Digital Trade and Human Rights

Carlos Lopes E-commerce has emerged as one of the most transformative ways to buy and sell goods and services, saving time and energy and expanding trade across countries. We are now experiencing a deepening of the digital economy. Recent technological advances, including automation, artificial intelligence, autonomous systems and robotics, have improved productivity, leisure and comfort while raising fears and anxieties.

These developments have fundamentally shaped the way goods and services are produced, stored, distributed and consumed, affecting today’s lifestyles and productive systems. The world is facing unprecedented challenges and opportunities; in the sphere of digital trade, like any other affected by digitalization, innovations can enhance or erode common values and valued standards, such as those pertaining to human rights.

The impact of the digital economy is attracting the attention of policymakers as much as the public. The same is true for the narrower field of digital trade. Analysis of the impact of the digital economy at the country, regional and global levels has exposed the potential for the digital economy to touch on human rights in countless ways. For example, cybercrime, including hacking and the sale of data and information without explicit consent, threatens the right to privacy. The loss of some types of jobs as a result of automation, although not breaching the right to work, undermines social gains, particularly established social protection institutions.

Added to these pitfalls are the more specific latecomer challenges that African countries must face if they want to accelerate structural transformation and industrialization.1 It is a fact that the high concentration of value in intellectual property does not make the journey towards industrialization any easier for Africa. Unless the continent leapfrogs it will not happen. The few countries succeeding in leapfrogging only confirm how difficult the journey is likely to be.

During its 2013 jubilee celebrations, the African Union identified the necessity of endowing the continent with adequate information and communications technology (ICT) infrastructure as a catalyst for the type of transformation required by the continent. This is reflected in Agenda 2063: The Africa We Want of the African Union. The Smart Africa Initiative2 sends the same message. Its intentions are to integrate the continent into a single digital market in order to harness the power of ICT. More specifically, the Initiative revolves around the harmonization of policy, legal and regulatory frameworks, investment codes, the creation of more demand and the establishment of favourable market conditions. All of these efforts should be able to attract $300 billion in ICT infrastructure and related products and services. If the Smart Africa Initiative gains momentum, the discussion about infrastructure priorities will have to become more strategic. It will become possible to think about the hard infrastructure links to 12 Digital Trade in Africa: Implications for Inclusion and Human Rights digital opportunities and prospects. It goes without saying that the future of digital trade is dependent on the latter.

Digital trade is important because it is the new face of a fast-changing trade landscape. Many aspects of our daily life are affected by it, from basic and essential needs such as food, energy, health care and education to entertainment, social interaction and, obviously, work.

From an economic point of view, digital trade offers tremendous potential for growth. Tens of millions of small and medium-sized enterprises worldwide have turned themselves into exporters by joining e-commerce marketplaces that are revolutionizing logistics and supply chains. Amazon has surpassed the $1 trillion stock valuation mark, which is equivalent to the value of the entire Johannesburg Stock Exchange. Who would have thought this possible for a logistics company? About 15 years ago, when Africa started to change its growth story, nobody could have predicted such a development.

China is a good example of a country investing in the digital economy to gain global leadership. It is home to one third of the world’s unicorns (privately held start-ups valued at over $1 billion) and three of its IT companies – Baidu, Alibaba and Tencent (collectively referred to as “BAT”) – are now global players with multifaceted and multi-industry digital ecosystems that touch every aspect of consumers’ lives. 3

The ascension of China to a top leadership position in the digital economy stems from three major factors: its large, young population, enabling rapid commercialization of digital business models; a rich digital ecosystem, which goes beyond just a few technology 3 Jonathan Woetzel and others, “China’s digital economy: a leading global force”, discussion paper (New York, Mckinsey Global Institute, 2017), p. 1. 4 Ibid. giants; and government support for experimental digital platforms.

It is worth noting that, a decade ago, China accounted for less than 1 per cent of the value of e-commerce transactions worldwide. That share is now more than 40 per cent and the value of those e-commerce transactions is estimated to be larger than the value of those of France, Germany, Japan, the United Kingdom of Great Britain and Northern Ireland, and the United States of America combined. In 2013, about 25 per cent of Internet users in China used mobile payment; that percentage increased to nearly 70 per cent in 2017. The value of mobile payments related to consumption by individuals in China in 2016 was $790 billion, 11 times that of the United States. 4

In Latin America, one of the regions with the highest Internet penetration rates in the world, digital trade is boosting intraregional trade. One example is Mercado Libre, an Argentinian e-commerce platform that was initially launched to connect buyers and sellers online; a wide range of products and services is now available on it. It has expanded into digital trade by hosting an assortment of traded products such as financial technology services, logistical solutions, advertisement through software-as-a-service, stores and “enterprise resource planning” solutions. It is now the largest technological platform for digital trade in the region and is one of the 50 most-visited websites worldwide. In June 2017, it entered the Nasdaq-100 Index, which comprises the main technology companies in the world that are listed on the New York Stock Exchange.

