Readers will have seen that our Minister for Trade, Rob Davies, announced on Sunday that SA would sign the African Continental Free Trade Area Agreement (AfCTFA) that day now that the necessary legal checks have been done to ensure that it is in line with the Constitution and relevant laws. He then went on to say that the DTI would present the proposal to the President & Cabinet, which would send the agreement to Parliament for ratification. Thus it seems that the AfCTFA (I wish someone would find a better abbreviation – perhaps just ATFA?) will still take a bit of time before it’s completely signed. However, this is a major move forward, in particular for intra-African trade.
As we wrote in the March edition of the Newsletter, potentially a customs union should rapidly drive intra-Africa trade up from the present 16% of the Continent’s trade, and much of that will be in the form of ecommerce – B2B, B2C and C2C! So a time to rejoice and to get serious on how to advise governments to grow their economies through ecommerce trade
India Hosts the International Conference on Cyberlaw, Cybercrime & Cyber Security
The International Conference on Cyberlaw, Cybercrime & Cyber Security is taking place from 14th to 16th November, 2018 at New Delhi, India and has asked EFA to support the initiative. Unfortunately we cannot send a delegate – if any member is interested please let me know (email@example.com).
This Newsletter has written frequently about the dangers of cybercrime, to stress the point, a new study from IT services firm Serianu shows the pervasive nature of cybercrime across the continent, affecting businesses, individuals, families, financial institutions, and government agencies. The study shows how weak security architectures, the scarcity of skilled personnel and a lack of awareness and strict regulations have increased vulnerability.
Cybercrime cost the continent an estimated $3.5 billion in 2017. The report found more than 90% of African businesses were operating below the cybersecurity “poverty line”—meaning they could not adequately protect themselves against losses. At least 96% of online-related security incidents went unreported and 60% of organizations didn’t keep up to date with cybersecurity trends and program updates (in addition, at least 90% of parents didn’t understand what measures to take to protect their children from cyber-bullying).
Meanwhile, close to home, readers will have seen that Liberty Group’s IT infrastructure has been attached by ransom wear, with the hackers attack demanding payment for not publicizing the confidential data they have got their hands on. Sadly, cybercrime is with us to stay and all we can do is be very security minded.
ANC Pledges to Fast-Track the Digital Economy
Readers will recall that President Ramaphosa in his acceptance speech following his election as President at the end of last year said that he would be setting up a commission to see how best to push forward the digital economy (aka the 4th Industrial Revolution). ITWeb interviewed communications minister Nomvula Mokonyane in its 31 May edition. Apart from discussing the long-overdue move from analogue to digital TV, the Minister said that the ANC’s Nasrec resolution to fast-track digital migration cannot be solely dependent on government. She said that a government-driven, government-funded and government-managed approach was not the best option to follow.
“There is no resolution of the ANC that said we shall do the set-top boxes, encryption or non-encryption; it talks about digital migration, the fourth industrial revolution and SA being a smart country” she told ITWeb. Instead, she announced the setting up of an advisory body drawn from all sides to advise on the digital migration. We wonder – will this be the President’s 4th Industrial Revolution Commission? If so this increases yet again the number of Ministries with a “leading” role in strategising the digital economy.
A Global Trade War?
My very first job (a long time ago!) was as an intern at the European Commission – they put me in the Customs Union department, but that gave me some practical experience of how global trade agreements, and in particular the General Agreement on Tariffs and Trade (GATT which started in 1947), work.
Since then according to the World Trade Organization (WTO, which took over from GATT), the average value of tariffs around the world has declined by 85%. Tariff reductions, together with technological advances, have been the driving force behind the expansion of global trade over the last 5 decades. In 1960, trade as share of world GDP stood at 24%; today it is nearly 60%.
There is absolute proof that the expansion of trade has fueled economic growth, created jobs, and increased household incomes around the world. It is a key factor behind the rise of the global South, where dozens of developing countries have experienced strong economic growth and positive societal change.
As we know, on 1 June the Trump Administration imposed tariffs on imports of some metals, arguing in the WTO that these were necessary to protect “USA strategic industries”, but this is just part of the Trump “America First” policy. SA lost its attempts to be excluded from the US tariffs, which will damage our aluminum and steel sectors. But will it stop there? The European Union immediately slapped retaliatory tariffs on a variety of US products, including Bourbon whiskey and Harley-Davison motorbikes. As the WTO points out, current trade actions will mean that everyone will lose.
In a trade war, companies across a wide range of sectors will lose profits, and workers will lose jobs; governments will lose revenue, and consumers will have fewer product choices available. And, no matter where they are, firms, governments, and households will incur higher costs.
