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

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 doing so, to achieve the kind of growth which results in a higher level. of life for the inhabitants of the continent.

Typically, trade agreements are negotiated and implemented in phases and the AfCFTA follows the same implementation process. Phase one negotiations cover protocols on trade in goods, trade in services and dispute settlement rules and procedures, while phase two negotiations cover protocols on intellectual property rights, investment and competition policy. The e-commerce protocol negotiations will be covered in phase three.

According to a World Bank report, the AfCFTA has the potential to increase regional incomes by 7% or $450 billion, accelerate women’s wage growth and lift 30 million people out of extreme poverty by 2035. Wages of skilled and unskilled workers will also increase by around 10%.

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

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

Definition of e-commerce

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

The Organization for Economic Co-operation and Development (OECD) defines electronic 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 orders “.

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

There are many use cases of e-commerce in Africa where transactions are initiated online but delivery, fulfillment or payment is done offline. In some other use cases, the order is placed offline, but the delivery, fulfillment, or payment is done online.

Since mobile money payments are primarily made using the USSD mode of connectivity, any definition of e-commerce that includes end-to-end processing of transactions over the Internet can 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”.

Thus, the WTO definition qualifies any transaction as electronic commerce if one of the processes, from production to delivery, is carried out in an online environment.

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

It is recommended that the next protocol on e-commerce 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 formal and informal micro-enterprises in Africa.

Formalizing informal African micro-enterprises

The causes of informal African micro-enterprises are many and varied and in some cases deeply rooted and underpinned by cultural beliefs that are not progressive.

Some of the oft-cited bottlenecks include inadequate and micro-level legal, regulatory and policy frameworks, low levels of education, social exclusion, poverty and exclusion from formal financial and economic resources.

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

The International Monetary Fund (IMF) notes that policies that have proven effective in formalizing the informal sector include, among others, increased access to formal financial and economic resources and the exploitation of mobile money and digital payments.

A report by AfricaNenda on instant and inclusive payment states that “in 2020, the African continent accounted for the bulk of the growth in registered mobile money accounts globally, with sub-Saharan Africa alone registering 59 million new accounts representing 43% of the global total”. Available data suggests that there are now 562 million registered mobile money accounts in Africa.

The continent also accounts for $495 billion in transaction value, or 65% of the global total. Mobile money account penetration beats traditional bank accounts by a ratio of 2:1.

Instant and inclusive payment systems such as mobile money platforms on the continent are enjoying strong traction. There are also other fast growing instant payment platforms provided by fintechs which all require a minimum KYC record for access.

Regulatory account opening requirements should be structured to mitigate the risk of exclusion, be affordable, and made progressively easier through increased digital identification.

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

Interoperability of cross-border payment platforms

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

The AfCFTA E-Commerce Protocol is expected to set the agenda for transparent cross-border payment to boost cross-border trade and rally countries around the goal of creating the regulatory environment for platform interoperability continent-wide mobile money.

Concretely, this means that a micro-enterprise operating in Ghana will be able to import onions directly from Niger and make payments by mobile money to credit the exporter’s account in Niamey.

In addition to mobile money platforms, 19 of Africa’s 55 economies operate or are in the process of developing an active national instant payment system. The objective of the AfCFTA Protocol on E-Commerce should be to promote interoperability between all instant and inclusive payment platforms on the continent and, therefore, foster the future success of the AfCFTA and the achievement of the laudable goals of the new free trade pact.

The AfCFTA gives Africa hope for a future of economic prosperity. This hope is also shared by Africans and even others outside the continent.

The implementation of the AfCFTA agreement is reportedly going well and progress is being made in the negotiations.

Phase two negotiations on intellectual property rights, investment and competition policy are currently underway. We await the start of phase three negotiations on e-commerce and look forward to seeing some of the issues highlighted in this article in the agreement.

The AfCFTA remains an important tool for creating a liberalized trade regime and economic integration for Africa’s prosperity.

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Stephen Kemetse is a payments consultant and business leader with convenient digital financial services; Experience with cash management and trading products. He designs and implements digital financial services solutions to transform customer engagement, reduce operational costs, mitigate payment risk, automate and improve processes, and provide visibility and control over payment processes at the corporate level. of management.