Trading in the digital economy

Jan 15, 2018|Fadekemi Abiru

We all do it. From the mechanic who uses his skills to fix your car, to the tailor who turns your yards of fabric into an outfit, exchanging goods and services for money has become a way of life. 

Ever since Riccardo convinced the world that economies could trade their way out of poverty, countries have exchanged everything from cars to toothpicks.

200 years after Riccardo, we now accept that 'data flows are the new shipping containers.' The latest inventions in the digital space such as eBay, Amazon and Alibaba are now revamping the way countries trade, with implications on how we do business.

In 2016, cross-border bandwidth use was 45 times larger than it was in 2005. These international data flows are predicted to reach $20 trillion by 2025 - more than the current size of goods traded. When trade in goods was the dominant means of exchange, developing countries like Nigeria found they could only export low-valued products (think of our miserable history with crude oil). As a result, our contribution to global trade has been weak, with our exports accounting for only 0.21% in 2016, down from a peak of 0.64% in 2011.  

The need to ramp up our trade game could not be clearer, and plugging into the digital economy could help. While Nigerian internet users hit 94.8 million in November, the country is still lacking an umbrella effort to fully harness any gains from the digital economy. Where Ethiopia has invested in advanced analytics so that indigenous businesses can use big data to get further insight into customer behaviour, data analysis is still underdeveloped in Nigeria. Digitised trade could open new development doors for us, so that engines of growth like SMEs can go global and compete with larger multinationals.   


Go digital or go home

The hype around the digital economy is not unfounded, as it is changing the way businesses and consumers interact. An entrepreneur selling hand-made wigs could open a salon for visiting customers. Or she could go digital and upload samples to a website or Instagram page and carry out transactions online. That's trading in the digital world.

Perhaps the biggest advantage of digitised trade is the opening of new markets for small businesses that are less involved in international trade and invisible to foreign direct investment. So, while financing and credit insurance support 80% of global trade, 70% of SMEs in developing markets like Nigeria lack access to credit. 

Without a broad set of digital solutions, SMEs in the Nigerian economy run the risk of being stuck at the end of value chains as they cannot participate in trade ecosystems.

To avoid re-living our oil nightmare, the private sector needs to grow and doing this involves Nigerian businesses accessing consumers as well as the regional and global production networks that dominate global trade today. Internet platforms can help with this. China's answer to Amazon, Alibaba, has successfully ushered the Chinese economy into the business world. In Kenya, the M-PESA digital payment platform is allowing businesses exploit economies of scale, helping them reduce their costs.

Digitisation solves real and urgent problems. Presently, international payment platforms are unwilling to open accounts for businesses registered in Nigeria. PayPal, for example, has about 152 million active accounts and is available in 200 countries. However, businesses in 13 African countries can use PayPal to receive payments, and Nigeria is not one of them. True, we have Yahoo boys to blame for this, but we can create our own alternatives.

Startups like paga are already trying to help Nigerian companies trade easier with consumers and businesses within and outside the country. Their efforts are worthwhile because going digital would help Nigerian retailers bypass several intermediaries when conducting business, which decreases their costs substantially. 


Zero-Sum or Positive-Sum?

Unfortunately, like the traditional methods of trade did, the digital economy will produce winners and losers. Businesses that use digital platforms to get products to customers faster and more reliably are one of the obvious winners. Farmers embracing mobile technology are also a good example of how the digital space can empower those at the bottom of the pyramid. However, as has been seen even in the developed world, the threat of advanced technologies replacing human jobs could start to creep - compounding our already enormous unemployment problem. 

This only highlights the importance of public sector support, which can not only create a conducive environment for winners to boom but also aide the transfer of losers to more productive activities. Digital leadership should be at the center of development policies so that Nigerian businesses (and people) can be ready for opportunities and threats. As availability and costs keep improving, data if given a chance, could be our new 'black gold.'


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