E-commerce opportunities for entrepreneurs in Least Developing Countries (LDC’s)

1. Introduction

Digital transactions are made every day. It is one of the fastest growing industries of our time. The arrival of e-commerce changed existing trade flows. Transaction costs have decreased while transparency has increased. It potentially offers new opportunities to both developing and developed countries. The WTO realized this in 1998 when they adopted the Work Programme on Electronic Commerce. E-commerce comprises of “the production, distribution, marketing, sale or delivery of goods and services by electronic means” (WTO, 2019). Four bodies in the WTO were charged with the responsibility of carrying out the Work Programme; The Council for Trade in Services, the Council for Trade in Goods, The Council for TRIPS, and the Committee on Trade and Development. As the WTO Statistical Report (2018) has shown, telecommunications, computer and information services was the most dynamic services industry of 2018.

Current negotiations at the WTO aim to enhance market access to digital trade. This provides unique opportunities for SME’s to entrance to international markets in developing countries. LDC’s themselves are also becoming more conscious about the opportunities that digital trade can provide. During the negotiations on the Joint Statement Initiative (JSI) on E-commerce countries such as Senegal and Cote D’ivoire are actively involved in transferring the interests of LDC’s within the WTO. However, opponents argue that a free digital trade market will push out new SME entrants of developing countries due to the strong competition of large multinationals, which dominate the market. SDG target 9.c. implies to: significantly increase access to information and communications technology and strive to provide universal and affordable access to the internet in Least Developed Countries (LDC’s) by 2020. Although the deadline has been reached there is much more work to be done.

The following short paper will provide a theoretical framework of hurdles that digital trade entrepreneurs in developing countries have to face identified by international organizations such as ITC, World Bank, WTO, UNCTAD and the academic environment.

1. Theoretical Framework

1. Opportunities

One of the major advantages of digital trade is the reach of digital products. Through the use of mobile phones, previous digitally unreachable areas are now connected to the world (Minsker, 2014). Different international organizations and institutions have provided recommendations and opinions on the topic of digital trade over the past years.

According to World Bank data secure internet servers in the world increased from 187 thousand in 2019 to 6169 thousand in 2018 per million people (World Bank data, 2019).  People have the possibility to work from remote areas during every moment of the day. Government can become more efficient through the use of e-governance, e-education and enhanced transparency. In addition, individuals have the possibility to make use of economic opportunities through access to knowledge, efficiency and increased productivity (Hussain, 2013). The global digital economy was worth $11.5 trillion, or, 15.5% of the world’s GDP in 2016 (World Bank Data, 2019). Diverse types of e-commerce are most prevalent on the internet, namely: Business-to-business (B2B), Business-to-consumer (B2C) and Consumer-to-consumer (C2C). All of these facts suggest that there are major opportunities available which could foster economic growth in developing countries.  

• Hurdles

Individuals in developing countries often have limited access to the internet. Although access immensely increased due to access through phones some segments of the population are still slacking behind. Basic infrastructure facilitating hardware, a network and ICT eco-system are limited (Van Walsum, 2016). Especially women and the poorest segment cannot afford, or are not even socially allowed, to have access to the internet in developing countries. This gives them a significant disadvantage in the digital trade world, which is hard to overcome. According to statistics of the International Telecommunications Union only approximately 17.8% African people have access to the internet in 2019 (ITU, 2019). This results in the so-called Digital Divide (Banga, 2019).

The World Bank, in cooperation with UNCTAD created the World Integrated Trade Solution (WITS). This is a data-base which allows one to see the e-trade indicators of a country and thus also shows the sectors in developing countries in need of improvement. Another example is the UNCTAD B2C E-commerce index, which provides information about the readiness of a country to engage in e-commerce (2015).

According to ITC there are six main hurdles that developing entrepreneurs face; 1) difficulties with international banking transactions, 2) exclusion from international e-marketplaces 3) infrastructure deficit 4) inexperience with sales tax and import duties 5) sociopolitical barriers 6) the remaining digital divide. ITC hereby proposes a mix of both hurdles caused by institutions and individual capacities. The World Bank also points to the operating government as a contributor to the digital divide by for example imposing regulatory entry barriers. Furthermore a government can contribute to an inefficient business environment by not ensuring and implementing policies regarding entry- and exit barriers, access to finance, bankruptcy regulation, data and privacy protection and market fragmentation (Van Walsum, 2016).

Besides international organizations the academic environment has also shown a growing interest in identifying the greatest barriers to developing digital entrepreneurs. Case-studies in for example Kenya and Cameroon have shown that the social attitude towards digital trade plays a significant role simultaneously. Misinformation and misperception of the opportunities of digital trade cause entrepreneurs to be discouraged to enter the digital market (de la Chaux & Okune, 2016; Boojihawon, & Ngaosong, 2018). Another cultural preference may be towards face-to-face interaction (UNCTAD, 2015).