The United States remains an important technology leader in e-commerce. Between 2006 and 2016, its digital economy grew at an Digital Trade in Africa: Implications for Inclusion and Human Rights 13 average annual rate of 5.6 per cent; this represents a much faster growth than the overall economy, which recorded an average growth rate of 1.5 per cent over the same period. In 2016, the digital economy supported 5.9 million jobs in the United States – or 3.9 per cent of total employment in the country – and accounted for 6.5 per cent of current-dollar gross domestic product (GDP). The average annual salary in the digital economy was $114,275 in 2016, which was higher than the nationwide average of $66,498.40. 5

What about Africa?

The digital revolution has invaded all sectors of African countries, particularly services. By 2025, Internet penetration in Africa is expected to reach 50 per cent with about 600 million users. Of these 360 million will have smartphones. Annual e-commerce sales are expected to be worth up to $75 billion.6 Kenya has emerged as a world leader in mobile banking penetration and innovation, with M-Pesa now a well-known brand.

Some African countries have made remarkable progress in the provision of e-governance solutions such as electronic visas, which have been a major catalyst for tourism. The contribution of tourism to GDP in Africa rose from $150 billion in 2008 to nearly $175 billion in 2017. By 2028, it is projected to reach $278.2 billion, or equivalent to 8.1 per cent of combined African GDP. 7

Examples of e-commerce include the Jumia Group. This digital trade platform offers retail 5 Kevin Barefoot and others, “Defining and measuring the digital economy”, working paper (Washington D.C., Bureau of Economic Analysis, 2018), pp. 3–4. 6 James Manyika and others, Lions Go Digital: The Internet’s Transformative Potential in Africa (New York, McKinsey Global Institute, November 2013), pp. 6–7. 7 World Travel and Tourism Council, Travel and Tourism: Economic Impact 2018 World, p. 1. 8 Information Economy Report 2017: Digitalization, Trade and Development (United Nations publication, Sales No. E.17.II.D.8), p. 44. 9 Percy Mkhosi, “National report on e-commerce development in South Africa”, working Paper No. 18/2017 (Vienna, United Nations Industrial Development Organization, Department of Policy, Research and Statistics, 2017), p. 10. 10 Nordea, Country profile Morocco, “E-commerce in Morocco”. Available at 11 Eromosele Abiodun, “Nigeria’s e-commerce market value to hit N15.45tn in 10 years”, This Day, 28 August 2017. sales in seven African countries (Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco and Nigeria), online travel services such as accommodation bookings in 21 countries, and logistical services in 12 countries. Jumia has over 1 million active customers and its gross merchandise value increased from about €35 million in 2013 to about €289 million in 2015.8

In South Africa, UAfrica hosts over 3,500 online shops and facilitates cross-border payments through First National Bank, one of the largest banks in the country.9 Other digital retailers include Takealot, which in less than 10 years emerged as the leading online retailer in South Africa.

In Morocco, e-commerce customers numbering 4.2 million, or approximately 12 per cent of the total population, contributed to an 82.1 per cent increase in transactions from 2016 to 2017. Online sales made by credit cards and electronic payment methods stood at $280 million, with 6.6 million transactions. Sales volume rose 50.3 per cent during the same period. Operations are dominated by Hmizate and Jumia.10

In Nigeria, e-commerce is currently valued at $13 billion and it is projected to reach $50 billion over the next 10 years. Its contribution to GDP was forecasted to be 10 per cent in 2018.11 E-retailers include Konga (the country’s largest online retailer), Jumia and Jiji.

While these examples demonstrate the huge potential of and opportunities related to the 14 Digital Trade in Africa: Implications for Inclusion and Human Rights digital market in Africa, are the promises of digital trade too good to be true?

Although digital trade makes it possible for companies to enter international markets with less capital-intensive business models, it poses new risks and policy challenges. For some, digital trade is reminiscent of a faster-pace globalization and raises fears and anxieties. Digital trade embodies the network effects with potential market concentration that can undercut competition. First-comer advantages, the dangers of skewed competition provoked by tax optimization and the exploitation of unregulated new trade patterns are undermining the possibilities for new entrants to make a dent.

Reference is often made to large e-commerce platforms such as Amazon, which accounts for half of all online expenditure in the United States. Amazon collects vast amounts of increasingly valuable data on its customers. There is growing anxiety about what technology data giants could do with such a massive stock of information. There is a degree of weaponization against weaker rivals, driving them out of business. As they amass substantial market power, public scrutiny and accountability are reduced; any intrusion into the databases of these companies can expose the private information of a large number of consumers.

Small and medium-sized enterprises certainly find an easier bridge to global markets through digital trade, but unskilled workers believe that digital trade poses a huge threat to them; it is undeniable that there is a skills-biased technological change that favours skilled over unskilled labour. The speed and complexities of digital trade have also raised concerns about the transparency of international corporations that dominate niche information technology markets.

Typically, the intellectual property and operating expertise behind cross-border e-commerce activities are located in a jurisdiction away from the one in which transactions take place. Although costs may be deducted from locally-generated sales, profit will be shifted to the foreign jurisdiction to reduce taxable income in the country where the transaction takes place. This sophisticated form of trade adds to the complexity of existing illicit financial flows, further contributing to the depletion of resources in Africa.

