Digitally Transforming Sudan’s Economy

November 04, 2019 Digitally transforming Sudan’s economy by Juan Felipe Rodrigo López, Craig Atkinson / in Op-ed In transitioning to democracy, Sudan can strengthen its efforts toward inclusive trade by continuing its WTO accession process and implementing the Trade Facilitation Agreement. Given the role ecommerce will play in transforming sales channels, Sudan’s economy may benefit from protection and promotion of geographical indications. By publishing algorithmic regulations to the internet, Sudan could reduce transaction costs for traders, support cross-border ecommerce and comply with future multilateral obligations. The fourth industrial revolution has arrived and the global economy is witnessing exponential growth in electronic commerce. It is estimated that worldwide ecommerce sales will reach US$4.5 trillion in 2021, with the World Trade Organisation (WTO) defining ecommerce as, “the production, distribution, marketing, sale or delivery of goods and services by electronic means”. Africa is no stranger to the digitally enabled economy. Despite constraints, ecommerce on the African continent may represent a US$75 billion market by 2025, according to McKinsey & Company. Given increased cross-border ecommerce and government implementation of trade facilitation measures, better conditions for product sector development will help enterprises to generate socalled digital dividends. When coupled with the right policies, new trust and automation technologies could enable developing countries to transform their economies. This technology-policy mix is particularly important for countries in a state of transition. In Northeast Africa, Sudan is undergoing economic, social and political change. Sound policies that incorporate digital innovation could boost Sudan’s efforts toward becoming an open, competitive and efficient economy. Sudan’s trade and development challenges Over the past decade, Sudan’s economy has struggled with rising inflation, sanctions, oil price volatility and institutional crises. The Government of Sudan has entered into a process of institutional reform and adopted a FiveYear Economic Reform Program (2015-2019). The reforms are designed to increase national production, enhance the country’s exports and reactivate accession to the WTO. However, developing Sudan’s economy through trade is no easy task. The World Bank’s “Trading across Borders” indicator ranks Sudan 185 out of 190 countries. Exporting from and importing into Sudan is more expensive and takes longer in comparison to almost any other country. E-trade for growth and diversification As economies become more driven by market interactions through electronic means, the current WTO accession process is an opportune moment for Sudan to integrate ecommerce and trade facilitation into its development agenda. In Africa, cross-border ecommerce is projected to grow by an annual rate of 25%, or twice the growth rate of domestic ecommerce, according to DHL. Regional and global trade via ecommerce could bring additional gains for Sudan’s micro-, smalland medium-sized enterprises (MSMEs). Recent findings show that the development of ecommerce in Bangladesh and Cambodia allowed enterprises in those countries to expand and diversify their exports. Growth in ecommerce has been shown to result in a notable increase in exports in higher value-added goods and niche products. Sudanese mobile phone penetration of 70.4% offers an opportunity to compensate for low levels of internet access, high costs of access to bandwidth, lack of e-payment systems, weak purchasing power, limited financial inclusion and inadequate IT literacy that undermines the development of ecommerce in the country. Uptake of ‘cash on arrival’ as a payment method could also help in coping with deficient financial inclusion. Implementing the WTO Trade Facilitation Agreement One of the biggest constraints to cross-border ecommerce and improving market access for MSMEs relates to high costs and lengthy delays with customs and border procedures, according to the World Bank. Simplified procedures, adoption of international standards and availability of e-payments could stimulate cross-border ecommerce activity by Sudanese enterprises. The Government of Sudan will ratify and implement the Trade Facilitation Agreement (TFA) upon accession to the WTO. It is estimated that the impact of the TFA will be such that, by 2021, Sudan will reduce import and export times by 40%. The country’s volume of exports could rise by as much as 25% after the removal of unnecessary procedures that create costs for exporters, according to UNCTAD. Additionally, government revenues are expected to grow as a consequence of the increase in trade and enhanced fraud and corruption detection. Global findings suggest the cost of trade-related paperwork processing is 15 to 50% of the cost of physical transport. Paperless trade – the digitalization of information flows required to support goods and services crossing borders – and the introduction of automated customs systems could support the implementation of Sudan’s new trade facilitation measures. In tackling this situation, and implementing TFA provisions, the protection and promotion of geographical indication (GI) products should also be considered as a priority in encouraging Sudan’s economic transformation. Establishing geographical indications for product sector development GIs are covered under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and can be defined as “place names (in some countries also words associated with a place) used to identify the origin and quality, reputation or other characteristics of products” (e.g. “Champagne”). Protection and promotion of Sudanese GIs (e.g. for “gum arabic” products) may result in increased profits for rural communities by helping to improve market