REGISTRATION NUMBER: 2014/042417/08PRESIDENT: Sipho M Pityana VICE PRESIDENT: Martin Kingston CEO: Cas Coovadia NEDLAC CONVENOR: Kaizer MoyaneDIRECTORS: Busi Mavuso, Christopher Campbell, Deidre Penfold, Gwarega Mangozhe, Joe Mwase, John Purchase, Maurice Radebe, Roger Baxter, Stavros Nicolaou, Mthokozisi Xulu

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Introduction This industry position paper contains an objective and consolidated view from Private Sector

(Trade) concerning the digital trade strategy for South Africa. Emphasizing the importance

thereof in the present-day business space, digital trade and e-commerce absorbed some of the

economic damage caused by the COVID-19 pandemic. In following with examples found

throughout the world (especially the US, EU and China) this was achieved, especially through

allowing consumers to order fresh produce online with home deliveries, enabling employees to

work from home and allowing service providers and essential goods providers to acquire PPE

and sanitisers through e-commerce.

Although the digital economy provided a life-line during the desperate times recently

experienced, the pandemic further emphasized the need for improved technologies and digital

trade policies in moulding a significant business platform of the future, since the digital economy

is blurring the boundaries between goods and services and their accompanying jurisdictions. As

the economy changes globally, countries which don’t embrace the digital economy risk being

left behind, which certainly includes South Africa. However, before the South African

government and business community can create an environment conducive for safe and secure

digital trade, it is important to gain an understanding of the concepts concerning digital trade. In

aiding the understanding thereof, this industry position paper outlines some of the most

pertinent matters concerning digital trade.

The content includes: (1) Defining key concepts, (2) Trade in Services; and (3) Digital Trade

Policies.

Figure 1 – Schematic framework of possible digital trade strategies

BUSA POSITION TO THE DEPARTMENT OF TRADE, INDUSTRY & COMPETITION (DTIC) AND NEDLAC ON

DIGITAL TRADE STRATEGY FOR SOUTH AFRICA

JULY 2020

Defining key conceptsTechnology is changing the trading environment in new and exciting ways. Trade is evolving at

a rapid pace, with technologies such as artificial intelligence (AI), the Internet of things (IoT),

blockchains and 3D printing. It is thus of great importance that economies take full advantage of

this new digital revolution. A substantial group of WTO members has attempted to keep the e-

commerce and digital trading environment ‘barrier free’ by means of a moratorium on custom

duties on electronic transactions. Regrettably for the WTO and participating members, South

Africa and several other countries do not support the moratorium. The discussions around this

has highlighted a key problem within the digital trade discussions, namely the lack of uniformity

of what key concepts within the digital environment refer to. As a consequence, accurately

defining the concepts of e-commerce, digital trade and digital data has become an integral part

of effectively navigating this new era of trade.

E-commerceE-commerce can be defined as “purchasing or selling goods on the internet or over computer

networks using computers, laptops, mobile phones or similar devices. E-commerce collectively

includes the cross-border trading of goods and services.” Furthermore, e-commerce can take on

various different forms, taking place between various respective parties, including: Business-to-

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Business (B-2-B), Business-to-Consumer (B-2-C), Government-to-Business (G-2-B), as well as

Government-to-Consumer (G-2-C).

Digital tradeDigital trade, on the other hand, refers to “transferring goods, services and data through

electronic platforms. Digital trade includes but is not limited to e-commerce.” Other examples of

digital trade, which are not generally considered as e-commerce, includes the trade of digital

data or electronic software.

Digital dataDigital data refers to all types of data that can be collected and stored on the internet. This

includes trade data, i.e. how much of a specific good a company exported to another company

in another country, how much each aspect cost, how long it took, and any other costs and

decisions made during the process. This data can be used to analyse trade patterns, determine

how much specific companies trade with each other, whether markets are concentrated, etc.

Personal data, on the other hand, is data collected on a specific person, including ID numbers

(or social security numbers), addresses, contact details, banking details, shopping preferences,

online search histories, and anything else that a person could share online.

It is important to note that in modern times, the bulk, if not all, international trade transaction has

a significant digital footprint. Similarly, with any trade agreement, from the smallest informal

trade to a major supply agreement, contracts are transacted online; whether via email, e-

commerce store, or digital platform. All of these transactions generates data, which in turn

needs to be governed and regulated to a certain degree. It is therefore vitally important to create

a workable, reliable digital trade strategy for South Africa.

Trade in ServicesTrade in services is directly linked with digital trade as many of the services are traded across

borders without the movement of services suppliers or consumers, through the internet, where

the buyer and seller are not in the same geographical location during the delivery of the service.

As of yet, the South African government (through various channels, such as the DTIC) does not

have an official policy or strategy for trade in services or digital trade. Widespread reference is

made to the ‘Digital Industrial Revolution’ throughout the Industrial Policy Action Plan (IPAP)

document1, no official policy exists. Although this is generally seen as a disadvantage, it puts

the government in the unique position to determine a trade in services strategy that

compliments digital trade.

1 The Department of Trade and Industry. Industrial Policy Action Plan. 2018. https://www.gov.za/sites/default/files/gcis_document/201805/industrial-policy-action-plan.pdf.

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Along with the rapid development of the internet and digital systems, came the rapid

development of trade in services, and especially trade in information and communication

technology (ICT) services and ICT-enabled services. For the consumer, this has been

showcased with services such as Uber and Airbnb taking markets by storm. ICT services

include programming, system integration, IT infrastructure management, IT support services,

content management, application testing and data warehousing. ICT-enabled services, services

that are not reliant on, but enhanced by ICT include call centres, payroll, transcription, data

mining, engineering, journalism and even medical diagnostics.

