Shift to a services era While Africa’s trajectory remains full of daunting challenges, there is reason to be optimistic. Ratification of the Continental Free Trade Agreement demonstrates critical collaboration between African leaders, and promises to unlock the region’s potential. Equally important, growing investments in broadband ensure that affordable access to leading technology will accelerate the continent’s productivity.However, the tried and true path to higher income economies through manufacturing is changing. Research by McKinsey Global Institute finds that developing countries have a lot of cheap labor at a time when decisions based on labor cost are declining. Conversely, global trade in services has grown more than 60 percent faster than traditional goods traded over the past decade, and the U.S. International Trade Commission reports that half of all global trade in services depends on access to cross-border data flows.
Globalization is entering a new phase defined by “information,” where millions of small and midsize businesses are building e-commerce marketplaces to trade with the rest of the world. In a digital world, technologies like cloud computing, blockchain, artificial intelligence and machine learning are the drivers of future economic growth. These technologies don’t just benefit from the open flow of data across international borders, they depend on it, and so will Africa’s future.
Cross-border data flows are critical to Africa’s prosperity
The most recent DHL Global Connectedness Index — which ranks 169 countries by international flows of trade, capital, information and people – indicates that African countries lag behind with considerably lower averages of connectedness. The index shows that the gap is greatest in information flows where advanced economies are nine times as deeply integrated as developing countries.
Progress in some African jurisdictions may be undermined by regulations requiring that data remain within national borders. Data localization requirements fall in three categories. The first category includes the broad application of laws designed for outdated methodologies in a digital era where information is captured and processed in a fundamentally different way. The second category stems from growing anxiety around cyber and national security concerns, despite data classification standards that enable organizations to categorize and manage data based on different priorities and levels of sensitivity. A third category appears to be fueled by catchy claims that “data is the new oil.” Is it? The underlying logic suggests that African states should keep and process that “oil” within their borders. But when one realizes that oil is a scarce resource that can be used only once, whereas information is infinitely plentiful and reusable, the analogy falls apart. One thing that is clear in a growing digital age, the future of Africa’s development depends on African states being connected to and trading goods and data-driven services with the rest of the world.
A study by the European Center for International Political Economy on the economy-wide impact of data localization policies in the European Union shows diminished innovation and productivity, and finds that restrictions on the movement of data far outweigh any marginal gains for the domestic Information and Communications Technology sectors. But unlike the European Union, the African continent lacks a common and enforceable data protection regime. Most African states have no specific data protection regulation, and instead rely on a patchwork of civil, criminal and constitutional laws for a data protection framework and individual rights of privacy — which may explain the rush to protect our “new oil.”
Africa’s policymakers are on track to get it right
Africa is at a critical inflection point. The continent’s ability to compete in a services and data-driven global economy hinges on whether African entrepreneurs and enterprises will be free to innovate and scale their products and services using the most advanced commercial cloud technologies powered by cross-border data flows.
Trust in the security of cross-border data flows will increase as the continent adopts harmonized privacy and data protection policies and regulations in line with the most measured and enabling international standards. The African Union Convention on Cybersecurity and Personal Data Protection (Malabo Convention), which seeks to create a continental data protection framework, has been signed by 14 of 55 member states. A working draft of the Digital Transformation Strategy for Africa reflects a priority to support ratification of the Malabo Convention and the Budapest Convention on Cybercrime during the 2020 session of the African Union.
Bottom line: There is good reason to be optimistic about Africa’s development trajectory. Overly broad data localization requirements would undermine the continent’s progress. With global trade in services growing more than 60% faster than traditional trade in goods, Africa’s success in a data-driven era will depend on modern and harmonized regulations that protect the open flow of data across international borders. Africa’s policymakers have every opportunity to get it right.
This article was first published by The Africa Report and can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.