Our ecommerce sector is particularly vulnerable to the trade wars because we are (1) still new and the tariff system for cross-border ecommerce sales tariff system is not yet fixed; (2) ecommerce is seen as an easy target for import duties by politicians who are ill-informed about why companies (especially SMEs) need cross-border markets to grow; (3) the US is a particularly inviting market to expand into for Africa. The EFA fully agrees that global challenges demand global solutions. We hope, but are not hopeful, that these trade wars will be dropped soon.
Investment in Africa – The Central Role of Fintech for Africa and How Governance Helps
On a positive note, our Chairman, Dylan Piatti was in Washington DC presenting at the Africa Trade and Investment Global Summit last week, and reports that there was quite an optimistic Afrocentric sense prevailing.
KPMG’s latest quarterly “Pulse of Fintech” Report found that in Q4 2017 global investors continued to prioritise investment into fintech companies that focus on the B2B market, including payments platforms, SME lending platforms, and solutions aimed at making back-office operations more efficient. The report further highlights growing pressure on financial institutions thanks to increased regulatory reporting and compliance pressures, which may point to investors shifting focus slightly toward regulatory solutions.
This trend has been reinforced by the 2018 Africa Sustainability Study: Creating Value through Corporate Governance, published last month. This study by the African Private Equity and Venture Capital Association (AVCA) is the third of its kind on sustainability. It concentrates on how improvements in governance are linked to value creation for 85% of private equity-backed portfolio companies in Africa. Alongside greater commitments to better environmental, social and governance standards in African business life generally, and the increased role of development finance institutions in encouraging such policies, the study sets a marker down for companies to follow and for their lawyers to assist them (for more on lawyers see below).
Meanwhile Forbes has started to report on Initial Coin Offerings (ICOs) in Africa and notes a number of startups have recently given launched, including Nigerian remittances platform, SureRemit, which raised $7 million, and South African company and property investment portal ProsperiProp which secured $200,000, which is nothing when you consider the Cayman Island-based crypto company Block.one raised $4 billion via its ICO, a proprietary token, EOS. According to CoinDesk, this marks the largest ICO to date, and makes EOS the fifth most valuable cryptocurrency. ProsperiProp founder Llew Morkel says ICOs offer African entrepreneurs an opportunity to dip into a global source of capital without having to go through formal channels like banks or venture capitalists.
There are downsides, as this Newsletter has reported previously, and fraudulent ICOs have caused serious problems, with some governments trying to ban or regulate them. The Israeli-based cyber security company Check Point’s Global Threat Index shows that in April, Coinhive, Cryptoloot and XMRig were in the top six malware incidents throughout SA, Kenya and Nigeria. According to crypto-currency marketplace Paxful, in Africa there are more transactions involving the transfer of goods, services and money facilitated through the platform, compared to other countries where digital currencies are mainly traded speculatively for profit. Check Point notes that cyber criminals are taking advantage of the popularity of digital currencies on the African continent and deploying crypto-currency malware.
Banking the Unbanked and Fintech in Ecommerce
According to a recent Ecobank report, more than 57 per cent of all mobile money accounts globally can be found in Sub-Saharan Africa, with the African fintech market set to grow from US$200 million today to US$3 billion by 2020. Another recent study by McKinsey found room for growth in banking the unbanked needs in Africa that includes borrowing, saving, and investing across the continent, with South Africa alone set to see an increase in banking revenues of US$4 billion over the next five years.
As if to prove these forecasts correct, readers will have noted that the Shoprite Group in partnership with Standard Bank, Google and global fintech company Celbux, is to launch Shoprite Money over the next 12 to 18 months. The only banking charge is 9R to withdraw money, all other transactions, including buying airtime or electricity, will be free. The service is to be launched in a number of countries as well as SA, which will allow customers to do seamless and cost-effective cross-border remittance. Interestingly, however, it will only be available to SA customers who have a valid SA ID.
The African Union to Hold a Conference on Ecommerce
The AU is to hold a Summit on Ecommerce in Nairobi at the end of July. The objective is to “devise a comprehensive and holistic African ecommerce strategy which is practical and geared towards addressing Africa’s unique specificities”. EFA has been invited and will participate as a panelist in the session on ‘African private sector’s perspective’. We will be reporting on this event in our July Newsletter.
Can Artificial Intelligence Replace Lawyers?
We have reported previously on the jobs which may be reduced by AI in the future. Recently, there has been a test between 20 lawyers and an AI system known as LawGeek to see how fast and accurate both sides were when spotting risks in the legal documentation for non-disclosure agreements (deals to protect confidential information such as new manufacturing processes and marketing schemes). The lawyers scored an average of 85% for accuracy, compared to the robot’s 94%, and LawGeek was able to review the agreements in just 26 seconds, while the lawyers took an average of 92 minutes!
