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The intricacies, impact and opportunities of e-commerce for trade and development

By Mukhisa Kituyi,

Secretary-General of UNCTAD

GENEVA, June 22: The world is increasingly going digital. This creates both opportunities and challenges, calling for changes to existing policies and adoption of new policies in many areas. Many countries are poorly prepared.

One striking way that digitalization is impacting our economies is through growth in e-commerce. According to UNCTAD’s latest estimates, global e-commerce sales in 2018 amounted to $25.6 trillion, up 8% over 2017.

A growing share of e-commerce involves cross-border sales and therefore contributes to international trade. For example, the share of the 1.45 billion online shoppers worldwide that made cross-border purchases rose from 17% in 2016 to 23% in 2018.

The value of e-commerce and contactless payments has been accentuated by the current COVID-19 crisis, provoking actions by governments.

Much of this digital innovation is taking place in Africa. In Senegal, the Ministry of Trade and SMEs is partnering with the private sector to facilitate delivery of essential goods and services through e-commerce. In Uganda, the Ministry of ICT has made a call to develop digital solutions in the fight against COVID-19 to support health systems and public service delivery.

Platforms have also been put in place, linking informal operators to established marketplaces and helping out-of-reach households access market vendors, using local transport solutions.

Central banks and regulators, such as the Central Bank of West African States, have taken measures aimed at reducing transactions costs of electronic payments, boosting uptake of cashless e-government solutions, for example, for the provision of monetary transfers to the most vulnerable groups.

Digital solutions help reduce the spread of the virus by minimizing the need for face-to-face interactions, and at the same time keeping some businesses from closing shop. And the digital world has served as a welcome palliative amidst prolonged physical distancing and self-isolation during the crisis.

This deepening in the digital shift has wide implications for trade and development. It is influencing the behavior of people, businesses and governments, helping drive an unprecedented transformation of how goods and services are developed, produced, sold, distributed and consumed.

As more and more companies and consumers go online to find the products they are looking for, sellers need increasingly to have a presence on the internet. Otherwise they become invisible in the market.

Digital realities are reshaping trade patterns

The impact of digitalization on trade is seen in trade statistics. Information and communications technology (ICT) goods play a crucial role in enabling the digitalization of our economies.

In 2017, ICT goods exports amounted to almost $2 trillion. This trade is highly concentrated. In fact the top 10 exporters – mainly from East Asia and some developed economies – account for more than 99% of all exports.

Exports of ICT services, which comprise both telecommunications, information and computer services, have grown faster than services’ trade in general and amounted to $568 billion in 2017.

Meanwhile, digitalization has made more services tradable by enabling their delivery over ICT networks. The value of the exports of services that are digitally deliverable amounted to some $2.9 trillion in 2018, or about half of all services exports.

Such exports increased substantially across all regions during the period 2005–2018, with the highest growth rate in developing countries, especially in Asia. In Africa and other developing regions, exports of such services have been growing as well but from a lower level.

Platforms and data

Digitalization affects most productive processes and activities in an economy, involving products in all sectors, from agriculture to services. Today is only the early stages of this digital transition.

The market’s invisible hand seems set to become a digital one, increasingly managed by major digital platforms. E-commerce and other aspects of the digital economy are driven by two main factors: digital data and digital platforms.

Digital data have become a new economic resource for creating and capturing value. Control over data is strategically important to be able to transform them into digital intelligence.

In virtually every value chain, the ability to collect, store, analyze and transform data brings added power and competitive advantages. They are core to all fast-emerging digital technologies, such as data analytics, AI, blockchain, IoT, cloud computing and all internet-based services.

Data are also intrinsic to e-commerce. These platforms can use the data they collect from buyers and sellers to offer better services. Unsurprisingly, data-centric business models are being adopted not only by digital platforms, but also, increasingly, by lead companies across various sectors.

Digital platforms are increasingly important in the world economy. Some global digital platforms have achieved very strong market positions in certain areas.

For example, Google has some 90% of the market for Internet searches. Facebook accounts for two thirds of the global social media market and is the top social media platform in more than 90% of the world’s economies. Amazon boasts about 40% share of the world’s online retail activity, and its Amazon Web Services accounts for a similar share of the global cloud infrastructure services market.

