Digital trade poised to stimulate economic growth

Getting your Trinity Audio player ready…

Digital trade is poised to stimulate economic growth, a training workshop for journalists on the African Continental Free Trade Area (AfCFTA) has established.

This was revealed by John Stuart, an associate of the Trade Law Centre (Tralac) during a 2-day training for media practitioners in Cape Town, that ran from the 6th to the 7th of July 2023 in South Africa.

“We are witnessing a growth in digitally enabled transactions of trade in goods and services. These can either be digitally or physically delivered and that involves natural and juridical persons. This encompasses all cross-border transactions that are either digitally ordered (i.e., cross-border e-commerce), digitally facilitated (by platforms), or digitally delivered.

“Digital trade growth is outstripping conventional trade and the proportion of digitally-delivered services (DDS) out of total TIS rose rapidly in 2020 due to Covid-19. However, the pandemic caused an abrupt downward adjustment in all forms of trade and the adjustment was more extreme for Africa than the rest of the world,” Stuart said.

He said there are multiple players and systems supporting the digital economy and emphasised that these need to be in place in order for the digital economy to be viable.

Stuart said the backbone of the digital economy is mobile and fixed broadband, but other service providers and skills need to be in place.

“Digital delivery has a huge scope: entertainment, cloud services, SaaS and platforms have defined new consumption, production, and delivery methods and disrupted old ways of doing business permanently. This creates a variety of new legal issues and cross-border issues. Marketplace platforms and ‘multi-sided digital platforms’ (eg Lyft, Bolt, AirBnB) are highly accessible platforms for SMME entrepreneurs but require tailored regulatory attention,” he said.

Stuart alluded to current global economic and trade developments. He said in the West, the US economy had been in a phase of slow but positive growth in the mid-2010s. Europe and the UK had tended more towards stagnation and a recession was predicted even before the Covid-19 pandemic.

Growth in the BRICS economies averaged 6.3% in 2019, with South Africa (SA) being the lowest of those. Other African economies continued to show good growth, especially those with more diversified economies

Prior to the pandemic, global demand had already fallen and this had dampened trade growth. Trade tensions – the most significant being the US-China trade war –undoubtedly played a part. Biden has not removed most of the Trump-era tariffs.

Global trade rebounded strongly in 2021, to a level 13% higher than the pre-pandemic level. Trade growth accelerated towards the end of 2021, as normalcy returned in many spheres. This pace was not expected to be maintained into 2022. However, due to inflationary risks in the world economy and the Russia-Ukraine war, continued supply chain disruptions also dampened trade growth in 2022.

“The semiconductor shortage persists, and in April 2022 and subsequently, China went into lockdown again in its industrial heartland. Gross trade in services returned to pre-pandemic levels only in the fourth quarter of 2021. Some types of services grew during the pandemic (ICTs) but some dropped (transport, travel, tourism). Trade growth among developing countries (‘South-South’ trade) outstripped that among the developed world in 2021.”

Turning to the global economic and trade developments for 2022-23, Stuart said global trade reached more than $32 trillion in 2022, but growth turned negative during the last quarter of the year.

“Developing countries’ trade was particularly weak during the fourth quarter of 2022, with East Asia and Latin America underperforming. While manufacturing trade declined overall, trade in environmentally friendly goods continued to increase throughout the second half of 2022. UNCTAD nowcasts suggest continuing trade stagnation for the first quarter of 2023, but the outlook is more positive for the second half of the year,” he added.

Global trade reached a record US$ 32 trillion in 2022. Trade in goods was about US$ 25 trillion (an increase of about 10 percent from 2021) and trade in services totaled about US$ 7 trillion (an increase of about 15 percent from 2021).

Stuart said those record levels are largely due to robust growth in the first half of 2022. Conversely, trade growth has been subpar during the second half of 2022, especially in the last quarter of 2022. In Q4 2022 trade in goods declined by about US$ 250 billion relative to Q3 2022. Trade in services remained virtually constant.

The UNCTAD nowcast for Q1 2023 indicated global trade in goods to increase by about 1 percent, while trade in services was expected to increase by about 3 percent on the same basis.

Despite rising geopolitical tensions, global trade has proven to be remarkably resilient during 2022. However, deteriorating economic conditions, the lifting of zero-COVID policies, and renewed concerns about inflationary pressures have resulted in a significant trade slowdown during Q4 2022.

While the economic outlook has improved, global trade growth is expected to remain subdued in 2023, with the possibility of a pickup in the second half of the year. Overall, although the outlook for global trade remains uncertain, the positive factors are expected to compensate for the negative trends.