Economic impact of data localization in five selected African countries

Abstract

Purpose The purpose of this study is to quantify the impact of laws and regulations that govern the cross-border flow of data on the economies of five selected African countries, namely, Egypt, Morocco, South Africa, Kenya and Mauritius. Moreover, this study addresses the state of cloud computing in Africa. Finally, policy recommendations are provided in this respect. Design/methodology/approach To reach accurate finding the Global Trade Analysis Project (GTAP) data was used, and then the computable general equilibrium (CGE) was computed to estimate the total cost on the economy. Using the three data regulations linkages indexes (DRLs), the increased administrative cost effect was analyzed on five to six major economic sectors in the target countries. This was followed by estimating the loss in sector-wide total factor productivity (TFP) (for the five to six shortlisted sectors). Using this data, the computable general equilibrium model (CGE) was computed, in order to estimate the economy-wide impact. Based on these findings, a set of recommendations were offered to the policy maker, reflecting the obtained results and conclusions and their implications on drafting data-related policies. Findings The obtained data indexes reveal that Mauritius is the country with the most laws and regulations governing the cross border flow of data, followed by South Africa Egypt to a lesser extent and finally Morocco and Kenya both showing an obvious lack of data regulations. The small value of the estimated elasticity of the selected countries compared to the value of the estimated elasticity in the EU-0.347 shows that the impact of data localization is less in the selected African countries than in the other set of EU countries examined in the research paper. This is because the former has smaller economies with fewer linkages to the global economy and are less reliant on sectors that are heavy users of data. Thus, the overall impact of data localization was not as profound on TFP as is the case in advanced economies. This research paper arrives at the conclusion that fighting the trend of data localization is crucial. In fact, data localization hinders the necessary and essential role of global trade in realizing economic development. Specifically, this is evident in the increase in production costs as reflected in the increase of the prices of goods, which would lead to a decline in incomes. Originality/value Global studies looked at the impact of data localization on the EU, as well as China, India, Korea and Vietnam, providing some data on Asia Pacific. However, no study has ever been conducted on the Middle East and Africa. This study aims to fill this gap. The approach of this study is to capture the extent of data localization mandates encoded in the laws of each of the selected five African countries showing how these mandates govern their cross-border data flow and, in turn, affect their economies. Furthermore, the policy recommendations section of this research paper makes a contribution to the existing literature.

Regulatory Support and Institutions for the Transformation of Enterprises to the Digital Economy

“…Their estimates show that there would be a reduction in medium-to-long term real GDP of between 0.1 and 0.58 per cent due to the data restrictions -a sum of several billions of dollars in the case of the European Union. Similarly, Badran (2018), measure the lost value of cross-border data flows from data restrictions in terms of reductions in firms' and sectors' innovation potential and productivity for different sets of countries. An analysis of CUTS International (Gupta et al, 2020) finds that data restriction policies would limit exports of digital services from India such that GDP could decline by 0.2 to 0.34 per cent.…”

“…Research covers trade in services, goods and digital services, often trying to quantify the data flows in some manner. Many analyses belong to two categories: first, attempts to quantify current flows of data in the form of service components in trade (McKinsey, 2014;Nicholson and Noonan, 2017); and second, estimations of the impact of data flow restrictions or their lifting (Badran, 2018;Bauer et al, 2013Bauer et al, , 2016Gupta et al, 2020;Spiezia and Tscheke, 2020).…”

“…Academia and think tanks 6 mostly tend to support the free flow of data, while many also favour clear rules around them (Aaronson, 2014(Aaronson, , 2019aAaronson and Maxim, 2013;Badran, 2018;Bauer et al, 2013Bauer et al, , 2016Chander and Lê, 2015;Chen et al, 2019;Ciuriak, 2020;Kimura, 2020;Meltzer, 2020;Tomiura et al, 2019). Economic aspects primarily motivate the studies that are in favour of free data flows, by making the case against data localization and privacy regulations that make international transfers more burdensome.…”

“…Economic aspects primarily motivate the studies that are in favour of free data flows, by making the case against data localization and privacy regulations that make international transfers more burdensome. These studies favour crossborder data flows, as these lower costs of doing business and expand international trade, consumer 56 DIGITAL ECONOMY REPORT 2021 Cross-border data flows and development: For whom the data flow welfare and GDP (Bauer et al, 2013;Badran, 2018;Hinrich Foundation, 2019;Tomiura et al, 2019;. Another argument against data localization relates to possible inefficiencies.…”

WTO Law and Cross-Border Data Flows

“…62 India and Africa have expressed public support for UNCTAD's position on digital industrial policy at the WTO on numerous occasions, 63 although certain studies indicate that these policies are unlikely to be effective. 64 Unsurprisingly, certain developing countries, including Nigeria and Indonesia, have adopted data restrictive measures to create opportunities for domestic players. 65 c trade-related aspects of data governance…”