Two types of services that tend to pop up when referring to ICT services (within the realms of

trade) are offshoring and online outsourcing (OO). Offshoring refers, simply, to the situation

where businesses move certain aspects of their process to foreign countries in order to benefit

their business in terms of either cost or efficiency. Online outsourcing, on the other hand, occurs

when a company (usually medium or large enterprises) employ individuals with a specific skill

for a specific project, through online interactions, e.g. tasks that require technical or academic

knowledge, such as web designing or simple software development.

Distribution, although not strictly an ICT service, is directly linked with the rapid growth of e-

commerce. As e-commerce and the digital economy develops and grows, the need for door to

door delivery and thus, distribution, grows with it. Therefore, it is vitally important that the

negotiations on digital trade and e-commerce encompasses distribution services. The WTO

notes that, although distribution services are included in the new services negotiations (GATS),

which have its origins in January 2000, little attention has been given to this aspect of trade

during e-commerce discussions. It is important that government creates an environment that will

allow for easy distribution for already existing distributers, but also create an environment that

encourages individuals, especially those that are unemployed, to enter into this sector as the

need for distributors grows. The importance of distribution and transportation services as a part

of overall trade (but e-commerce especially) has been made clear by the COVID-19 pandemic.

As many countries moved away from in-store purchases to online purchases with door to door

deliveries, the linkage between e-commerce and transportation, and in a broader sense supply

chain, cannot be disputed.

The AfCFTA listed financial services, communication, transport, tourism, and business services

as the five priority services which should be focused on during trade in services negotiations.

This is important to note, as financial, communication and business services can easily be

traded digitally while financial and transport services are essential to trade in goods and digital

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trade. Thus, the link between a trade in services strategy and a digital trade strategy is crucial. A

digital trade strategy needs to be anchored in a broader trade policy and regulatory framework

to ensure its effectiveness.

GATS list four “modes of service delivery”: (1) cross-border services trade, (2) consumption

abroad, (3) commercial presence and (4) movement of natural persons. Of these four modes

only mode 1, cross-border services trade, does not rely on the buyer and service provider to be

in some form of physical proximity. With the coronavirus outbreak the movement of people has

been restricted to an exceptional extent across the world, which puts enormous pressure on

modes 2, 3 and 4 of trade in services2. Sectors such as education and tourism will be severely

affected as their capacity to operate without the movement of people is considerably limited.

Services such as insurance, financial services, telecoms and other computer-related services

are likely to suffer a considerably smaller blow due to their ability to operate well in a work-from-

home environment. These services are expected to show more resilience to the social

distancing effects that are expected to remain long after the pandemic has passed (source).

In an attempt to off-set some of the effects of the pandemic, some industries have moved

towards a more “online” way of delivering services. Some libraries are now allowing members to

make use of electronic copies of books, museums are creating virtual online tours, and zoos are

allowing people to watch animals via online streaming. India is now delivering nearly 75% of

their IT services, which was previously delivered on-site, online along with management and

consulting services3. Companies that are willing and able to move towards a more digitalised

approach are rewarded with supply chain resilience1. While education has suffered greatly due

to schools and universities not being able to operate properly under social distancing measures,

some schools and universities have moved towards online learning, with homework being

distributed via email or e-platforms and classes being conducted via Zoom4. The effectiveness

of this, however, is severely hampered by the lack of access to internet and smart devices,

especially in developing and least-developed countries5.

Digital trade policyDigital trade is no longer an option for trade, it has become an integral part of trade, thus it is of

the utmost importance that governments proactively monitor, and facilitate the process and

ensure that their trade policies reflect this reality. The WCO advises that a system should be in

place that allows for only the minimum intervention.

2 Anirudh Shingal. Services trade and COVID-19. Voxeu. 2020. https://voxeu.org/article/services-trade-and-covid-19.3 Anirudh Shingal. Services trade and COVID-19. Voxeu. 2020. https://voxeu.org/article/services-trade-and-covid-19.4 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf. 5 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf.

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E-commerce and digital trade rely on a variety of different services and sectors such as internet

access, financial payment systems, physical infrastructure, customs, delivery and distribution

systems, etc. South Africa faces a variety of barriers to digital trade such as limited internet

access, issues with governance and trust in government institutions, lack of skills and

knowledge and poor infrastructure.

Some key aspects to consider for a digital trade policy or strategy:

Infrastructure and ICT infrastructureOne of the main barriers to digital trade, and trade in general, is a lack of proper and good

quality infrastructure. This is especially true in South Africa, as is the case in many developing

countries. Developing countries that were early adopters of digital trade policies invested heavily

in infrastructure (both in terms of physical and ICT) and internet access. Improving infrastructure

will not only reduce the cost and time of moving goods domestically, but will also improve cross-

border e-commerce, especially in trade with neighbour countries. The necessity of good quality

ICT infrastructure and affordable internet has been further accentuated by the COVID-19

pandemic as students move towards online classes and employees moved from working in an

office to working from home6. It is important that bottlenecks are prevented by avoiding complex

export procedures and documentation. The preferential trade system for customs will potentially

go a long way in facilitating the movement of goods through customs procedures, which is why

the escalation of this programme is essential.

To further the discussion above, distribution services and subsequent distribution channels will

play an increasingly important role in e-commerce, as the volumes of goods being both

imported and exported grows, since these goods need to be transported to and from customs

points or ports. It is thus important to ensure that the domestic infrastructure is continually

improved, in order to be able to handle the increased quantities of trucks and vehicles that will

be active on the roads, as pick-ups and drop-offs increase. As the flow of goods increase within

the region (be it SADC or SACU), it is important that our domestic infrastructure enables the

process, but it is also important that South Africa’s trading partners’ infrastructure is capable of

handling the increased trading volumes. With these increased trading volumes, the need for

harmonised and simplified procedures is also amplified.