In China, WeChat (owned by Tencent) has more than 1 billion active users and, together with Alipay (Alibaba), its payment solution has captured virtually the entire Chinese market for mobile payments. Meanwhile, Alibaba has been estimated to have close to 60% of the Chinese e-commerce market.

Local firms in developing countries can benefit from being able to use services offered by global platforms. E-commerce platforms may, for example, provide export opportunities to small firms, enabling them to reach beyond small domestic markets. Using existing payment and e-commerce platforms can enable them to boost their sales, especially if they cater to certain niche markets.

In some cases, local knowledge of search habits, traffic conditions and cultural nuances may also give an advantage to locally rooted digital platforms, enabling them to offer services tailored to local users. However, developing-country platforms that are trying to scale typically face an uphill battle due to weaknesses in the e-commerce ecosystem.

Quality of e-commerce ecosystems affects trade effects

While all parts of the world are affected by the shift towards online commerce, many developing countries are still held back by limited digital readiness. While the majority of the populations of developed countries now shop online, that is not yet the case in most developing countries.

In sub-Saharan Africa, for example, Kenya, Mauritius, Namibia and South Africa are the only countries where this share exceeds 8%. And in most other sub-Saharan African countries it is below 5%.

As shown by the eTrade Readiness Assessments conducted by UNCTAD in 27 least developed countries, gaps and barriers are found in several policy areas, ranging from ICT infrastructure and payment solutions to skills and legal framework.

For example, there is a need to strengthen the protection of users and consumers to boost trust in online commerce. Efforts to strengthen cyber security are equally important. On the supply side, constraints often include a lack of familiarity with e-commerce of many SMEs and persisting challenges in transport and logistics.

Due to such weaknesses in the local ecosystem and low technological capacity of customers and employees, digital platforms in developing countries have to employ a range of business-model innovations to be viable.

They may need to have a person to function as the customer’s interface with the digital platform, to facilitate data entry, allowing cash payments on delivery, building up local call-centre capacity for quick call-backs, etc.

Platforms often need to establish physical supply-chain and logistics services, such as distribution centres, payment points, warehouses, drivers and delivery vehicles. There is similarly often a need to invest in management, IT and entrepreneurial skills.

Overcoming these challenges requires proactive government policies, worked out in close dialogue with the private sector. Stakeholders consulted in UNCTAD eTrade Readiness Assessments have stressed the need for inclusive and comprehensive e-commerce national development strategies as a priority to organize policy and regulatory reforms, cooperate with the private sector and help secure more support from development partners.

How to bridge the divides and make cross-border e-commerce more inclusive

Technology is not deterministic. It is up to governments, in close dialogue with other stakeholders, to shape e-commerce and the digital economy by defining the rules of the game. This is a huge challenge that will involve adapting existing policies, laws and regulations, and/or adopting new ones in many areas.

For most countries, the digital economy remains relatively unchartered territory, and policies and regulations are failing to keep up with the rapid digital transformations taking place.

National policies play a vital role in preparing countries to take advantage of online commerce. In view of the cross-sectoral nature of digitalization, a whole-of-government response is important to the formulation and implementation of policies aimed at securing benefits and dealing with challenges associated with e-commerce.

Ensuring affordable and reliable connectivity remains a major challenge in many African economies, especially in rural and remote areas, and requires attention.

Another challenge concerns border obstacles. Many trade facilitation measures require collaboration among neighboring countries.

In order to promote the consolidation of e-commerce shipments and the use of land rather than air transport for e-commerce within Africa and African regional economic communities, ambitious regional programmes need to be encouraged to harmonize trade procedures, transit regimes and trade facilitation monitoring tools.

Increased interoperability among e-payment platforms is also greatly needed. Mobile payments and cashless solutions must be easy to use. Payment solutions should reduce operating costs for businesses and platforms.

Enhanced interoperability both within countries and across borders will reduce friction in e-commerce transactions, increase ease of use for consumers and reduce costs for platform operators.

The adoption of the pan-African payment and settlement system as one of the five key instruments of the operational phase of the African Continental Free Trade Area (AfCFTA) is a milestone towards greater integration of digital financial services.

Taxation is one area that needs additional attention. Observers have noted a mismatch between where profits are taxed and where and how value is created.

As developing countries are mainly markets for global digital platforms, and users in these countries contribute significantly to the generation of value and profits, tax authorities should have the right to tax such platforms.

As the tax landscape evolves, it is essential to ensure wide and more inclusive participation of developing countries in international discussions on taxation in the digital economy.

