secure data, the implementation of a digital African passport provides a great opportunity to promote the objectives of AfCFTA and Agenda 2063. The introduction of modern data privacy laws in Member States will be an important protection mechanism to facilitate the use of digital passports.
A digital passport can also be used to record and manage whether travelers have been inoculated against diseases such as COVID-19 and yellow fever, thereby reducing the health risk that is associated with the movement of persons across country borders, and facilitating the ease of entry into African countries.
Facilitating the movement of goods
Supplying goods across borders is a major hurdle for African cross-border trade. Digitization can facilitate the movement of goods and ensure adherence to proper checks and balances.
Specification management requires quick, on-hand information, which can only be achieved through digitizing and digital mapping of data from all supply chain points. This allows the live monitoring of the movement of the supply and its current state, allowing one to adapt the conditions digitally, communicate with stakeholders at the said key point or location and mitigate financial loss and or wastage.
Facilitating collection of export taxes
The export taxes chargeable pursuant to AfCFTA can be recorded, levied, collected and otherwise managed through digital systems.
Digital supply chain systems can potentially link into the system of the revenue service of each country. This will facilitate collection of export taxes and duties and can improve efficiencies and limit corruption, although state parties will need to invest significantly in technological solutions and the necessary IT infrastructure upgrades.
The Southern African Development Community12 (SADC) has in place a Protocol on Trade (SADC Protocol).13
Similar to AfCFTA, the SADC Protocol was established to be a stepping stone in intra-African trade. The government of the Seychelles, for example, stated that its reintegration into SADC and ascension into the SADC Protocol, which adheres to World Trade Organization rules, provides for predictability for business through more harmonized trading conditions and regional supply and economic linkages.
South Africa has displayed its active commitment to be a part of AfCFTA, through the deposition of its ratification instrument, and its active plans to incorporate AfCFTA objectives into legislation. For example, the South African Revenue Service (SARS) has expressly stated that the coming into force of AfCFTA will have an impact on its legislation such as the Customs and Excise Act, 1984, systems, customs operations and training of officers.14
SARS has already started implementing certain of the mechanisms in AfCFTA. Companies from African countries that have ratified AfCFTA and whose tariff offers have been accepted and published according to domestic legislation, will receive preferential imports from South Africa.15 SARS is also facilitating education and up-skilling on the AfCFTA by holding technical workshops until June / July 2021 for entrepreneurs and all stakeholders who will be exploiting the opportunities under AfCFTA.
Various other systemic and administrative mechanisms are being put in place by the South African ministries to efficiently accommodate natural and juristic persons who will be trading under the AfCFTA.
The Finance Minister of Namibia has stated that Namibia’s customs administration will be an integral part of the domestication and implementation of AfCFTA. The minister went on to say that the customs administrations would be agile and dynamic. Some of the initiatives anticipated are the introduction of a new clearing agent and risk management policies, the establishment of the container control program and an electronic data interchange center. The use of technology, and by inference digitization, is anticipated to be an integral part in the adoption of these new policies and their consequent efficiencies.
Zambia ratified and deposited its instrument to the Agreement in 2021, being one of the most recent AU Member States to do so. Zambia has established a national AfCFTA strategy which will serve as the compass in its implementation. A World Bank Group report assessed Zambia’s strengths and weaknesses with respect to digitization under five categories; namely, digital infrastructure, digital skills, digital entrepreneurship, digital platforms and digital financial services.16 While substantial population migration towards digital platforms was noted, there were also gaps that were highlighted in digital skills and digital entrepreneurship. A skill gap in terms of the government’s ability to develop, maintain and use digital systems was also noted.
Zimbabwe has also acceded to AfCFTA. In October 2019, a two-day workshop was held in Harare to validate the country’s national AfCFTA strategy. The Permanent Secretary of the Ministry of Foreign Affairs and International Trade stated that it is anticipated that the AfCFTA will reinforce sustainable intra-African value chains, promote Zimbabwe’s economic diversification and bridge skill gaps, imploring the private sector to take advantage of and exploit the opportunities that come with the Agreement.17
The opportunity is there for the taking and in a post-COVID-19 economy, stakeholders must leverage all tools available to stimulate economic growth and development.
In 2017, only 17% of trade in Africa was intra-African trade, while intra-regional trade in regions such as Europe and Asia exceeded 50%. The difference is staggering.
It is estimated that the implementation of AfCFTA has the potential to boost intra-African trade by 52% by 2022.18 AfCFTA also provides greater opportunities for the 15 landlocked African countries, which are occupied by 17% of the total African population and only 7% of GDP.19 The positive knock-on impact for other African states is obvious.
However, digitization does not come without its own exigencies. Continuous investment and development in the establishment, maintenance and upgrade of digital infrastructure and technology has the potential to exponentially accelerate the objectives envisioned by AfCFTA. Training and upskilling will be necessary in the public and private spheres.
Data privacy and cybersecurity will need to be managed carefully. Harmonized policy-making, accountability structures and some regulation of digitization will be helpful in providing reliable and credible systems that business can then rely upon, regardless of the jurisdiction.
While the timelines for implementation of AfCFTA are tight, there is no doubt that this is achievable if the African state parties work together towards the same objectives and more so if they leverage the opportunity presented by digitization.
By Kirsty Simpson (Partner) and Mathabo Mohwaduba, DLA Piper Advisory Services (Pty) Ltd.
This article forms part of Africa Connected: Digital transformation trends and challenges:
2Goals & Priority Areas of Agenda 2063, African Union(accessed March 2021).
3Preamble of the Agreement Establishing the African Continental Free Trade Area.
4The AU Member States that have deposited their instruments of ratification are Angola, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Côte d’Ivoire, Egypt, Eswatini, Ethiopia, Equatorial Guinea, Gabon, Gambia, Ghana, Guinea, Kenya, Lesotho, Malawi, Mali, Mauritania, Mauritius, Namibia, Niger, Nigeria, Republic of Djibouti, Rwanda, Sahrawi Arab Democratic Republic, São Tomé & Príncipe, Senegal, Sierra Leone, South Africa, Togo, Tunisia, Uganda, Zambia and Zimbabwe.
5“According to the United Nations, 226 million youth aged 15-24 lived in Africa in 2015 representing nearly 20% of Africa’s population, making up one fifth of the world’s youth population. If one includes all people aged below 35, this number increases to a staggering three quarters of Africa’s population. Moreover, the share of Africa’s youth in the world is forecasted to increase to 42% by 2030 and is expected to continue to grow throughout the remainder of the 21st century, more than doubling from current levels by 2055.” Available here (accessed March 2021).
6Africa Innovates Magazine
7Can cryptocurrencies make the AfCFTA more efficient? (accessed March 2021).
8“Cryptocurrency market. Growth, Trends and Forecast (2020-2025)”. (accessed March 2021).
9Electronic And Biometric passports (accessed March 2021).
11THALES (accessed March 2021).
12Angola, Botswana, Comoros, Democratic Republic of Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia and Zimbabwe.
13Southern African Development Community Trade Protocol.
14Agreement Establishing The African Continental Free Trade Area (AfCFTA) (accessed March 2021).
16World Bank. 2020. Accelerating Digital Transformation in Zambia : Digital Economy Diagnostic Report. World Bank, Washington, DC. © World Bank (accessed March 2021).
17Zimbabwe expects positive transformation of its economic landscape with full AfCFTA implementation (accessed March 2021)
19Above at Note 2.