Expanding MSME Ecommerce in  Developing Countries: State of Policies and Path Forward     

By Kati Suominen, Erica Vambell, Mariah Furtek, Nextrade Group

Ecommerce – the sale and purchase of goods and services online – has opened great opportunities for micro, small and mid-size enterprises (MSMEs) to export and grow. The eTrade Allianc is working with developing country MSMEs and governments to accelerate MSMEs’ use of ecommerce, thereby encouraging private sector-led growth in support of  USAID’s Economic Growth Policy.

 

In the eTrade Alliance’s work, we have found that developing country governments ad firms alike see ecommerce as a critical means for MSMEs to overcome the Covid-19 crisis, resume their growth, and export – but also that governments still seek answers to such questions as:

  • Which types of regulations, policies and practices best enable MSMEs in ecommerce?

  • How does my country compare to neighboring countries and other developing countries in the adoption of policies conducive to MSME ecommerce?

  • What types of best practices and policy innovations conducive to MSME ecommerce are emerging around the world?

  • How compatible are digital regulations among countries – can MSMEs in my country apply similar data privacy, online consumer protection, copyright, tax, and other rules across markets when selling across borders, or do they have to deal with a checkerboard of national digital regulations?  

The eTrade Alliance seeks to help governments answer these crucial questions through rigorous and novel empirical work. One of our forthcoming products is the MSME Ecommerce and Digital Policy Index and accompanying report that map the adoption of more than 100 policies and regulations conducive to MSME ecommerce in 10 major policy areas in 52 countries, most of them developing and emerging nations of Africa, Asia, Middle East, and Latin America. Some of the major policy areas we cover include digital infrastructure policies, digital regulations that govern online transactions and behaviors, online payment regulations, policies governing ecommerce logistics, and MSME ecommerce export promotion policies.

 

The policy mapping is highly actionable, enabling a wide range of government agencies such as ICT ministries, customs, central banks, and export promotion agencies to readily see how their peers in 51 other countries have approached a policy area of interest. It builds on a similar exercise supported by USAID in 2018, thus enabling an assessment of policy developments over time. In addition, we develop 18 case studies on good policies and best practices to enable ecommerce.

 

The mapped specific policies and regulations are not chosen at random, but are those found in academic research and business surveys to have a significant bearing on MSMEs’ trade and economic growth. Many of the policies we address, such as data privacy rules, Fintech regulations, and regulations governing autonomous vehicles like drones, are also currently keenly debated among developing country policymakers.

 

Our key findings and recommendations are as follows:

  • The MSME Ecommerce and Digital Policy Index is strongly correlated with countries’ development levels, but some countries notably outperform their peers at the same level of development. Overall, advanced countries and select East Asian and Latin American economies have adopted about 70-80 percent of the good policies and practices we map, while less developed countries in Africa, South Asia, Southeast Asia, and Central America have adopted only 25-45 percent. India, Rwanda, Thailand, Malaysia, and Brazil outperform their peer economies at the same level of development in the adoption of pro-ecommerce policies.

  • There have been positive policy developments over the past three years, including in less developed countries. Compared to 2018, especially countries in Latin America (Argentina, Colombia and Peru) and in South and Southeast Asia (India, Cambodia, and Sri Lanka) have made significant progress in adopting especially digital infrastructure, ecommerce logistics, MSME finance, and MSME export promotion policies conducive to MSME ecommerce.

  • Most countries have adopted the basic policies that regulate online transactions, but fewer have adopted policies of more sophisticated policies aimed to support MSMEs' online transactions. Most countries have adopted such basic policies as electronic transactions and signatures laws, national broadband plans, and consumer protection laws for online transactions. However, yet to be widely adopted are such policies as safe harbors for marketplaces, platforms and other internet intermediaries; online dispute resolution (ODR) systems that build consumers’ trust in ecommerce; and loan guarantee programs that support MSMEs’ access to fast-disbursing online working capital loans to fulfill online orders. Moreover, especially Sub-Saharan African countries have yet to adopt many of the basic trade facilitation policies key to MSMEs in ecommerce. Many countries have also adopted new taxes on online transactions that can disincentivize the use of ecommerce.

  • Positively, however, countries are developing innovative policies – and copying their innovative peers – to enable MSME ecommerce. For example, many developing countries such as El Salvador and Ghana have followed the lead of Singapore, Switzerland, Germany, and Canada to reform their postal services to facilitate MSME ecommerce; many Latin American economies such as Peru, Brazil, and Costa Rica have built creative online programs, public-private partnerships, and digital transformation initiatives to help MSMEs use global ecommerce marketplaces to export; and in a rapidly growing set of countries, customs and border agencies are piloting artificial intelligence and blockchain solutions to secure and facilitate ecommerce imports and exports. Countries around the world are also increasingly adopting training and financing programs to support small women-led firms in the digital economy and ecommerce. In addition, FinTech regulatory sandboxes are also gaining in popularity, to facilitate the testing and deployment of innovative financial and payment products that are also useful for MSMEs that engage in ecommerce. 

  • De facto regional digital regulatory integration is strongest in Latin America, weakest in South East Asia. Countries around the world are adopting key digital policies and regulations at different speeds, often with little coordination with each other. This risks a setting where MSMEs would need to comply with a diverse range of national consumer protection, data privacy, copyright, and other national rules when engaging in ecommerce even with neighboring countries. Fortunately, we find “families” of countries with rather similar digital policy regimes, especially in Central America and the Southern Cone of Latin America. However, especially in Southeast Asia, national digital regulations differ quite considerably. The Alliance is through business surveys working to understand the impact that these differences in national rules have on online seller MSMEs that engage in cross-border ecommerce.

  • Local governments and chambers of commerce play an increasingly important role in MSME digitization and ecommerce development. Growing interest by local governments and stakeholders in promoting MSME digitization and ecommerce can be a great opportunity for national governments and the international development community to work with local leaders to enable ecommerce in developing nations, and help bridge regional disparities within countries in digitization and ecommerce use. The eTrade Alliance is working to pilot a "Mayors for eTrade"-initiative aimed to support local leaders in developing countries to enable MSMEs in their regions to engage in ecommerce and to attract investment in ecommerce sectors.  

Our policy index covers a comprehensive policy mix that developing country governments can apply to optimize MSMEs’ use of ecommerce and promote digital economies in general. It is much more encompassing than UNCTAD’s B2C Ecommerce Index and covers many more dimensions the World Bank’s recent mapping of data privacy rules. The Index also  has a different purpose than the OECD’s Digital Services Trade Restrictiveness Index that tracks barriers to digital services trade. By tracking policies in place, our work complements the many indices that track policy outcomes, such as World Bank’s Doing Business Indicators, eTrade Alliance’s “Best Place for MSME Ecommerce” Index, and the 2017 USAID-sponsored Ecommerce Development Index developed by Nextrade Group and based on firm-level surveys on MSMEs’ views about the enabling environment for ecommerce.

The authors’ views do not necessarily reflect the views of the United States Agency for International Development or the United States Government or any of the eTrade Alliance members.