Customs has the opportunity to make use of new technologies to streamline the entire customs

procedure. Along with the preferential trader system, customs, with a bit of investment, could

develop a blockchain for customs documents. A blockchain is, in layman’s terms, a collection of

6 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf.

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blocks of information/data, stored in a database (chain) that is protected by the highest level of

encryption. A specific form or piece of information can be assigned a serial number of sorts

which allows a person with that code quick and easy access to the information. Moving towards

digitalised customs procedures, where forms are submitted online, stored in a blockchain and

accessed by customs officials will allow for a much faster and more efficient import and export

experience. Furthermore, this type of technology will bolster the security measures currently in

place. For example, if a user on the system does anything out of the ordinary or suspicious, they

are immediately frozen out of the system and can only be reloaded by designated

administrators. A blockchain also creates a trail that can easily be audited, which reduces

corruption and ensures the integrity of the documents submitted and processed7.

A digital single window system will streamline customs procedures by allowing traders to upload

the documentation necessary for clearance onto an e-platform from where it can be distributed

to the parties involved electronically. This will not only reduce the risk of hard copies of

documents being lost but will also reduce the need to submit the same documentation to a

variety of different stakeholders. In addition to these benefits, reducing the physical interaction

between traders and customs officials will be especially beneficial as social distancing will

continue to restrict operations for the foreseeable future8.

Developing a reliable and affordable ICT infrastructure as well as ICT services is an important

aspect of increasing internet access. A reliable power supply plays an important role in

developing digital trade and especially in ICT infrastructure: with no power there is limited to no

internet access, which means that digital trade suffers in the process. Furthermore, the cost of

data is important to facilitate this access. Minister Ebrahim Patel stated in his budget speech in

July 2019 that he will be working closely with the Minister of Communications to ensure that

data costs are brought, and kept, down.

It is also important that internet access is expanded especially to rural areas in order to allow

entrepreneurs and Micro, Small & Medium Enterprises (MSMEs) to gain access to the online

market. Thus, investing in ICT infrastructure should be a top priority for the digital trade policy.

The policy adopted by Brazil, which invested heavily in boosting internet connectivity by

focusing solely on widening the reach of fixed broadband was an inefficient undertaking as a

large majority of the population in developing countries gain internet access through mobiles.

Thus, it is important that government has an approach that promotes the expansion of fixed

7 WCO. Unveiling the Potential of Blockchain for Customs 2018. http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/research/research-paper-series/45_yotaro_okazaki_unveiling_the_potential_of_blockchain_for_customs.pdf?la=en.8 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf.

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broadband while also promoting the expansion of the use of mobiles for internet access9. A dual

based approach, when executed correctly, could increase overall internet access at a much

greater and efficient rate. Internet access in rural areas can be increased through mobile

networks as less infrastructure is needed than for fixed broadband for example.

Tech hubs are organisations with a physical address that provides technological entrepreneurs

office spaces and resources as well as proximity to similar or complementary entrepreneurs that

allows for networking. South Africa is the country with the second most tech hubs in Africa (see

Figure 1). These tech hubs provide easy internet access to MSMEs and create a productive and

supportive environment for establishing and growing a business. The majority of these tech

hubs are in Cape Town, Gauteng and Durban. Establishing tech hubs in smaller areas will

reach a larger group of entrepreneurs while increasing the reach of fixed broadband. Creating

incentives to encourage mobile operators and internet providers to establish similar hubs in

smaller communities will not only broaden the reach of internet connection but will also assist in

the development of additional ICT infrastructure in these areas.

Figure 2 – Number of tech hubs per African country

9 GEG Africa. Bridging the Digital Divide and Supporting Increased Digital Trade: Scoping Study. 2018. http://www.gegafrica.org/item/782-bridging-the-digital-divide-and-supporting-increased-digital-trade-scoping-study.

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Source: https://briterbridges.com/618-active-tech-hubs

Financial institutionsFor e-commerce transactions buyers usually have the option to pay for the product or service

upon arrival, or to make an EFT payment when placing the order. South Africa’s banking

institutions are considered very “sound”, ranking 29th on the Soundness of banks in the Global

Competitiveness index in 201910, in spite of this, South Africans remain sceptical of making

EFTs and other online payments11. This stems from a lack of knowledge and understanding of

how it works paired with encouragement from corrupt (or inadequately trained) government

officials to use cash12. Therefore, it is important that government ramps up the fight against

corruption.

To aid the fight against corruption, implementing blockchains in customs will go a long way to

combating corruption within the realms of trade. It is also important that the SARB remains an 10 WEF. The Global Competitiveness Report. 2019. http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.11 Kgaogelo Letsebe. Most Online shoppers prefer to pay cash. 2018. https://www.itweb.co.za/content/GxwQDq1ARz2qlPVo.12 PASA, BankservAfrica & The Banking Association South Africa. Modernised Real-time Electronic Retail Payments: A Case for Change for South Africa. 2019. http://www.pasa.org.za/docs/default-source/default-document-library/modernisation/modernised-real-time-electronic-payments_-a-case-for-change-for-south-africa_.pdf?sfvrsn=2.

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independent institution, as it is responsible for the governing of banking institutions within the

country, thus its integrity is of great importance. Most banking institutions in South Africa have

mobile banking apps, which are relatively well functioning and effective. The problem in South

Africa lies rather in the percentage of the population that not only has access to mobiles for

online banking (35% of South Africans have a smartphone13), but also the percentage of the

population that does not have bank accounts (68% of South Africans have access to some form

of bank account14). The majority of people in rural areas are not able to open bank accounts as

they do not have access to a banking branch or the funds to keep an account open15.

