(Ecofin Agency) - During the WTO's Public Forum 2024 in Geneva, themed 'Reglobalization,' Business 20 (B20) -the official G20 dialogue forum with the global business community- hosted a roundtable focused on enhancing trade's efficiency, resilience, and inclusivity. Ms. Busi Mabuza, President of South Africa's Industrial Development Corporation (IDC) and co-chair of the B20 working group, shared her insights on the future of African trade with Ecofin Agency.

Ecofin Agency: According to WTO and UNCTAD statistics, many developing countries, particularly in Africa, are still poorly integrated into global trade or have limited participation. From your point of view, what explains this situation?

Busi Mabuza: To add to what you said, it’s not just limited integration into global trade, but also within the continent itself. Intra-African trade, the last time I looked, was around 17% of the total trade of African countries. Several obstacles hinder our ability to increase trade, including inadequate infrastructure, regulatory challenges, and inefficient border processing mechanisms, all of which affect intra-African trade. Additionally, we have become too dependent on exporting raw materials, with infrastructure focused more on moving these materials to ports rather than supporting manufacturing activities. All of this contributes to the limited growth of trade within the continent. However, I think COVID-19 has been a wake-up call, encouraging us to increase intra-African trade and reduce dependence on just one or two countries for supplies and exports. I believe we are now on the path toward that.

EA: Today, it's well known that SMEs are the backbone of the African economy, accounting for at least 90% of businesses, yet they barely participate in global trade. What explains this paradox?

BM: Yes, the statistic that SMEs constitute 90% of business entities on the continent is an important one. However, the reality is uneven. In economies like South Africa, large businesses dominate, whether they are domestic or multinational. In the rest of the continent, we see the entrepreneurial spirit reflected in the number of small, medium, and micro-enterprises. But when it comes to participating in global supply chains, many barriers exist, primarily related to the cost of accessing information, markets, and logistics networks. Financing for SMEs is limited, and this restricts their ability to trade. Additionally, international trade, particularly with larger economies, requires scale, and by definition, SMEs lack the scale to compete. Government support, both financial and non-financial, is critical in this regard. I also believe business associations have a role to play in consolidating trade packages to reduce logistics costs and help entrepreneurs access global markets. Another issue is the limited access to broadband infrastructure in many African countries, which is crucial for displaying goods and services on digital platforms. Improving infrastructure is key to unlocking opportunities for SMEs.

EA: Trade financing, as you mentioned, is still very low for SMEs in Africa, limiting their role in global commerce. What recommendations does the B20 have regarding compliance with banking regulations? Or should banks adapt to better address these challenges?

BM: The challenges range from regulations such as KYC (Know Your Customer) requirements, which, as we heard yesterday from a representative of Standard Chartered, are costly for banks to implement, especially for small and medium enterprises. It's also costly for SMEs themselves, as they often lack the necessary information readily available online, making it difficult to quickly provide the required documentation. A model that was shared with us – the one used in Singapore- involves financial regulators handling verification of tax status, identification, and address, allowing banks to access this verified information when a business or individual applies for financing. I think this is a groundbreaking suggestion to reduce costs for SMEs while also providing financial services with quicker access to verified information. Once again, this highlights the importance of digital platforms in enabling efficient trade opportunities.

AE: My next question is about the industrial sector. The lack of financing confines many African countries to being raw material exporters, with underdeveloped industrial sectors. However, South Africa stands out with its strong industrial base. How can the rest of the continent learn from South Africa’s success in building a viable export industry?

BM: While South Africa has a relatively developed industrial sector, it too has faced challenges over the past decade. Industrial policy has been a key element in the development of South Africa's industrial base, and it’s crucial to ensure that macroeconomic policies create stability and certainty to attract investment. Diversification is another important factor, especially since Africa is rich in minerals, which we unfortunately still export as raw materials. I’m excited to see that more countries are requiring their partners to consider building plants locally as part of their resource agreements. Government procurement policies also play a role. In South Africa, for instance, the government has a policy of localization, requiring a percentage of inputs to come from local sources, which encourages investment in domestic industries. With the African Continental Free Trade Area (AfCFTA), we need to move beyond competition between countries and instead build supply chain opportunities across borders, where countries can collaborate in producing goods like motor vehicles with components sourced from different countries. This would strengthen industrial bases across the continent and create a win-win situation for all.

EA: You mentioned the African Continental Free Trade Area (AfCFTA). How can adopting interoperable customs standards between countries promote better regional integration and strengthen intra-African trade under the AfCFTA?

BM: Interoperability is crucial, but we also need to focus on digitizing our processes. I remember hearing a few years ago how long it takes to transport goods from South Africa to the Democratic Republic of Congo, and it was shocking. The delays are not just due to poor road infrastructure but also the time taken at each border post for processing. A digital platform where goods can be scanned and moved across borders seamlessly would help enormously. We could enable customs and regulatory authorities to track goods in real-time, and exporters could also monitor the location of their goods, which is especially important for time-sensitive or perishable items. Harmonizing procedures and digitizing systems would allow us to model efficient trade practices and potentially influence global standards.

EA: The continent remains dependent on imports. Many voices are calling for Africa to improve its position in the global supply chain while building resilience. How can Africa improve its supply chain resilience?

BM: First, we must acknowledge the importance of sustainability. While pandemics are disruptive, Africa is also facing extreme weather events that are affecting trade. For example, we experienced rice shortages due to the conflict between Russia and Ukraine. Now, we are seeing potential restrictions from some economies related to carbon emissions, which could severely impact developing countries like ours.

We must invest in resilient value chains and focus on trading with our closest neighbors within Africa before looking beyond. We also need to ensure that we don’t adopt restrictive policies that could hinder economic growth, especially as we work toward cleaner energy. South Africa have supported the Brazilian B20 recommendations in so far as trying to influence how the other G20 nations look at those restrictive policies and practices and how they will impact the developing economies and the least developed economies.

EA: My final question is about digital trade. Many African entrepreneurs are trying to enter this space, but there is a significant digital gap with developed countries. Is Africa ready to fully harness the potential of digital trade?

BM: Maybe not today, but very soon. Africa has the largest youth population in the world, and by 2050, one third of the world's youth will be in Africa. These digital natives are more familiar with the digital space than previous generations. The key now is improving infrastructure to support the innovation needed for digital trade. We’re seeing pockets of innovation in areas like fintech and medtech, but there’s still a long way to go to catch up with developed countries. However, I’m confident that the younger generation is ready to take full advantage of the digital opportunities before them. Beyond digital platforms, services will expand, and I’m particularly excited about how Africa has already made significant strides in exporting our creative culture globally. While we may not have monetized it fully yet, I believe it’s only a matter of time. The next wave of GDP growth will come from the digital economy, and Africa’s youth are well-positioned to lead this transformation.

Interview by Moutiou Adjibi Nourou