Expanding the Global Digital Economy through Aid for eTrade
At Nextrade, we are constantly thinking about what's coming in global economic and trade. One huge value driver is the digital economy, and this piece, also published in Ideas Lab, lays out how to accelerate digitization in the developing world. Our CEO is also starting a projet with eBay to drive this very topic. Here goes:
Sidelined by the proliferation of regional trade agreements, the World Trade Organization (WTO) is in an existential crisis as it prepares for the December Ministerial in Bali. Yet the world body needs to look no further for a new mission than at the ongoing revolution in world trade – the explosion in cross-border e-commerce.
The international trade community, including the WTO, has in the past few years been fanatically focused on policies that help developing countries tag onto global value chains spearheaded by giant multinationals. Yet this excitement comes late in the game – corporate supply chains have globalized since the 1980s. What’s more, they may be shrinking: corporations are insourcing, and increasingly accessing parts and components not from containers but the cloud, printing them right where they are assembled into final goods.
What is decidedly not shrinking is cross-border e-commerce. Future world trade will be driven by individual consumers purchasing goods and services online. Cross-border online B2C and C2C transactions, still trailing far behind B2B trade, are bound to explode between now and 2025, as 5 billion to-be Internet users log-on across the developing world. Once this happens, developing country consumers gain access to an ocean of products at world prices; developing country companies can overnight start selling to wealthy buyers around the world.
Bridging the digital divide delights not only socially mobile shoppers. It is also jet fuel for world trade and hosts of public goods, from online education to branchless banking and government transparency. According to McKinsey, such changes could propel Africa’s private consumption a staggering 13 times above current levels by 2025. And developed countries, especially the United States, will too score great gains, most immediately by exporting online to the billions of developing country consumers. Already, 97
percent of American small businesses that sell on eBay also export on eBay.
As online trade globalizes, e-commerce will no longer need the “e” – it will be the mainstream way of trading across borders. But this world of complete connectivity does not come about on its own. There are two barriers.
The first is politics: all too many developing country governments are cracking down on the web due to political imperatives and protectionist impulses, and far too many governments require Western IT firms to set up data centers in their nations as a precondition for market access. As examples, in September Vietnam decreed that foreign internet companies must have at least one server each within the country’s borders, and Brazil has toyed with a similar idea more recently.
The second barrier is money. Developing world’s transition to the digital age takes investments, including in broadband access, computerization, data security, e-learning opportunities, and, very important, e-commerce-related capacity-building for SMEs, including for exporting – which requires locating foreign customers in the cyberspace; marketing to them via social media and e-commerce platforms; branding, labeling, and pricing products for foreign customer tastes; creating a multichannel shopper strategy; and so on, or many of the same hoops offline exporters needs to jump through.
The trade community, led by the WTO, can play a proactive role in overcoming these hurdles by launching a concerted effort called “Aid for e-Trade.” Aid for e-Trade is a close cousin of the global, WTO-led Aid for Trade agenda, which has since 2005 invested $200 billion in boosting developing countries’ trade, largely in infrastructure and productivity in such sectors as agriculture. Aid for Trade has worked: overall, each doubling of assistance boosts developing countries’ exports by 5 percent – and doubling resources in trade facilitation increases developing country exports by 10 percent, a massive gain.
The annual Aid for Trade funding has grown by 80 percent since 2005 – but IT-related investments make up only 1.2 percent total. Given the catalytic potential of online trade, even modest pro-e-commerce investments could yield great gains. But unless a stand-alone initiative, Aid for e-Trade risks being overshadowed by the traditional focus areas of Aid for Trade.
Timing is perfect for Aid for e-Trade, for four reasons.
First, if there is one success in Bali, it will be an agreement on trade facilitation, critical for trade in goods sold online.
Second, Aid for e-Trade gives the WTO new, highly relevant things to do right when it needs some – and it builds on Aid for Trade, the WTO’s one success story over the past decade.
Third, a powerful public-private coalition could quickly converge behind Aid for e-Trade. Among the countless winners from an accelerated expansion of the web and e-commerce to developing countries are e-commerce platforms such as eBay and Amazon, could computing and network services such as IBM or Cisco, computer makers and semiconductor companies from Dell to Intel, search engines such as Google, banks and credit card companies, millions of e-commerce businesses in developed countries, shipping and logistics firms looking to move parcels over long distances, and governments that are racing to create jobs through exports.
Fourth, Aid for e-Trade is well-timed also as it can be conditioned on the removal today’s troubling bottlenecks to trade, such as government-imposed limits to Internet use, and developing countries’ protectionism in trade in services. Comprehensive services liberalization from the ongoing International Services Agreement talks would boost world GDP by 2.3 percent – the equivalent of South Africa’s economy. Used as a carrot, Aid for e-Trade can lure a larger set of developing countries into these talks, and help seal the deal.
Aid for e-Trade is a timely, high-impact value proposition. Structured right, it will accelerate global business, free trade, and economic growth – and help spread world-class education, de-bureaucratize doing business, and democratize markets across the developing world. Multiple industries, millions of exporters, and countless of governments would line up in support. As the WTO looks for quick wins, here is one.