To address these issues, it is important to consider the foundations of digital trade.

First, with sound policies, political determination and transformational leadership, Africa can reap a demographical dividend by investing in education to equip its young people with the skills required to thrive in a digital economy. Before we reach 2050, the continent will be home to the largest working-age population in the world. Education systems will have to expand considerably; investments in basic and traditional literacy and numeracy will not be enough. They will need to encompass proficiency in digital literacy, e-leadership, business development and adaptive, cognitive, social and technical skills.

Second, there is a need to prioritize enabling factors, such as an adequate telecommunications infrastructure. The lack of or insufficient broadband is the main obstacle to expanding digital trade. The Smart Africa Initiative highlights the necessity of ensuring expanded broadband connectivity that will increase the efficiency and effectiveness of public spaces (for example, schools, hospitals, airports and ports) while preparing countries for the next wave of innovations, namely, the Internet of Things. This calls for large-scale investment in submarine cables, fibre-optic and mobile networks, satellite coverage, data centres, cybersecurity and smart city capabilities.

Third, a supportive ecosystem is fundamental to an attractive business environment. Digital Trade in Africa: Implications for Inclusion and Human Rights 15 To capture the full growth potential of digital trade there is a need for regulators and public infrastructure to cater for established businesses as much as for start-ups. Both require a solid legal framework for protecting intellectual property and property rights, and an arsenal of regulatory measures aimed at providing incentives to investors to take measured risks. Such measures could include removing tariffs, lowering non-tariff restrictions and promoting the free movement of persons as anticipated in instruments such as the Protocol to the Treaty Establishing the African Economic Community Relating to Free Movement of Persons, Right of Residence and Right of Establishment. More importantly, the African Continental Free Trade Area could boost these efforts considerably while increasing the overall attractiveness of Africa for investment. Implementing the Action Plan for Boosting Intra-African Trade of the African Union, effectively establishing an African business council and implementing the Protocol on Rules and Procedures for Settlement will all help create a more conducive environment.

What are the major implications of these developments for human rights?

Digital trade offers numerous opportunities for economies to grow and for people to improve their quality of life. Like any endeavour, digital trade entails risks. Breaches of human rights are very likely to be among those risks.

One of the areas at greatest risk is that of privacy. Privacy and data commoditization have become a major concern for the way societies work and individuals protect their freedom. Consumers of both tangible and digital goods and services leave footprints on any transactions or on any usage; such footprints are collected by technology companies in unexpected and sometimes duplicitous ways. 12 Julie E. Cohen, “What privacy is for”, Harvard Law Review, vol. 126, No. 7 (May 2013), p. 1,905. The bulk of the data collected from consumers may be used to target them with paid advertising based on their interests, which are both revealed by and inferred from data analysis. Some data collection approaches are active, meaning that the user directly and consciously communicates information by signing up to a wide range of applications. Others are passive and less obvious, whereby an application is designed to gather data possibly without the user’s knowledge.

Data have become a valuable commodity, alluded to by some as the new oil. From a human rights perspective, an increasing appetite for data is putting users under permanent surveillance, with heightened risk of privacy breaches. Cyberwarfare and cybercrime, including hacking, further increase their exposure. Such developments should not be minimized, considered as natural or tolerated as normal collateral damage of progress.

Privacy enhances autonomy in thought and action. It is a prerogative that protects human subjectivity from the pervasive efforts of commercial and government actors to render individual and communities fixed, transparent and predictable12. A violation of privacy through intrusive data collection is certainly a human rights threat; violations of privacy may reduce both freedom of speech and freedom of expression. Such a threat is considerable, in particular when Governments have or can access the data as well. There are several examples of political developments that demonstrate the ease with which personal data can be used for political influence and movements founded on undemocratic and hate speech. Limiting freedom of speech and expression has the potential to compromise democracy and limit civil engagement.

While digital trade comes with some human rights risks, it should be recognized that it can 16 Digital Trade in Africa: Implications for Inclusion and Human Rights also, under certain circumstances, contribute to the enhancement of those rights. Pressure from various sources has obliged major technology companies to start tracking offenders, disrupt and combat human trafficking and demonstrate a commitment to civic values.

In the educational sphere, the range of opportunities – such as long-distance and online courses in the forms of massive open online courses or through blended curricula using expertise across borders – is expanding fast.

Global activism on human rights has thrived considerably with the use of social media applications. These may be used to spread news quickly, thereby boosting instantaneous solidarity or advocacy for the defence of human rights. Human rights violations such as arbitrary arrest, detention or forced exile can now be reported instantly around the world.

Digital trade and related enablers have contributed to ease the movement of goods and services, allowing many to consume, feel empowered and even enjoy rights. The above developments make the case for harnessing digital platforms as a force for good.

An African proverb says that “if you live next to the cemetery, you cannot cry for everyone”. Most forms of trade as we know them will, most likely, either disappear or be dramatically influenced by digital trade. With awareness and preparation, it is possible to transform it into a progressive opportunity.