In addition to the above, online transactions often require a visa card or credit card, which most

South Africans do not have, further preventing them from taking part in the digital economy. It is

important that these people obtain ways to make these payments, in order for them to be able to

partake in the digital economy. A temporary solution is for example Takealot that accepts cash

on delivery. However, we should strive towards a society where everyone at least has a bank

account.

Legal and regulatory frameworkIt is important to first understand what e-commerce, digital trade and digital data are before

implementing any laws and regulations. Government needs to ensure that all relevant policy

makers and stakeholders agree on the definition of each of the key terms. Awareness

programmes are a good starting point in educating stakeholders and government officials on

what digital trade encompasses. Some areas of concern in terms of legal and regulatory

frameworks include competition laws, intellectual property protection (IPP) and the trade of a

person’s personal digital data16.

It is important that the South African government has an adequately skilled team to deal with

matters pertaining to IPP, especially in terms of legal actions against the infringement of a

person’s intellectual property right. As the digital environment is constantly evolving, it is

important to have a set of clear rules in place to regulate the use of technology and data. Some

concepts that did not seem of importance a few years ago but are becoming a real concern

13 Statista. Smartphone users in South Africa. 2018. https://www.statista.com/statistics/488376/forecast-of-smartphone-users-in-south-africa/.14 Isabelle Coetzee. 32% of South Africans do not have a bank account – here’s why. 2018. https://www.justmoney.co.za/news/2018/06/21/32-of-south-africans-do-not-have-a-bank-account-here-s-why/.15 Nitha Ramnath (University of Pretoria). Factors affecting the adaptation of mobile banking among rural South Africans. 2018. https://repository.up.ac.za/bitstream/handle/2263/69979/Ramnath_Factors_2019.pdf?sequence=1&isAllowed=y.16 Paul Baker. E-commerce and Digital Trade. 2017. https://read.thecommonwealth-ilibrary.org/commonwealth/trade/e-commerce-and-digital-trade_9781848599628-en#page3.

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includes autonomous driving cars and who will be to blame should they cause damage in any

way or to what extent an AI entity is a legal person.

The government currently does have a cyber-security team who are tasked with assisting

companies which have experienced cyber security attacks. Unfortunately, information on the

functioning of the cyber-security team is lacking. The website of the team contains limited

information — with certain links currently not working. This team can play a pivotal role in

regulations and online security. This team of experts can be used to develop software that not

only detects cyber inconsistencies, but also prevents attacks against government institutions

and municipalities for example. The aforementioned threat is becoming a growing concern as

municipalities across the country have in recent years been subject to cyber-attacks. Having a

strong and competent cyber-unit will generate trust and a feeling of security for internet users

across the country. It is important that government does not use the premise of cybersecurity to

gain access to any personal or confidential information without due cause.

In terms of an individual’s personal digital data, it is widely agreed that the collection and trading

of individuals’ personal digital data is a concern growing at the same pace as the technology

that captures it. There is however no clear advice or suggestions on how to manage this

growing risk. In terms of employee data kept by companies, the Protection of Personal

Information (POPI) Act has come a long way in ensuring that all South Africans’ personal

information is protected. The POPI Act requires companies to ask permission of both

employees and customers to store their personal data. Customers have the option to request

that the company delete their data from the system, they then have the right to request proof

that their information has in fact been deleted. A company is allowed to store personal

information of employees on a secure database, they are however not allowed to share this

information under any circumstances, unless it pertains to a matter of national security. The Act

comes into full force mid-2020, and any companies found not to be complaint receives a R1

million fine or 10% of the company’s annual turnover.

This, however, does not solve the problem of personal information being collected by online

platforms and e-commerce stores such as, for example, Google, Facebook, Amazon and

Takealot. Blockchains can once again offer the solution. A person can be given a unique serial

number (acting as an access code) which is linked to a file in a blockchain that contains their

personal data. If a website or application such as Takealot requires personal information the

person would simply give their unique serial number along with a password, this will allow the

website or application access to a specific section of the person’s personal information in an

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encrypted form, which means that the website or application will not be able to store the

information, similar to the processes used in encryption on web browsers such as “The Onion

Router”. This will not only ensure that a person’s personal data is absolutely secure and private,

the encryption also prevents websites and applications, and the organisations behind them, to

record the data. Blockchains are a decentralised system, which means that data is not stored in

a specific or localised area, which removes an additional level of risk in terms of data storage.

The African Union Convention on Cyber Security and Personal Data Protection was drafted in

2011, aiming to create a “credible framework for cybersecurity in Africa through organization of

electronic transactions, protection of personal data, promotion of cyber security, e-governance

and combating cybercrime”. The convention was adopted in mid-2014, however only 5 of the 55

AU members have ratified it, while an additional 14 countries have signed it17. Chapter II of the

Convention focuses specifically on Personal Data Protection, Article 13 under the chapter

suggest six basic principles toward governing the processing of personal data18:

Principle of consent and legitimacy states that processing data should only be considered

legitimate should the data subject give explicit consent for the processing of said data.

Principle of lawfulness and fairness of personal data processing states that the collection,

recording, processing, storage, and transmission of data should be undertaken fairly, lawfully,

and free of fraud.

Principle of purpose, relevance and storage of processed personal data states that only

the absolute necessary data should be collected and stored for legitimate purposes for no

longer than is necessary to serve its purpose.

Principle of accuracy of personal data states that data should, where necessary, kept up to

date, data that is incomplete or inaccurate should be erased or rectified.

Principle of transparency of personal data processing requires a mandatory disclosure of

information by the data controller on personal data.

Principle of confidentiality and security of personal data processing states that all

personal data should be protected and processed confidentially.

