What’s in a sandbox? New report highlights the regulatory benefits for government, business and consumers

There’s a lot of talk about sandboxes just now. But this isn’t about boxes of sand from the beach where children love to play and learn.

We’re talking about a radical new way for governments to make it much easier for entrepreneurs and companies to get ideas for new products or services off the ground quickly so that they can create jobs, especially for young people.

A sandbox is a controlled environment set up by a regulatory body where businesses can test their products and services in the real market without all the bureaucracy that normally needs to be done first. It’s like authorising a trial period for a defined purpose and time, designed to give a product or service a test run in the market without all the preliminary bureaucratic barriers. The sandbox allows companies to better understand regulatory expectations by testing their products and services in a free but monitored space.

The African Development Bank has just published a report that aims to promote a better understanding of the workings and uses of regulatory sandboxes, to explain their benefits and show how they could work with maximum benefit to African economies.

Sandboxes might be just what African countries need to get their economies going and create jobs for millions of young people as we all build back after the damaging impacts of the Covid-19 pandemic.

For instance, in Mauritius, the government received many innovative project ideas that had the potential to deliver job creation, encourage transfer of technology, and facilitate investment, but there was no suitable regulatory framework to allow these projects to come to fruition. So, in July 2016, the government introduced a Regulatory Sandbox Licence to authorise activities for which no legal framework exists and derogate certain unnecessary licences or permits hindering implementation.

Subsequently, several innovative projects were licensed in Mauritius, including cryptocurrency exchange platforms, digital wallets, crowdfunding platforms and blockchain-enabled alternative securities platforms.

And it’s an idea that doesn’t only benefit companies. While trials continue, regulators gain valuable insights about what sort of regulation is appropriate. It can also indicate gaps in consumer protection, enabling the authorities quickly to develop more appropriate solutions, which may lead to wider product choice and probably cheaper prices. This flexibility enables the promotion of innovation – the catalyst of economic success. Who could argue with that? It’s a win-win for all.

Demand from potential participants is key for the regulatory sandbox environment to be a success.

For Africa, these testing grounds have the potential to be an enabler for innovation and investment and their associated benefits, as well as driving change and knowledge sharing.

Thankfully, the continent does not start from scratch. The African Union recently brokered high-profile agreements such as the African Continental Free Trade Area (AfCFTA) and the Malabo Convention on Cyber Security and Personal Data Protection.

Some telecoms regulators in Africa are taking specific steps to encourage the creation of a sandbox in their jurisdiction. For example, the Communications Authority of Kenya has developed guidelines for accessing radio spectrum through a regulated sandbox.

These steps are reinforced by Africa’s effective sub-regional bodies, such as the Economic Community of West African States (ECOWAS)^[1], the West African Telecommunications Regulatory Assembly^[2]), the Southern African Development Community^[3] and the Communications Regulators’ Association of Southern Africa,^[4] which already have legal and regulatory frameworks to encourage this knowledge-sharing and could introduce the concept of regulatory sandbox environments successfully.

Donor funding or support from relevant banking institutions will be necessary to enable certain countries to introduce the frameworks required for regulatory sandboxes. The African Development Bank, as ever, stands ready to assist. Support is also available from other international organisations, such as the European Union.

The Covid-19 pandemic has accelerated demand for regulatory sandboxes, since hard-hit businesses needed more regulatory flexibility during the times of maximum restriction.

And flexibility is the key. There is no perfect sandbox for all circumstances. African regulatory authorities must pick up the challenge and provide the framework support and encouragement for more and better sandboxes, one of the catalysts of much-needed innovation and enterprise in business and of economic transformation.

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[1] Economic Community of West African States

[2] West African Telecommunications Regulatory Assembly

[3] Southern African Development Community

[4] Communications Regulators’ Association of Southern Africa