In Africa, much attention has been given to taxation of internet and mobile money users. Countries that are imposing taxes on internet applications or services include Kenya, Uganda, Tanzania and Zambia. While this may be attractive to governments, it can be counterproductive if it results in a decline in economic activity by reducing the number of active internet users.

There is a need for speed, flexibility and international support

Digital divides, differences in readiness and the high concentration of market power all point to the need for policies and regulations that will help create a fairer distribution of gains from the ongoing process of digital transformation and increased reliance on e-commerce.

Digitalization affects different countries in different ways, and individual governments require policy space to regulate the digital economy in order to fulfil various legitimate public policy objectives.

At the same time, several policy challenges may be more effectively addressed at the regional or international level. This applies, for example, to data protection and security, taxation and trade.

Finding adequate solutions requires greater international collaboration and policy dialogue, with the full involvement of developing countries. Any consensus will need to incorporate significant flexibilities to enable all countries to participate.

The inclusion of e-commerce on the agenda of the AfCFTA should pave the way for African countries to set rules that can facilitate more regional, cross-border e-commerce. As of today, most e-commerce in Africa is either domestic in nature or involves trade with non-African countries.

AfCFTA offers an opportunity for consolidating e-commerce rules and regulations across the continent and openly discussing disagreements. This is an opportunity for Africa to become a global player in trade and have the voice of the continent heard.

Mukesh Ambani joins club of world’s 10 richest

NEW DELHI, June 21: Asia’s richest man has entered a new league of wealth. The net worth of Mukesh Ambani, chairman of Reliance Industries Ltd., has jumped to $64.5 billion, making him the only Asian tycoon in the exclusive club of the world’s top 10 richest people, according to the Bloomberg Billionaires Index. He overtook Larry Ellison of Oracle Corp. and France’s Francoise Bettencourt Meyers, the wealthiest woman, to reach the No. 9 spot.

Ambani, who owns 42% of Reliance, has benefited from a flurry of investment into the company’s digital unit, Jio Platforms Ltd., that Reliance said has made it net-debt free ahead of a March 2021 target. The shares of the Indian conglomerate have doubled from a low in March, just as other billionaires on the list have been hit by the impact of the coronavirus pandemic.

While the Indian economy “has been nearly decimated” during the lockdown to control the spread of Covid-19, “Ambani’s companies (particularly the telecom giant Jio) have prospered, and his personal wealth has increased substantially,” said Jayati Ghosh, chair of the Centre for Economic Studies and Planning at the Jawaharlal Nehru University.

A media representative for Reliance declined to comment on Ambani’s fortune.

The rise of the 63-year-old as India heads for its worst-ever recession is a reminder of the nation’s deep economic divide, in which the top 10% hold more than three-quarters of the total wealth, and where most new fortune creation stays in the hands of the richest 1%. Ambani lives in a 27-story mansion in Mumbai, known as Antilia, that has three rooftop helipads, parking for 168 cars, a 50-seat movie theater, a grand ballroom with crystal chandeliers, three floors of Babylon-inspired hanging gardens, a yoga studio, and a health spa and fitness center.

While a crash in oil prices caused uncertainty in a stake sale of Reliance’s oil and chemicals division, in just two months Jio managed to attract some $15 billion -- more than half the investment into telecom companies worldwide this year. Facebook Inc., General Atlantic, Silver Lake Partners, KKR & Co. and Saudi Arabia’s sovereign wealth fund are among those trying to get a slice of one of the world’s fastest-growing online commerce markets. A June report by Sanford C. Bernstein predicted that Jio is likely to capture 48% of India’s mobile subscriber market share by 2025.

In the latest potential deal slated to bolster Ambani’s e-commerce ambitions, Reliance is close to acquiring stakes in some units of Future Group, which already has a partnership with Amazon.com Inc., people familiar with the matter have said.

Ambani got his start in the family’s business in the early 1980s, when his father, Dhirubhai Ambani, summoned him back to India to oversee construction of a polyester mill after a year at Stanford Business School. The Ambanis began to buy up suppliers as well as petrochemical plants and oil refineries and eventually built the company into a fabrics, textiles and energy empire. Dhirubhai died of a stroke in 2002 without leaving a will, triggering a feud between Mukesh and his brother, Anil.