Chapter III focuses on “Promoting Cyber Security and Combating Cybercrime”, which suggests

the creation of a national cyber security framework, as well as describing how a national cyber

security system should look and operate. It is worth noting that the Convention suggests that a

public-private partnership is crucial, along with intense education and training in cyber security19

17 CCDCOE. African Union. 2019. https://ccdcoe.org/organisations/au/.18 African Union. African Union Convention on Cyber Security and Personal Data Protection. 2011. https://au.int/sites/default/files/treaties/29560-treaty-0048_-_african_union_convention_on_cyber_security_and_personal_data_protection_e.pdf.

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Due to the recent COVID-19 lockdown, a large portion of businesses, and especially MSMEs,

moved towards e-commerce as a means of generating an income. The lack of regulations and

safeguards however was evident for both businesses and consumers as fraudulent online

sellers proceeded to sell and distribute fake or unsafe sanitisers and disinfectants and faulty

masks at astronomically high rates20.

In a global working paper series, Brookings made some suggestions on “using trade policy to

improve cybersecurity”21. These recommendations are based on the idea that although digital

trade increases the risks related to cybersecurity, trade and cybersecurity policies can work in

unison to strengthen security and grow digital trade:

Access to data: The use of complex analytics and machine learning becomes

increasingly important as cyberthreats become more sophisticated. Forcing data access

to be restricted and localised drastically increases the risk and cost of a data breach.

Having a decentralised storage system for data (such as a blockchain) will have a positive

impact on cybersecurity.

Information sharing: Sharing real-time information on vulnerabilities and threats helps to

promote awareness and help targets adapt and formulate responses is an important

aspect of cyber security. As sharing this level of information is not something that many

companies will be willing to do, the compromise is to share information on past attacks

and responses in a “best practices” format.

Cybersecurity standards: Having cybersecurity standards allows for a common

approach to addressing risks based on best practices. The ISO along with the

International Electrotechnical Commission have developed such a set of standards. They

note that standards are at their most effective when they are used as a framework for

managing risks rather than being a prescribed specific approach to a specific situation. It

is important that governments and businesses tailor these standards to their needs and

risk profiles.

Certification of compliance with cybersecurity standards: Having a cybersecurity

certificate will promote trust between businesses and government. Developing a

cybersecurity certificate scheme in a region such as SACU or SADC will also encourage a

harmonised system while encouraging digital trade with neighbouring countries.

19 African Union. African Union Convention on Cyber Security and Personal Data Protection. 2011. https://au.int/sites/default/files/treaties/29560-treaty-0048_-_african_union_convention_on_cyber_security_and_personal_data_protection_e.pdf.20 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf.21 Joshua Meltzer. Cybersecurity, digital trade and data flows: Re-thinking a role for international trade rules. 2019. https://www.brookings.edu/research/cybersecurity-digital-trade-and-data-flows-re-thinking-role-for-international-trade-rules/.

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Risk-based approach to cybersecurity: the OECD states that cybersecurity should “aim

to reduce the risk to an acceptable level relative to the economic and social benefits

expected from those activities while taking into account the legitimate interest of others”.

Security measures should be appropriate and proportionate to manage the risks identified

by a specific business or government. A risk assessment should be employed to inform

decision making, estimating the risk reduction and the cost thereof.

Skills development and educationIn his 2019 State of the Nation Address president Ramaposa indicated that he will make work of

including technology related skills to students starting in their early school years22. This is a

necessary start to creating a technologically skilled workforce but is not enough. In order to start

generating local technology that will be able to hold its own in the global market, the country is

in dire need of skilled programmers and developers at this very moment. The current

shortcomings can be highlighted by the fact that South Africa globally ranks 89th in terms of ICT

adoption, the WEF’s 3rd pillar of global competitiveness23. Consequently, it is important that we

generate these new technologies in our current working force in order to take advantage of the

booming digital economy. It is important that both private sector and government actively

support and enable the current workforce to develop the necessary skills to start developing

local applications and websites that can compete in the global market. Although there are some

VISA reforms that can be made to more easily import skills that speak to the need over the

short-term, this does not solve the overall issue, but simply provides a quick fix. The overall

xenophobic concerns within the South African economy (although mainly focused around low-

skilled jobs), should be considered, especially as it is fuel by the incredibly high levels of

domestic unemployment.

Jumia, an online e-platform in Africa, similar to Alibaba and Amazon, has developed Jumia

University, a platform that educates users on how to effectively use the platform. In addition,

they offer courses that educate local MSMEs and entrepreneurs on how to effectively participate

in e-commerce and the digital economy in a sustainable way. It is important that the South

African government educates entrepreneurs and MSMSEs on ways that they can participate in

e-commerce. Jumia for example allows local producers to sell their goods internationally and

then assists them in the process. This model can be used in South Africa, where an e-platform

is created specifically connecting MSMEs to international markets, with the addition of advising

them on how to manage their production when they get large orders, how to effectively market

22 President Cyril Ramaphosa. 2019 Sate of the Nation Address. 2019. https://www.wcpp.gov.za/sites/default/files/SONA%202019.pdf. 23 WEF. The Global Competitiveness Report. 2019. http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.

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and price their products, how to source their materials, and any other matters that could further

empower them.

The demand for such online platforms and good quality affordable internet access has

increased dramatically as the coronavirus pandemic has drastically restricted the mobility of

people. ICT infrastructure has recently become crucial not only to skills development, but to

basic education for all age groups24.

