Discussion Paper No. 302 of 2023 on Effect of Trade Digitalization on Kenyan Exports to the African Continental Free Trade Area

Abstract

The African Continental Free Trade Area (AfCFTA) aligns with the Kenya National Export Development and Promotion Strategy (2018), which acknowledges the significance of regional integration in achieving the Kenya Vision 2030. The AfCFTA provides an opportunity for Kenyan goods and services to reach new markets across the African continent. This paper examines the effect of trade digitalization on Kenyan exports to AfCFTA. Specifically, the study examines the effects of information access, ICT infrastructure, digital payments, addressing systems, and cyber security on flows of exports to AfCFTA. These are key pillars that anchor digital trade. An analysis using the Vector Autoregressive (VAR) model on time series data has shown that investing in ICT infrastructure and promoting digital transactions can boost Kenyan exports to the AfCFTA. The study found that access to information had a positive and significant effect on exports, with the Internet being the main source of information on digital trade. The availability of digital infrastructure was also found to be crucial, as exports rose with increased international bandwidth. Digital payments were identified as a key factor in increasing Kenyan exports to the AfCFTA. Furthermore, the country's addressing system was found to have a positive and significant effect. The findings indicate that an increase in the capacity to send more outbound commodities by courier leads to a rise in Kenyan exports to the AfCFTA. To fully tap into opportunities presented by digital trade, issues relating to digital interoperability, digitalization of customs border processes, cyber security, digital trust, consumer protection, e-signatures, e-invoices, e-payments, data protection, investment in big data, e-taxation and digital tax administration, and dispute resolution could be given priority. Kenya could finalize the development and approval of the draft National Addressing Policy (2023) and the draft National Addressing Bill (2023), undertake full implementation of the Information Communication and Technology (ICT) Policy Guidelines of 2020, advocate for harmonization of data protection laws among AfCFTA members, and consider having a chapter on digital trade in current and future negotiations for trade agreements, strategic investment and economic partnership frameworks with specific focus directed towards supporting knowledge and technological transfers to Kenyan exporters.