In a settlement brokered by their mother, the brothers split the family business. Mukesh retained control over the refining, petrochemicals, oil and gas, and textiles operations, while Anil took the telecommunications, asset-management, entertainment and power-generation businesses. In 2013, the brothers announced a $220 million pact to share a fiber-optic network, their first deal since splitting the Reliance empire. Parts of Anil’s operations have since struggled, with a unit of his Reliance Communications Ltd. filing for bankruptcy last year.

Mukesh revels in being the biggest. In India, Reliance officially became just that last year, when it surpassed state-owned Indian Oil Corp. to become the country’s largest company by revenue. At Reliance’s annual shareholder meeting in August, which is covered like a national event -- including by its media and entertainment arm, Network18 -- Ambani called it the “golden decade of Reliance.”

He celebrated the group’s growing list of superlatives: the largest telecom enterprise by subscribers, revenues and profit; a retail arm larger than all other major retailers combined; an oil giant that makes India’s largest export.

“We are also incubating newer growth engines,” Ambani said at the time, adding that he hoped the digital-driven expansion could be more inclusive. “No power on earth can stop India from rising higher.”

At least on the global wealth ranking, that seems to be the case.

India’s forex reserves jump USD 8.22 billion; cross half-a-trillion mark for first time

MUMBAI, June 12: The country’s foreign exchange reserves crossed the half-a-trillion mark for the first time after it surged by massive USD 8.22 billion in the week ended June 5, according to the latest data from the RBI.

The reserves rose to USD 501.70 billion in the reporting week helped by a whopping rise in foreign currency assets (FCA).

In the previous week ended May 29, the reserves had increased by USD 3.44 billion to USD 493.48 billion.

In the week ended June 5, FCA, which is a major component of the overall reserves, rose USD 8.42 billion to USD 463.63 billion.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

The gold reserves declined by USD 329 million to USD 32.352 billion in the reporting week, the Reserve Bank of India (RBI) data showed.

In the reporting week, the special drawing rights with the International Monetary Fund (IMF) were up by USD 10 million to USD 1.44 billion.

The country’s reserve position with the IMF also rose USD 120 million to USD 4.28 billion during the reporting week, the data showed.

Lockdown Flattened Wrong Curve: Rajiv Bajaj In Chat With Rahul Gandhi

NEW DELHI, June 4: A "draconian" but "porous" lockdown to slow the spread of coronavirus ended up "flattening the wrong curve" and left the country with the worst of both worlds, industrialist Rajiv Bajaj said in a video interaction with Congress leader Rahul Gandhi.

"We tried to implement a hard lockdown which was still porous. So, I think we have ended up with the worst of both worlds. On one hand, a porous lockdown makes sure that the virus will still exist and as you said, it is still waiting to hit you when you will unlock. So, you have not solved that problem," Bajaj, Managing Director of Bajaj Auto, said in the online chat aired this morning.

"But you have definitely decimated the economy. You flattened the wrong curve. It is not the infection curve, it is the GDP curve," he said.

Bajaj commented that a hard lockdown implies an airtight, impervious lockdown. "And to the best of my knowledge, this has not happened anywhere in the world. To physically constrain yourself to your home and see absolutely no one," he noted.

The industrialist also commented in his conversation with the Congress leader, "We are not seeing a smooth, concerted, rhythmic movement towards unlocking. Unfortunately, India not only looked west, it went to the wild west. I think we stayed more towards the impervious side."

This is the latest in a series of interactions that Rahul Gandhi has had with economists, experts, industrialists and others since the country went into lockdown in late March. He has earlier held chats with Raghuram Rajan and Abhijit Banerjee.

Bajaj, whose father Rahul Bajaj is one of India's most respected corporate leaders, shared that he had been advised that he would land in trouble for speaking to Gandhi.

"I shared with someone that I am speaking with Rahul and the first reaction was - mat karna (don't do it), this can get you into trouble," he remarked. "Why take the risk, he said."

Asked by Gandhi about a perceived "atmosphere of fear" in the country, Bajaj said in terms of being tolerant and sensitive, India needs to mend a couple of things.

The Congress MP shared, to a question from Bajaj, that a lockdown like this "brings the fear of death in the mind of people" and that is something tough to get rid of.

"It (lockdown) was also imposed suddenly. The bitter-sweet thing you said is shocking to me. See, rich people can deal with it as they have a home, a comfortable atmosphere, but it is completely devastating for the poor people and migrants," said Gandhi.