access and for obtaining a greater remuneration from the commercialization of products. GIs often create considerable service sector spin-off effects in promoting a region as a gastronomic and cultural tourism destination (e.g. tourism campaigns using GIs in the Colombian coffee region). Yet, Sudan’s Trade Marks Act of 1969 excludes protection of GIs via trademarks. The country’s adoption of the Trademarks and the Geographical Indications Act of 2018 could provide a wider legal framework to comply with minimum protection requirements under the WTO TRIPS agreement. As ecommerce can reduce intermediation, producers could use ecommerce channels to expand the reach of GI products. Online consumers tend to demand higher value-added products through a closer relationship with producers. Disrupting the international trading system: A ‘tridimensional’ policy There is potential for digital technology to address Sudan’s longstanding economic challenge of trade competitiveness given its current process of accession to the WTO. In particular, distributed ledger technology (DLT) and blockchain use cases might amplify benefits through a ‘tridimensional’ policy designed to: 1. Guarantee access to credit and e-payments for exporters and improve trust in transactions: Payment and ecommerce systems ensure the unique expense, transfer consistency and immutability of transactions to facilitate payment and transfer systems at the international level. Through distributed ledger technologies, MSMEs engaged in ecommerce could better access credit, as they can be linked into a wider investor ecosystem and also accept DLT-based payments. 2. Establish a national ‘single window’: As required under WTO TFA Article 10.4, a single window will eventually channel Sudanese trade procedures. DLTs could support exchange of information, implementation of efficient controls and promotion of transparent administrative actions. 3. Trace, verify and control geographical indications: Attribution and ‘right to use’ could result in offering traceability and transparency of GI products with DLTs (e.g. blockchains). This would enable enforcement of the intellectual rights of these products and empower rural producers. The rise of ‘regtech’: Algorithmic regulation and an ‘Internet of Rules’ Cross-border regulations hinder the ability of MSMEs to effectively connect to local and global value chains (GVCs). With the rise of regulatory and legal technologies – ‘regtech’ and ‘legaltech’ – more of the processes associated with trade can be made accessible and automated for small business. Commercial rules and laws are now being designed and expressed in the form of algorithms to the benefit of enterprises and consumers. An ‘Internet of Rules’ (IoR) will enable all entities to publish computational rules and regulations (e.g. legislation) online in a common format so they can be efficiently discovered, fetched and applied by any user.[1] An IoR will help MSMEs estimate (ex ante) trade costs when determining the feasibility of specific export markets as well as automate compliance. Publishing rules and regulations in a platform-agnostic way to the internet also fulfills government obligations under Article 1 of the WTO TFA. Such an approach makes it more practical for a country like Sudan to maintain its relevant trade rules (e.g. tariff rates, Rules of Origin, etc.) in Arabic, English and (where appropriate, i.e. computational) algorithmic form. This would be a more functional approach for Sudan to comply with its obligation to publish tariff and regulatory trade information in an “easily accessible manner” (as per Article 1) and could also ‘power’ single window systems (as per Article 10) by performing calculations based on commercial, input, data. A network of algorithmic regulations can be made accessible by any computer system. The design of these rules does not require that entities (e.g. the Government of Sudan) operate their own physical infrastructure and systems can be described as ‘cloud native’. With an IoR, rules will also be accessible to users through cellular networks. Enterprises will be able to consult and apply rules/payment through short message service (SMS) technology. This is particularly relevant for a number of African countries, as SMS solutions can support mobile payments (e.g. M-Pesa). Given increased levels of accessibility of mobile devices, the introduction of algorithmic regulations could be transformative for developing economies like Sudan. Policy implications and future opportunities for disruption One of the biggest challenges that Sudan faces in its transition to democracy is making trade work for the country. A synergy in policies could help to transform the economy, achieve diversification and allow Sudan’s enterprises to integrate into GVCs. New polices should be aimed at developing a robust environment for ecommerce; achieving reduction in delays and costs through predictable and efficient cross-border procedures; and protecting and promoting traditional Sudanese products through GIs. Although disruptive technologies are already operating in different legal and business environments, immediate adoption in Sudan cannot be assumed due to heterogeneous levels of development among actors involved in the logistics chain as well as the caution the government must show. This being said, innovations like DLT and IoR could soon enable Sudan to diversify exports, reduce transaction costs and take full advantage of improved access to global markets via eventual WTO membership. -------[1] An Internet of Rules: Theory and Applications for Project Management in the Web 3.0, Money 3.0, and Industry 4.0 World" by J. Potvin, dissertation in partial fulfilment of a doctorate in administration (project management), Université du Québec (forthcoming). Free/libre/open software coordinated by Xalgorithms Foundation