(Ecofin Agency) - The ongoing WTO Public Forum 2024 focuses on how global trade can foster inclusivity. For Africa, where many nations face marginalization, the organization offers solutions to enhance business participation in both intra-continental and international trade.

Unlike other continents, Africa's intra-regional trade is significantly more expensive than trading with external partners, according to the WTO's 2024 World Trade Report. The report's Trade Costs Index reveals that intra-regional costs are 20% higher than extra-regional trade. This disparity is exacerbated by infrastructure challenges, reliance on raw materials, weak industrial policies, and difficulties in securing trade financing.

The WTO and the International Finance Corporation (IFC) report that only 15% of trade in Senegal and 20% in Nigeria is supported by financing, compared to an average of 40% across Africa and 60% in developed economies. In West Africa, 25% of financing requests are rejected, compared to 12% continent-wide.

These rejections often stem from firms' lack of creditworthiness, poorly documented applications, insufficient correspondent banking relations, and limited access to foreign currency. Banks may also demand additional guarantees due to concerns over legal enforcement, the report explains.

Trade financing, typically short-term and low-risk, is costly in low-income economies. Increasing the share of financed trade from 25% to 40% in West Africa could boost trade flows by an average of 8%.

MSMEs: A Vital but Excluded Segment 

According to the WTO, Micro, small, and medium-sized enterprises (MSMEs) account for approximately 90% of African businesses and employ 60% of the workforce. However, they remain largely excluded from international trade due to limited access to financing.

In recent years, initiatives supported by institutions like Afreximbank and the IFC aim to improve trade financing in Africa by providing guarantees to businesses. Despite these efforts, MSMEs continue to face significant challenges. The WTO reports that around 50% of MSME financing applications are rejected, compared to just 7% for multinationals. MSMEs in Côte d'Ivoire and Senegal often pay interest rates of 7-9%, higher than the 4-5% charged to large companies. High compliance costs and weak institutions exacerbate the situation, forcing MSMEs to provide more upfront capital.

To address these challenges and boost intra-African trade, the WTO, led by Ngozi Okonjo-Iweala, advocates for stronger financing support initiatives across the continent.

“Trade finance, where available, can help to mitigate the transactional and financial risks related to the time gap between production and payment,” notes the WTO. The organization adds, “Adopting trade facilitation measures and improving the availability of trade finance can contribute to reducing the fixed costs of participating in international trade, which is particularly beneficial for MSMEs given their limited financial resources.”

Moutiou Adjibi Nourou, Special Correspondent