He also reiterated concerns about the impact of the lockdown on the economy.

"Whoever is going to invest in India is going to invest not because of your image, they are going to invest because of what you are and what you have... So the first logic has to be, defend that economy," Gandhi said.

"If you don't have an economy left, there is nothing."

Moody’s downgrades India’s sovereign rating

NEW DELHI, June 1: Moody’s Investors Service on Monday downgraded India’s sovereign rating to ‘Baa3’ from ‘Baa2’, saying there will be challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.

“Moody’s has today downgraded the Government of India’s foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2. “Moody’s has also downgraded India’s local-currency senior unsecured rating to Baa3 from Baa2, and its short-term local-currency rating to P-3 from P-2. The outlook remains negative,” the agency said in a statement.

The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody’s currently projects, it added.

“The decision to downgrade India’s ratings reflects Moody’s view that the country’s policy-making institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector,” the statement said.

‘Baa3’ is the lowest investment grade - just a notch above junk status.

Moody’s had in November 2017, after a gap of 13 years, upgraded India’s sovereign credit rating by a notch to Baa2 from Baa3.

Summer crop prices hiked 50-80% for Indian farmers

NEW DELHI, June 1: The Union Cabinet on Monday approved federally fixed minimum support prices (MSP) for 14 kharif or summer-sown crops, which will offer 50-83% profit over cultivation cost, agriculture minister Narendra Singh Tomar said.

The announcement came as the June-to-September monsoon for 2020, predicted by the India Meteorological Bureau to be normal, made its onset over Kerala, its first port of call in the Indian mainland, on June 1, as predicted.

A normal monsoon will likely lessen the strain on the agriculture economy from widespread disruptions caused by the Covid-19 pandemic. The summer rains are critical because nearly 60% of India’s net arable land lacks irrigation and nearly half the population depends on a farm-based livelihood.

The MSP for paddy, the main summer staple, has been raised by Rs 53 to Rs 1,868 per quintal for the 2020-21 crop year, which will give a return of 50% over cost of cultivation, according to an official statement.

“(The) government has increased the MSP of Kharif crops for marketing season 2020-21, to ensure remunerative prices to the growers for their produce,” a Cabinet statement said.

The highest increases in MSP are for nigerseed (Rs 755 per quintal) followed by sesamum (Rs 370 per quintal), urad (Rs 300 per quintal) and cotton (Rs 275 per quintal). “The differential remuneration is aimed at encouraging crop diversification,” the official statement said.

For cotton, the MSP has been increased by Rs 260 to Rs 5,515 per quintal, Tomar said. The support prices of arhar or tur, a type of lentil, has been fixed at Rs 6,000, which represents a 58% return over cost of cultivation.

The increase in MSP for kharif crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the countrywide weighted average cost of production, which aims to give at least 50% returns for each crop.

According to official calculations, the returns to farmers over cost of production are estimated to be highest in case of the coarse cereal, bajra (83%), followed by urad (64%), tur (58%) and maize (53%).

“To correct demand-supply imbalances, the government has realigned the MSPs more in favour of oilseeds, pulses and coarse cereals to encourage farmers to shift to these crops,” said Abhishek Agrawal, an analyst with Comtrade, a commodities trading firm.

Fresh indicators show the country’s farm sector, which employs nearly half the population, has coped well with the Covid-19 crisis, with a larger summer crop area than last year, higher sales of fertilisers and seeds, and better prices, leading Reserve Bank Governor Shaktikanta Das to last month call it a “beacon of hope”.

The farm sector is poised to grow at least 3% in 2020-21, despite disruption in the economy due to the coronavirus pandemic. According to government think tank Niti Aayog’s assessment in April, agriculture will aid overall growth.

There are other indicators too, ranging from sowing to input sales, which show the agriculture economy is heading into the summer-sown or kharif operations in decent shape.

Farmers have planted rice in about 3.48 million hectares (1 hectare equals 2.4 acre) compared to 2.52 million hectares during the corresponding period of last year, an increase of nearly 37%, official data as on May 21 show.

The area under pulses -- a major summer crop with up to 70% share in farm incomes in some states – stands at nearly 1.28 million hectares against 0.96 million hectares during the same period of last year, which is higher by one-third (33%).

 

 

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