These different perspectives show that there are many hurdles that need to be addressed for a developing entrepreneur to engage in digital trade and benefit from the opportunities it may entail. These challenges are often related to institutions in place, absence of the right market-conditions, a lack of digital infrastructure and a lack of required knowledge and self-confidence of the entrepreneur. Aim should be to lower these barriers with use of international cooperation. Developed countries can play a large role in establishing this, and should take on this responsibility.   

• Thinking about solutions

SG of UNCTAD proclaimed in May 2019: “Boosting the Digital Economy requires a new way of thinking, not only from entrepreneurs but also from governments”.

Existing initiatives

Several international e-commerce initiatives have emerged during the past years. In 2017 the WTO, WEF and the Electronic World Trade Platform jointly launched: Enabling E-commerce Initiative on how SME’s could better leverage e-commerce. The African Union has also attributed considerable attention to the digital transformation agenda. Participation and inclusion of this group is of utmost importance. During its summit in 2020 the AUC intends to present The Digital Transformation Strategy for Africa. International organizations and developing partners would support this initiative by providing technical and financial assistance, including the EU. Key pillars in this strategy are: 1) digital infrastructure, 2) digital platforms 3) digital financial services 4) digital entrepreneurship 5) digital skills. Another initiative which involves the EU is the EU-AU Digital Economy Task Force. Korea has also been actively involved in promoting the digital economy with a project named ICT4D. It focusses on e-transformation, Green IT, Broadband Connectivity Infrastructure. Furthermore UNCTAD for example also creates Rapid eTrade Readiness Assessments which helps developing countries to become conscious about the areas that need improvement. In addition, offering support to SME’s is crucial according to ITC. ITC has several technical assistance programs in place.

Digital Divide

Africa: A recently published report of the Broad Band Commission supported by the The World Bank Group and the IMF suggests a total of $109 billion would be needed to bridge the digital divide between the North and the South of the African continent before 2030. In North Africa only 2 percent remains out of reach of 3G networks, while the share is much larger in the South of Africa, namely 33 percent. This amount of money should be invested in the deployment of 250.000 new 4G base stations and 250.000 kilometers of fiber across the region. Additionally $18 billion should be invested in the establishment of a digital ecosystem to develop basic digital skills and include women in the process (Broad Band Commission, 2019). The ITU published Interactive Transmission Map, an ICT-data which provides detailed information about national backbone connectivity (optical fibers, microwaves and satellite Earth stations) (ITU, 2019).

Market Access

As UNCTAD identified some countries have asymmetric access to large top e-commerce companies such as Amazon, E-bay, Alibaba and OLX. Companies like these might provide solutions to small enterprises since they facilitate access to international markets. Access to these kinds of companies should therefore be simplified and enabled.

Furthermore, in general developing countries are advised to not require foreign firms to store their data locally in that country. This makes it less attractive and flexible for foreign firms to engage in trade.

International Banking Transactions

One of the most practical hurdles is the lack of international banking transactions systems in place. Receiving international payments is a key part of trade. During a panel session organized by the ICC at the WTO the issue of international banking transactions was addressed. Often small businesses in developing countries cannot scale up or engage in international trade due to restrictions on the possibilities of international banking transactions. Private payment platforms may restrict access to such payment features based on a transaction risk determination. In response, Mastercard created the Mastercard lab for Financial Inclusion in Nairobi in 2015. Initiatives like this try to connect local small enterprises to larger financial, reliable, systems. It is supported by the Bill and Melinda Gates Foundation. It provides products such as Mastercard Farmer Network in agriculture, Kionect in micro-retail, Kupaa in education.

Key is now for local entrepreneurs to become conscious of such programs and reach out. One objective would therefore be educating local citizens about these types of opportunities. Although there are many initiatives that aim to improve international banking transactions the reliability and trustworthiness of a large established company such as MasterCard or visa appear to be preferred by local entrepreneurs, since this is something they can sell.

Altering attitude towards digital trade

The Worldbank (2016) suggests that first of all the right infrastructure should be in place. Subsequently (smaller) businesses should be encouraged to engage in ICT. They might not feel convinced to do this due to a lack of social or cultural readiness to adopt new technologies. One suggestion they make is to share the potential of entering “the cloud” for start-ups. This makes it possible to make use of the “Meta” platform. Building on previous technological creations of predecessors implies that new start-ups do not necessarily have to invent digital business functions themselves. Enhancing access to the ‘cloud’ could therefore be an objective to improve the situation of developing digital entrepreneurs and persuade individuals that engaging in digital trade is less challenging than they might think.

