The African Continental Free Trade Area (AfCFTA) is a game-changing initiative by African countries to form a trade pact that progressively eliminates tariff and non-tariff barriers such as customs delays and creates a liberalised market for free movement of goods and persons.

The central objective of this treaty is to bring about a fundamental restructuring of the economies of African States through greater integration and easy access to an expanded market of 1.2 billion people, and in the process, achieve the kind of growth that translates into a higher standard of living for people on the continent.

Typically, trade agreements are negotiated and implemented in phases and AfCFTA is following the same process for implementation. Phase one negotiations cover Protocols on Trade in Goods, Trade in Services, and Rules and Procedures on the Settlement of Disputes whereas phase two negotiations are in respect of Protocols on Intellectual Property Rights, Investments, and Competition Policy. Negotiations of the E-commerce Protocol will be covered in phase three.

According to a report by the World Bank, AfCFTA has the potential to boost regional income by 7% or $450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035. Wages for both skilled and unskilled workers will also increase by about 10 per cent.

AfCFTA promises to improve the lives of women who, according to the Economic Commission for Africa, account for around 70 per cent of informal cross-border trade in Africa. It is safe to conclude that almost all of Africa’s informal businesses are micro-enterprises.

Micro enterprises are defined as having less than 10 employees with $100,000 or below in assets and in annual turnover. There are 44 million registered micro enterprises on the continent and an estimated equal number or more operate in the informal economy. This article focuses on how the upcoming AfCFTA protocol on E-commerce can leverage instant and inclusive digital payments to address the unique challenges of Africa’s micro-enterprises.

E-commerce Definition

The definition of E-commerce that will be adopted by the AfCFTA protocol on E-commerce can potentially include or exclude all or some of Africa’s micro-enterprises.

The Organization for Economic Co-operation and Development (OECD) defines E-commerce as “The sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders”.

This definition is restrictive and inapplicable in the African context where infrastructure is undersupplied and end-to-end processing of transactions in a digital environment from order to fulfilment is not always possible.

There are widespread E-commerce use cases in Africa in which transactions are initiated online but delivery, fulfilment, or payment is achieved offline. In some other use cases, the order is placed offline, but the delivery, fulfilment or payment is achieved online.

Given that mobile money, payments are predominantly carried out using USSD connectivity mode, any definition of E-commerce that includes end-to-end processing of transactions over the internet may automatically exclude the majority of Mobile Money users and mobile money payments for goods and services.

The most popular definition of E-commerce is that of the World Trade Organization (WTO) which says that E-commerce is “the production, distribution, marketing, sale or delivery of goods and services by electronic means”.

Thus, the WTO definition qualifies any transaction to be E-commerce if any one of the processes from production to delivery is achieved in an online environment.

This definition also takes a broader view of the term “online” to include the USSD network and not the internet only.

It is recommended that the upcoming E-commerce protocol takes a broader view of the definition of the term and includes instant and inclusive payment channels such as mobile money to ensure the inclusion of Africa’s formal and informal micro-enterprises.

Formalizing Africa’s Informal Micro Enterprises

The causative factors of Africa’s informal micro-enterprises are many and varied and, in some cases, deep-rooted and underpinned by cultural beliefs that are not progressive.

Some of the often-mentioned bottlenecks include unsuitable legal, regulatory, and policy frameworks and at a micro-level, low level of education, social exclusion, poverty, and exclusion from the formal financial and economic resources.

Some of these root causes can be addressed with legislation and the AfCFTA protocol on E-commerce should particularly encourage African countries to enact specific legislation simplifying registration and regulatory requirements for new firms, simple tax systems including electronic payment of taxes.

The International Monetary Fund (IMF) notes that policies that have been found to be effective in formalizing the informal sector include among other things, increased access to formal financial and economic resources and leveraging mobile money and digital payments.

An AfricaNenda report on instant and inclusive payment state that “In 2020, the African continent accounted for most of the growth in registered mobile money accounts globally with sub-Saharan Africa alone registering 59 million new accounts representing 43 per cent of the global total.” Available data suggest that there are now 562 million registered mobile money accounts in Africa.

The continent also accounts for $495 billion in transactions value representing 65 per cent of the global total. Mobile money account penetration beats traditional bank accounts at a ratio of 2:1.

 There is significant traction with instant and inclusive payment systems such as mobile money platforms on the continent. There are also other fast-growing instant payment platforms provided by fintechs all of which mandate minimum KYC registration for access.

The regulatory requirements for account opening must be structured to mitigate the risk of exclusion, be affordable and made progressively easy with increased digital identification.

The AfCFTA E-commerce protocol must not lose sight of the need to leverage the mobile money and payment revolution to achieve inclusion and formalization of Africa’s informal economy.

Cross Border Payment Platform Interoperability

From the days of barter to cash and now electronic payment channels, payment has always underpinned trade and AfCFTA is no exception.

The AfCFTA protocol on E-commerce should set the agenda for seamless cross border payment to drive cross border trade and rally countries around the goal of creating the regulatory environment for a continent-wide mobile money platform interoperability.

Practically, this will mean that a micro-enterprise operating in Ghana can import onions directly from Niger and make payments using mobile money to credit the account of the exporter in Niamey.

Aside mobile money platforms, 19 of the 55 African economies are either operating or in the process of developing an active national instant payment system. The goal of the AfCFTA protocol on e-commerce should be to promote interoperability across all instant and inclusive payment platforms on the continent and consequently, drive AfCFTA’s future success and achievement of the laudable objectives of the new free trade pact.

AfCFTA is providing Africa with renewed hope for a future of economic prosperity. This hope is equally shared by Africans and even others outside the continent.

Implementation of the AfCFTA agreement is reportedly going well and progress is being made with the negotiations.

Phase two negotiations on Intellectual property Rights, Investments, and competition policy are currently ongoing. We await the start of phase three negotiations on E-commerce, and we look forward to seeing some of the issues highlighted in this article in the agreement. 

AfCFTA remains an important tool to create a liberalised trade regime and economic integration for Africa’s prosperity.

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Stephen Kemetse is a payments consultant and business manager with practical digital financial services; Cash Management and Trade product experience. He designs and implements digital financial services solutions to transform customer engagement, reduce operational cost, mitigate payment risk, automate, and improve processes and provide visibility and control in the payment processes at executive level.