In the long run, however, the importance of growing a generation that is technologically

educated and skilled should not be understated. Incorporating a more technology-based

approach into the schooling system will ensure that the technological advances made now are

carried through and further developed in the future. This will ensure that the country continues

going forward and pushing the boundaries25. Foreign direct investment (FDI) has played a

significant role in the development of ICT sectors in some African countries. For example,

Microsoft noticed that Nigeria’s fast-growing software development community and

subsequently decided to invest $100 million in building a software development centre. Future

FDI projects include planning to open a second centre in Nairobi, Kenya. Similarly, tech giant

Google noted a peak interest in AI in Ghana and opened an Artificial Intelligence centre in

Accra. This is the second Artificial Intelligence centre in Africa, the first being developed by

Atlantic AI Labs in Cotonou, Benin. These are just some of the many examples of foreign tech

giants and FDI enabling not only skills development and job creation, but also access to

technologies and funding, which South Africa is in great need of.

Government e-procurementCreating a platform where the government requests tenders for projects online will encourage

local companies to start using the internet as a business tool. If implemented correctly it will also

allow for the tender process to be more transparent and curb corruption26. This can further be

attributed to the premature de-industrialisation dynamic observed in South Africa which is

mirrored by a set of challenges in government’s policy framework. The fragmentation of

government has affected the coordination and implementation of policies across various

sectors, to the detriment of industrial development.

24 WTO. Trade in services in the context of COVID-19. 2020. https://www.wto.org/english/tratop_e/covid19_e/services_report_e.pdf.25 Paul Baker. E-commerce and Digital Trade. 2017. https://read.thecommonwealth-ilibrary.org/commonwealth/trade/e-commerce-and-digital-trade_9781848599628-en#page3.26 Paul Baker. E-commerce and Digital Trade. 2017. https://read.thecommonwealth-ilibrary.org/commonwealth/trade/e-commerce-and-digital-trade_9781848599628-en#page3.

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E-procurement subsequently has the prospect of linking a number of development policy plans,

whilst at the same time empowering MSMEs to partake in the digital economy. Digitalisation

therefore represents a major opportunity to promote the adoption of supply chain tools (such as

ERP and MES) for better supply chain integration27. A chief driver of this adoption will be

supporting MSMEs (especially 2nd and 3rd tier companies) in accessing affordable digital

technology licenses or creating alternative models to reduce the licencing burden. The creation

of a “Catalogue of Digital SMME Suppliers” via an open and competitive digital market platform

(as mentioned above) to match specific technology and production services demand and supply

along and across sectoral value chains could be of huge value to SMMEs. In creating this

platform, government can go a long way in de-risking MSME investments in new technologies

and products using combined technology services and hybrid financing models (such as

matching grants and pre-commercial procurement) could support the inclusion of these firms

within South Africa’s industrial value chains28.

Taxation in digital tradeWhen taxing e-commerce, there are a number of approaches with the two most obvious

methods being either to impose a VAT to consumers or to impose an import tax. A consumption

tax for digitalized activities such as Netflix, eBooks, Microsoft Office, music streaming and a

variety of similar applications and digital goods., was introduced in 2014. Taxing consumers that

are already struggling to partake in the economy.

Another option on taxation to be considered is to offer both domestic and foreign e-commerce-

based companies tax rebates by providing the opportunity to rather use the money they would

pay in tax to invest in infrastructure. This option and subsequent subsidies granted would

however first need to comply with the WTO’s rules on tax rebates. This is similar to how the

United States approached Amazon, instead of paying taxes Amazon uses that money to invest

in developing infrastructure within the country. Another avenue of investments that they focus

on is R&D, which is one of the reasons they are able to continuously develop new technologies.

If companies are allowed to invest their tax money in R&D this will allow them to develop new

and innovative technologies at a much higher rate. Brazil for example used a similar tactic to

attract foreign investors to invest in R&D in their technological research.

27 Justin Bames, et al. Towards a Digital Industrial Policy for South Africa: A Review of the IssuesIndustrial Development Think Tank. 2019. https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5d355997ae8bf40001ee2906/1563777435535/DPIP_Final.pdf.28 Justin Bames, et al. Towards a Digital Industrial Policy for South Africa: A Review of the IssuesIndustrial Development Think Tank. 2019. https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5d355997ae8bf40001ee2906/1563777435535/DPIP_Final.pdf.

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In December 2019, WTO members agreed to maintain the moratorium on customs duties on

electronic transmissions until the 12th Ministerial conference, which has been postponed due to

the COVID-19 outbreak. The WTO and United States made it abundantly clear that they oppose

the idea of implementing custom duties in e-commerce and digital trade or “electronic

transmissions” as they are described in the WTO moratorium. Although South Africa is not party

to this agreement, it is important to remain in good standing with the United States and the

WTO. In order to do so, it could be considered to implement custom duties for a fixed period of

time, this will allow new industries to grow and develop in a more protected environment. It will

also ensure that they prepare themselves for when they need to compete without an advantage

in the future, while ensuring compliance with the WTO and expectations of the USA.

The moratorium can be advantageous, even if South Africa is not party to it. The member

countries agreed to remove all customs duties on a set of predefined electronic transmission

goods. They also agreed that the Most Favoured Nation (MFN) rule still applies, which means

that South Africa will still be able to take advantage of these low prices, without having to

consent to the terms and conditions outlined.

The Global Services Coalition (GSC) describes the moratorium on electronic transmissions as

“an especially valuable mechanism for expanding the benefits of e-commerce and cross-border

trade to developed and developing countries alike”29.