• Overview

Table 1 below displays a selection of the hurdles that developing countries face while engaging in digital trade. Additionally, it describes the potential solutions to these hurdles. This overview solely scratches the surface of the wide variety of hurdles and solutions that developing entrepreneurs face. Nevertheless it does help to illustrate what the perceived influential factors are, identified by some of the leading international organizations.

Hurdles	Suggested by:	Potential solutions	Review
Difficulties with international banking transactions	ITC, ICC,	Support initiatives such as MasterCard lab for Financial Inclusion established in Nairobi in 2015 (ICC)Enabling access to finance
Exclusion from international e-marketplaces, small and fragmented local markets.	ITC, UNCTAD	Simplified and enabled access to companies such as Amazon, E-bay, Alibaba (UNCTAD) Global Digital PlatformsRecognize the “Sharing Economy” (World bank)Implementation of sensible IP protection and enforcement, adapted to the digital age (World Bank)Structures of existing, successful corporations ought to be shared, as well as technology information (ITC)
Infrastructure deficit	ITC	Broadband initiative of increasing connectivityWEF readiness and information sharingITU Information Society overview
Inexperience with sales tax and import duties	ITC	Ensure the supply of appropriate skills by developing governments (World Bank)
Sociopolitical barriers	ITC
The digital divide	ITC	The World Bank Group and the IMF suggests a total of $109 billion would be needed to bridge the digital divide between the North and the South of the African continent before 2030UNCTAD provides Rapid eTrade Readiness Assessments of LDCs covering seven key policy areas to help improve their e-commerce capabilities. OECD proposes governments should engage in (i) R&D (ii) promotion of standards (iii) venture capital investments (iv) foreign direct investment (v) export of ICT goods and servicesWEF contributed with Global Information Technology Report 2015EU: Digital index	Developed governments can and should contribute to overcome the divide.   Many organizations have illustrated the areas in which specific countries could improve on, since there is no one-size-fits-all strategy.
Regulatory entry barriers	World Bank,	Fostering a competitive environment (World Bank)Recognize the self-interest of incumbents (World Bank)Easing the business life cycle (World Bank)Create the best climate for incubation and success (World Bank)Facilitating market integration and demand aggregation (World Bank)	World Bank identifies an important role for developing governments in establishing the right market conditions.
Social barriers, inadequate entrepreneurial knowledge and skills	Academic environment, World Bank, UNCTAD	Eased entrance to the ‘cloud’ and ‘meta’ to make the transition easier (World Bank)Moderate user-base scaling through digital analog infrastructures (UNCTAD)Education (academic environment)Simplify and speed-up procedures for cross border recruitment of talent and reduce the associated costs (World Bank)Entrepreneurs could make use of ITC’s e-business tools.	Overall, investing in education and capacity building would help young, potential, developing entrepreneurs to become conscious of the opportunities and challenges of digital trade.
Limited access to finance	UNCTAD	Governments ought to offer programmes and instruments. Examples: African Business Angel Network, TLCom’s TIDE fund, Chanzo Capital (UNCTAD)Customer relationship scaling for local businesses
Lack of rules and legislation	World Bank, ITC	Promoting open standards and open data (World Bank)Clarifying the rules for use of data (World Bank)Establish clear legislations on topics such as data-flows, consumer protection etc. (UNCTAD, ITC and ICC)Take as an example of leading developing countries in the field of digital trade: Nigeria and Rwanda. They possess a clear national digital policy which includes legislation supporting local digital contentUNICTRAL technical assistance	Representatives of UNCTAD, ITC and ICC mentioned during a panel session that one of the most important things to do for developing countries is to establish clear legislations. This is why it is of great importance for developing countries to engage in the Joint Statement Initiative. Participation up and till this moment has been limited and should be encouraged.

1. Conclusion

Looking back at the opinions of multiple international organizations, one can observe many different perspectives and influential factors that could help improve engagement of developing countries in digital trade. Progress will only occur if developed and developing countries cooperate and work towards a shared goal. 

Developed countries have the ability to help developing countries in many different ways, as is shown in the first part of this paper by different international organizations such as UNCTAD, ITC and the World Bank. It is furthermore important for LDC’s to be engaged in the international debate and negotiations on digital trade. By, carefully, engaging on e-commerce in for example the WTO they could be aided in rule- and standards settings to regulate data flows, data localization, consumer- and data- protection. Nevertheless, while making these commitments, developing countries ought to be conscious regarding their market position in relation to strong, dominating, foreign competitors and consider long-term implications of conditionality of cooperation. It is furthermore important for developed countries to understand what motivates developing countries in their decision-making processes.

Digital trade has the potential to successfully foster economic growth in developing countries. Most importantly, these opportunities demand guidance and nurture of all involved parties. This requires considerable international cooperation and therefore significant attention from both the international and national communities.