Digitalisation and digital trade

JacobResearch in the Region

Digitalisation has played an undeniable role in keeping economies afloat throughout the pandemic. E-commerce and online platforms enabled large corporations, small and medium enterprises, and informal businesses to continue business operations and keep supply chains running through hard lockdowns and restrictions on the movement of people and goods. Furthermore, digital technologies allow employees to work from home. Indeed, the onset of the pandemic has arguably shifted the business culture for good. Also, as an indirect consequence of the lockdown, the shift in employment has, in many ways, built more mature workforces. Moreover, it has challenged the logic of why workplaces are organised in particular ways and accelerated conversations about how to improve them that could otherwise have taken decades.

The shift has also been pronounced for the consumer. People can now easily buy necessities (foodstuffs and groceries) online and deliver them to their doorsteps. E-commerce grew by almost 20% globally, introducing a whole new population segment to online shopping. Ultimately, E-commerce and globalisation have also brought the world closer together, with people buying just about anything online from anywhere in the world and shipping it to wherever they or the destined party are. So, for example, a daughter living in Australia can buy a book that is only printed in America and ship it from America to her mother living in Kenya. Digitalisation has also allowed Customs authorities and port operators several upshoots. These include digitalised processes, reducing the risk of human error, improving processing times, securing supply chains, and reducing the cost of operations. Furthermore, in light of the pandemic, digitalisation has improved staff safety by allowing for systems that reduce the need for human interaction.

Key definitions

As a result of the unexpected and rapid uptake in digital processes and the necessary use of technology during the pandemic, there are still many uncertainties and grey areas in terms of what digital trade, e-commerce and digital data genuinely encompass. Consequently, one needs to investigate the definitions thereof, specifically e-commerce, digital trade, digital data, and trade in services.

E-commerce: The WTO defines e-commerce as “the production, distribution, marketing, sale or delivery of goods and services by electronic means“. The OECD, in turn, describes it as “…all forms of transaction relating to commercial activities, including both organisation and individuals, that are based upon the processing and transmission of digitised data, including text, sound and visual images…” and later added, “…business occurring over open, non-proprietary networks such as the Internet, included the related infrastructure.” In short, E-commerce is the buying and selling of goods and services via the internet on a digital platform.

Digital trade: Digital trade can be described as trade that is digitally ordered, digitally facilitated, or digitally delivered. It is digitally enabled transactions of trade in goods and services that can be provided digitally or physically. The OECD and WTO handbook on Digital Trade defines it simply as “all trade that is digitally ordered and/or digitally delivered.”

Digital data: Digital data refers to all types of data collected and stored on the internet. Digital data, therefore, also includes trade data. For example, how much of a specific good a company exported to another company in another country, the cost of the goods being traded and the cost of trade, how long it took, and any other expenses and decisions made during the process.

Trade in services: Trade in services is an essential aspect of digital trade and e-commerce, as many services lend themselves to be performed online or digitally without any issues. The pandemic brought about a rapid growth in services, especially in ITC, as the world quickly realised how easy and effective working remote could be.

In a broad sense, e-commerce forms part of digital trade. The figure below illustrates the difference between e-commerce and digital trade in terms of goods and services separately[1].

Why does it matter?

Digitalisation is changing the way we trade goods. Digital trade is no longer a “nice-to-have” but rather a “must-have” for companies looking to trade internationally. Connecting, communicating, and transacting with buyers or suppliers online is crucial for competitive business in this globalised era. Digitalisation is also changing the way goods are produced, the goods produced, and the delivery of goods. Furthermore, digitalisation is blurring the lines between goods and services. The OECD uses the example of a smart appliance, such as a smart fridge, which requires market access for the product and requires access to the embedded software needed to operate the product to function optimally.

Another example of blurring the lines of international trade is related to 3D printing. For example, a pair of shoes are designed in Italy. After that, the design is sent from Italy directly to a 3D printer in America, which creates the final product. This event resulted in a service being rendered in Italy, which led to a consumable product being produced in America. But the movement was instant, with no steps in between, which complicates a lot of other processes, such as import and export duties, for example.

With the uptake of digitalisation and E-commerce, people can buy practically anything from anyone, anywhere. In addition, digitalisation has notably created a space for MSMEs to trade internationally on a small scale through E-commerce. The result of this “direct-to-consumer” shift is a rapid increase in the movement of small parcels or packages (low-value shipments) being moved across borders every day. However, this influx in smaller shipments is creating a new set of complications, delays and risks at ports of entry across the world.

Technologies that are facilitating trade

Although trading digital goods is becoming an increasingly important topic of discussion in trade, it is equally important to note technologies facilitating traditional and newer business forms. Trade is revolutionised by many different technologies, from something as simple as smartphones to complex emerging technologies such as machine learning and artificial intelligence. A simple example of how technology is changing trade in Africa comes in the form of online or mobile payments. As more and more people access smartphones, informal traders and MSMEs can now accept payments via apps such as SnapScan or QR codes. Also, consumers can make EFTs through mobile payment services. Many entrepreneurs have especially preferred these options, as the possibilities get more people participating in the economy and accelerate the shift away from making cash payments. In addition, retail POS (Point of Sale) Systems, such as small portable card machines, are becoming increasingly popular as more and more businesses and entrepreneurs gain access to these services and internet access across the continent improves. Cryptocurrencies such as Bitcoin are also creating new opportunities and challenges in terms of transacting online.

More complex technologies such as Blockchain are being used to simplify customs procedures by allowing traders to submit trade documents to online platforms such as Single Window Systems. In addition, blockchains play an essential role in securing supply chains (through programmes such as AEO) and bank guarantees. At the same time, artificial intelligence can identify and track smuggled goods (although this is a highly advanced technology).

[1] The World Bank. 2019. Facilitating Trade and Logistics for E-commerce.