In June 2020, the Parliamentary Budget Office released a tax brief: “Digital Economy and

Taxation Policies”. The two main reasons are cited as governments concern that digitalization

leads to high unemployment and the fact that tax revenue has been declining and they believe

that digitalization is to blame. On the first point, many arguments have been made on

digitalization, stating that it would increase unemployment, decrease unemployment or

reallocate employment, such as was the case in the other three industrial revolutions30. But no

consensus has been made to either side. Digitalization through Applications such as Uber for

example is blamed for taking work away from taxi drivers, while creating a new stream of

income for unemployed individuals with limited skill sets and qualifications (provided they have a

road worthy vehicle). Similarly, AirBnB is accused of taking business away from users that are

not digitalized, while creating a platform for people with an empty room in their homes or a flat

on their premises to reach willing clients, generating an additional income for these people,

while creating employment as many of these people use domestic workers to clean the lodgings

29 Global Services Coalition. Current WTO Debate on the E-Commerce Moratorium: Scope and Impact. 2020. https://www.thecityuk.com/news/current-wto-debate-on-the-e-commerce-moratorium-scope-and-impact/.30 Richard Baldwin. Globotics Upheaval. 2019.

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and in some cases cook meals. The argument for digitalization and employment states that

although jobs may be lost in manufacturing, for example, a wide range of jobs are created in

different sectors (as was the case in each of the other three industrial revolutions). With more

jobs being generated in the IT and digital sectors. The re-skilling of workers and the up-skilling

of unskilled workers holds its own challenges and solutions.

The digitalization of the economy alone cannot be blamed for the lack in revenue generated by

tax. Studies have shown that the lack in revenue can as much be blamed on the lack of

spending power individuals have, high unemployment rates, a lower than inflation increase in

salaries31 32.

The OECD estimates that imposing duties on electronic transmissions would generate a less

than meaningful increase in total government revenue of between 0.08% and 0.23% of total

revenue for developed countries. This is because only a small portion of trade can be digitalised

(approximately 1%)33. The study estimates that South Africa would lose over 25 times more in

economic growth from imposing duties than it would gain in revenue collection34 35.

As the use of technology increases, companies of all sizes will become more reliant on

technology and digital services such as digital marketing, electronic payments, tracking

shipments, communication, accounting, computer storage tools, etc. Imposing duties on

electronic transmissions could very likely, discourage overall trade and hamper

competitiveness, undermining growth, rather than encouraging it36. This also creates concerns

of potential double taxation37. Furthermore, digital transactions have an adverse effect on

corruption, because digital transactions are easily documented and transparent, thus keeping

these transactions duty-free plays towards government’s goal of reducing corruption.

31 BBVA OpenMind. Work in the age of data. 2020. https://www.brookings.edu/wp-content/uploads/2020/02/BBVA-OpenMind-Zia-Qureshi-Inequality-in-the-digital-era.pdf.32 IMF. IMF Fiscal Monitor: Tackling inequality. 2017. https://www.imf.org/en/Publications/FM/Issues/2017/10/05/fiscal-monitor-october-2017.33 Global Services Coalition. Current WTO Debate on the E-Commerce Moratorium: Scope and Impact. 2020. https://www.thecityuk.com/news/current-wto-debate-on-the-e-commerce-moratorium-scope-and-impact/.34 Global Services Coalition. Current WTO Debate on the E-Commerce Moratorium: Scope and Impact. 2020. https://www.thecityuk.com/news/current-wto-debate-on-the-e-commerce-moratorium-scope-and-impact/.35 Hosuk Lee-Makiyama. The Economic Losses from Ending the WTO Moratorium on Electronic Transmissions. 2019. https://ecipe.org/publications/moratorium/.36 Global Services Coalition. Current WTO Debate on the E-Commerce Moratorium: Scope and Impact. 2020. https://www.thecityuk.com/news/current-wto-debate-on-the-e-commerce-moratorium-scope-and-impact/.37 Marilia Maciel. Understanding the benefits to developing countries resulting from the moratorium on duties on electronic transmission. 2019. https://dig.watch/resources/understanding-benefits-developing-countries-resulting-moratorium-duties-electronic.

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The COVID-19 pandemic has put incredible pressure not only on businesses, but especially on

consumers, with salaries being reduced, jobs being lost, and price-hikes for basic goods, which

has had an adverse effect on consumer welfare. Imposing duties on electronic transmissions

will put further pressure on consumer welfare considering that digitally delivered products are

considerably more cost-effective at the moment (due to the lack of transportation cost).

Some concerns have been voiced regarding the implementation of such duties. It would be a

complex and time-consuming process, if it is done fairly, as it would require the identification of

the “origin” of the data transfer. This will be difficult considering the dynamic nature of data

flows. Data being transferred is divided into separate packages from separate locations and is

only assembled into a “full final product” at the destination38. In this case, the bulk of the burden

will be carried by small and medium enterprises in terms of examining the different potential

points of origin for the service or product being provided, as they have less resources to devote

to such activities39.

Encourage exportsIn order to take full advantage of digital trade it is important to be able to export not only goods

and services but also digital products that are created domestically. In a country which has

recently overturned a decade long trade deficit into a surplus, the encouragement of export

promotion through avenues other than the traditional, tangible ones will resonate with existing

policies.

In order to gain momentum with the export promotion of also the digital economy, there are

incentives that can be used to encourage local producers and developers to export their goods,

such as subsidies. It is common for developing countries to impose a variety of import tariffs to

protect new industries and make them more competitive. In the case of technologies however

this is not ideal, e-commerce can be improved by allowing them to use already existing systems

to their benefit. This will speed up the process of development and allow for more innovation as

they have access to a wider variety of software and technologies.

When exporting through e-commerce and exporting digital products it is important to identify

sectors with high potential, where people are skilled and resources are easily accessible and

38 Global Services Coalition. Current WTO Debate on the E-Commerce Moratorium: Scope and Impact. 2020. https://www.thecityuk.com/news/current-wto-debate-on-the-e-commerce-moratorium-scope-and-impact/.39 Marilia Maciel. Understanding the benefits to developing countries resulting from the moratorium on duties on electronic transmission. 2019. https://dig.watch/resources/understanding-benefits-developing-countries-resulting-moratorium-duties-electronic.