Angola Searches for More Sustainable Industries to Continue its Growth
Angola has launched a programme to identify economic sectors that could help soften its dependence on oil. While it has enjoyed some of the fastest growth on the African continent during the past decades, its success relied almost exclusively on oil, which accounts for 93% of total merchandise exports. So, each time oil prices fall national growth and government revenue also falls. As the country looks to diversify its economy the government has set its sights on sectors that could be friendlier to the environment and create more jobs for disadvantaged parts of society, such as the coffee and fisheries industries.
Uniting to Control Digital Oligopolies
According to the recent World Investment Report 2018, a number of major digital firms continue to assert their control of the global economy. In just five years, the number of tech companies listed among the top 100 multinational corporations has more than doubled, reaching 15 in 2017.
The UNCTAD Secretary-General, Mukhisa Kituyi, told a Latin American consumer protection and competition agencies meeting in Santo Domingo early June that the best way to shield people and markets from possible abuses of power by digital giants is to band together. We suppose this is music to the ears of Trade Minister Rob Davies, who has frequently called the largest US and Chinese digital companies a danger to the African economies.
Just to put things in perspective – 8 tech companies are worth more than the stock markets of Japan and the entire eurozone together (a combined market capitalization of $5 trillion). These companies make up what Wall Street has abbreviated as “FAAMG + BAT”: Facebook, Amazon, Apple, Microsoft and Google (or Alphabet), plus the Chinese tech companies Baidu, Alibaba, and Tencent. There are even some concern that the this concentration could result in a bubble, with serious results for the world economy. This leaves those who would like to clip the wings of FAAMG+BAT with a condunrum – upsetting a red-hot market can upset the whole apple cart!
New Initiative on Illegal Content from the EU
Continuing on the issue of the largest global digital companies, this Newsletter has reported in the past on the arguments between some large digital players and governments on the removal of illegal content posted by users.
Businesses had until the 25th June to respond to the European Commission’s public consultation on measures to make the fight against illegal content online more effective. The public consultation is a follow-up to the EU’s communication on the responsibilities of online service providers in respect to illegal content, and its recommendation on how to tackle illegal content online effectively. Illegal content means any information which is not in compliance with EU law or the law of a Member State.
This includes terrorist content, illegal hate speech, commercial scams and frauds, or breaches of intellectual property rights. The aim of the consultation is to gather evidence and data on current practices, experiences and policies for tackling illegal content online, as well as preferences on the various policy options proposed. This relates to the SA’s Cybercrimes Bill and we will keep a close eye on how the debate at the EU goes.
The Universal Postal Union Supports SAPO as One of the 3 Regional Hubs for Ecommerce Logistics in Africa
The UPU held its Spring global meeting in Bern, Switzerland, in April. As a result the UPU has come out in favour of appointing SAPO as one of the 3 regional hubs for ecommerce in Africa. According to SAPO officials ecommerce is forecast to generate revenue of R100 million, with growth on the continent running at 20% and total sales of R2 billion (Statista shows revenue in SA’s ecommerce market will amount to $3.13 million in 2018). The Dept of Telecommunications & Postal Services Minister, Siyabonga Cwele, said that once the department gets funding or funding partners it will start rolling out the e-commerce partnership programme with UPU.
The UPU is the UN body representing the national postal operators. Unlike its colleagues at the International Telecommunications Union, the UPU only welcomes very limited access by private postal operators/courier company.It sets targets for delivery of letters, packages and parcels (normally postal day +3); arranges tracking; encourages good addressing systems; and fixes ‘terminal dues,the system whereby both the sending and receiving postal services get paid for cross-border mail.
Case Study – the Online Sale of Groceries in the UK
Online grocery sales in Britain increased by 4.6% in 2017 to £6.6 billion, a third faster than in-store sales which grew at 3.4%. However, the online share only increased from 6.3% to 6.4% across the year. This is not due to a lack of popularity nor of basket size as the average basket size of two thirds of the people buying groceries online is about 4 times bigger than the in-store one.
The problem is rather the frequency: whereas people buy groceries nearly 21 times a month in-store, they only do it once a month online. However, with the rise of voice assistants from Google and Apple, the Dash button from Amazon, the extension of click & collect to more supermarkets, as well as online meal-kit and ‘box’ subscriptions such as Hello Fresh and Graze, 2018 is predicted to be a “seismic year” for online grocery sales, according to the UK ecommerce association.
And on the subject of groceries – and fruit, Alibaba will invest $352 million to launch a number of projects in collaboration with Thailand’s government to support cross-border online trade by small enterprises and farmers. A platform, the Smart Digital Hub, will allow to ship fresh products such as Thailand’s tropical fruits to China within 24 hours after harvesting. Alibaba cooperates with the Eastern Economic Corridor Office and Thai customs authorities to digitise and facilitate customs procedures. The Smart Digital Hub project is in line with Alibaba’s strategy to expand its Electronic World Trade Platform to developing countries outside of China.
Finally, but by no means least – Congratulations to EFA Board Member, Claire Cobbledick, who has been appointed GM of Gumtree!