How Nigeria, Africa can leverage digitalisation to facilitate trade

The International Monetary Fund (IMF) has suggested several ways Nigeria and the rest of Africa could increase and improve trade integration. It charged them to take advantage of technological progress and, more specifically, digitalisation, data incorporation and the Internet to encourage production, consumption, cross-border flows as well as finance.

In a recent report by the Fund titled, ‘Trade Integration In Africa: Unleashing the Continent’s Potential In A Changing World’, it said Africa’s working-age population (ages 15–64) is projected to rise from about 800 million to over 1.5 billion by 2050, while the median dependency ratio (the number of young and the elderly relative to the size of the working-age population) is expected to decline from the current 0.77to 0.60 by 2050.

The report went on to state that a large and growing labour force creates huge opportunities for rapid growth, complemented by a falling dependency ratio that creates room for more domestic savings. Taking advantage of these population dynamics, it said, requires generating a larger number of jobs over the next decades.

Furthermore, it revealed that digitalisation could promote the growth of trade in services by making some previously non-tradable services tradable, while also creating opportunities for greater goods trade through e-commerce and improvements in the trade environment.

“Trade integration would support the growth of new industries that could provide jobs for Africa’s growing workforce, provided they have the necessary skills and training, to work with emerging technologies, which requires the provision of enhanced education, including to women and children and vocational training.

“Taking advantage of new opportunities in a changing world, underpinned by an expanded role for trade, needs to be embedded in a policy framework that ensures macroeconomic stability and a supportive business environment that fosters the development of domestic industries that are more deeply integrated into value chains and produce more sophisticated and diversified products,” it said.

Intraregional trade, the study revealed, would benefit from faster customs processes and digitalisation can help with this, for example via the following: import/export platforms such as electronic single windows which allow lodging information and documents in a single-entry point to fulfill all import, export and transit-related requirements. These systems, it said, shorten clearance times, reduce costs by limiting the duplication of processes and the need to submit physical documents; and help reduce errors by ensuring consistency and traceability of transactions. Such a system, it revealed, helped keep trade and customs revenue flowing in Nigeria during the COVID-19 pandemic. It added that non-intrusive inspection technology such as cargo scanners could speed up the inspection and monitoring of containerised goods and electronic cargo tracking systems to monitor goods in transit.

Another suggestion was intra-regional trade, which it said would also benefit from improved cross-border payment systems within Africa and initiatives are underway to strengthen these systems through digitalisation. In recent years, payment platforms have emerged that allow settling payments in local currencies within certain regions, replacing more complex and expensive transactions with correspondent banks outside Africa.

However, there are no links yet between these regional platforms, hindering trade between sub-Saharan African regions as well as between sub-Saharan and North Africa. To address this challenge, the report said the AfCFTA Secretariat and the African Export-Import Bank launched the Pan-African Payments and Settlement System (PAPSS) in January 2022. This cloud-based system aims to link African Central Banks, commercial banks, and fintech firms into a network to enable quicker transactions among the continent’s countries in their currencies.

It also revealed that advancing digitalisation in Africa would require reforms to improve information and communication technology (ICT) infrastructure, strengthen foundational infrastructure (notably for electricity), build digital skills and enhance cyber security resilience.

Finally, implementing digital technologies should be accompanied by effective implementation of governance and managerial reforms, as well as upskilling and training to achieve the desired effects it said.