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giving particular attention to these sectors, as they are more likely to succeed. Investing time

and resources into exporting higher value goods will also ensure for higher revenue40.

MSMEsTech start-up companies play an integral role in both e-commerce and the digital economy.

Many of these start-ups develop applications and software that can be traded internationally. It

is important that these start-ups have the opportunity to develop, promote and sell their

products, as in many cases they are the innovators, the ones that break the mould, so to speak.

As previously mentioned, tech hubs are an ideal way to encourage and enable these start-ups

and give them the opportunity to develop their ideas. These hubs can be subsidised by the

government or other incentives can be implemented to prompt mobile operators and internet

services to create more of these.

It is also important to promote and enable MSMEs to take part in e-commerce. They need to be

educated in digital technologies, computer literacy and e-commerce in order to be able to take

full advantage thereof. Government can develop special programmes specifically aimed at

developing MSMEs.

In addition to educating them in the digital economy, it is important that the domestic

environment encourages and enables the establishment and growth of MSMEs. Red tape

preventing them from establishing themselves in the domestic market or partaking in e-

commerce should be cut, and a sort of fall-net should be in place in order to support them

should their exporting ventures fail.

During the COVID-19 pandemic many MSMEs were forced to close or restrict their operations

due to stringent lockdown regulations. Many of these MSMEs used the pandemic as an

opportunity to move to e-commerce, as opposed to walk-ins, for their source of sales, using

platforms such a Takealot and social media to market and sell their goods.

Regional digital trade policySome of the external barriers to e-commerce include a lack of harmonisation between different

regions, regulatory differences between countries, inadequate mechanisms for settling cross-

border disputes, security issues, restrictions on cross-border data flows, and inadequate

transport and logistics networks for transporting goods online41.

40 Paul Baker. E-commerce and Digital Trade. 2017. https://read.thecommonwealth-ilibrary.org/commonwealth/trade/e-commerce-and-digital-trade_9781848599628-en#page3.41 Paul Baker. E-commerce and Digital Trade. 2017. https://read.thecommonwealth-ilibrary.org/commonwealth/trade/e-commerce-and-digital-trade_9781848599628-

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When making policy decisions and developing strategies for digital trade, it is important to

discuss these decisions at least on a SACU level. Having agreement between SACU members

will allow for a harmonised system, which will make the implementation of especially customs

changes considerably more efficient. The implementation of a blockchain for customs would be

exceptionally efficient should it be implemented between SACU members as this will speed up

overall trade between the countries while encouraging e-commerce trade within the region.

Having a harmonised system will be of especially big advantage when the AfCFTA comes into

full force and negotiations on an e-commerce strategy and policy begin, as they have made

clear will be on a future agenda.

In 2012, SADC released the Regional Infrastructure Development Master Plan, with a chapter

focusing on ICT. The Master Plan divides ICT development into four pillars:

1. Infrastructure

2. Capacity building and content

3. E-services and other application

4. Research, innovation and industry development.

The committee responsible for ICT development proposed four key projects to develop ICT

within the region:

Project title Participating country

1. DTT migration support to SADC member

states

Selected SADC member states

2. SADC regional information infrastructure

phase II

All SADC member states

3. National and regional internet exchange

points (N/RIXP)

All SADC member states

4. SADC regional and national integrated

broadband infrastructure

All SADC member states

The AfCFTA will be the first African trade agreement that will incorporate e-commerce (which

may be on the negotiating agenda in 2021) and digital trade, although not specifically described

as such, in the agreement. The AfCFTA draft of establishment makes note of information

technology and indicates that each state party should use ICT to the best possible extent to

improve trade and logistics for intra-Africa trade. The Article (Article 17 under Annex 4) states

that import and export documentation that needs to be completed must be available on an

en#page3.

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online platform and importers or exporters should be able to submit the documentation

electronically. In terms of digital trade, the Article states that an electronic system should be

established that will allow for the exchange of data and trade information. State parties will be

required to collaborate in order to ensure that the electronic systems are mutually compatible,

which will in turn aid the intergovernmental exchange of said trade data. The agreement also

states that the second phase of negotiations between state parties will include two important

topics, intellectual property rights and competition policies, both key aspects to take note of

when discussing digital trade. This is a large step in the right direction as it creates a platform

that in future will assist in dealing with complex issues, such as trade in personal data.

ConclusionThis industry position paper paper contained an objective and consolidated view from the

Private Sector (BUSA) concerning digital trade. The COVID-19 outbreak has highlighted the

importance of digital trade policies. As outlined throughout this position paper, there are a

plethora of strategies that can be adopted and implemented in ensuring that South Africa can

partake in e-commerce and the greater digital economy. It is therefore important to be familiar

with the concepts of e-commerce and digital trade and understand their functioning in order to

develop accurate strategies to grow in these aspects.

As a start, some of the main aspects that South Africa should focus on is developing the

infrastructure and ICT infrastructure to increase internet connectivity. This has become a

necessity as we enter the fourth industrial revolution. Furthermore, a sound legal and regulatory

framework which deals with new issues such as the trade of personal digital data needs to be

developed since the will play an integral role in fostering a trust-based relationship between the

population, government and the internet.

In further creating a conducive space to move into the future, education in technology should be

initiated at an early stage. Nonetheless, for the short term it remains important to use the

resources currently at hand to catch up with countries such as China and the United States.

Export strategies should be focused around high value goods that are easily developed

domestically with resources and knowledge within our borders.

When developing a digital trade strategy, communication and cooperation with other SACU or

even SADC members will allow for much easier and smoother digital integration in the future. A

strong digital trade strategy will be one developed and implemented by government, the private

and the public sector.

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