Africa’s trade is dominated by raw materials exports, mainly fossil fuels and minerals, with over a third of exports being coal, oil, and gas. Africa’s share of global trade remained at less than 3%, primarily driven by merchandise trade, according to a report by the Economic Commissions for Africa (ECA). Enhancing Small and Medium-sized Enterprises (SMEs) capabilities can increase Africa’s exports by promoting value addition through these enterprises. With millions of SMEs, including those in the informal sector, these enterprises make up the majority of businesses in Africa and can be a great tool to increase Africa’s exports. However, several obstacles consistently hamper these enterprises’ regional and global trade potential.
The world is more interconnected with technology and the movement of people and goods. Global trade has been increasing, with the World Trade Organization (WTO) projecting that world merchandise trade volume will grow by 2.6% in 2024 and 3.3% in 2025. The United Nations Commission on Trade and Development (UNCTAD) expects global trade to reach almost $32 trillion in 2024 if the positive trend continues. Engaging in international trade is crucial for expanding and sustaining Africa’s SMEs and the continent’s economic growth.
African SMEs face significant barriers in global trade, such as poor infrastructure that leads to high transport costs, complex and restrictive trade regulations, technical and resource-capacity constraints, limited financial resources, complex international regulations, and a lack of skilled personnel. All these barriers can make it difficult for small and medium businesses to enter foreign markets.
Governments and international organizations are essential partners in enhancing SMEs’ access to global markets. Governments can increase these businesses’ participation in the world markets by establishing and implementing focused policy measures, facilitating trade promotion with other countries and regions, and launching capacity-building initiatives. A transparent and accountable government committed to good governance is then essential for enhancing SMEs’ trade capabilities. National governments can develop hassle-free processes to enable the free movement of goods and services and create and implement trade policies beneficial to large and small businesses.
The African Continental Free Trade Agreement (AfCFTA), ratified by 27 African countries, connects 1.3 billion people across the continent. The agreement will reduce tariffs among member countries and make it easy for African countries to trade with each other. It covers policy areas such as trade facilitation and services and regulatory measures such as sanitary standards and technical trade barriers, which, if implemented effectively, could enhance SMEs’ access to global markets.
African governments and Western nations have signed significant agreements that promote trade and enhance small businesses’ access to global markets. The African Growth and Opportunity Act (AGOA), which provides eligible sub-Saharan African countries with duty-free access to the U.S. market, and the Strategic Trade and Investment Partnership (STIP) between the United States and Kenyan governments which seeks to increase investment and support African regional economic integration are key trade agreements. Negotiations continue toward an Economic Partnership Agreement (EAP) between the European Union and several West African countries.
Sub-Saharan Africa (SSA) has gained significant importance in Chinese industrial and trade policies, leading to an increasing share of China in Africa’s total trade and vice versa. As China continues to expand its relationship with Africa, possible trade agreements could ensue, further enabling Africa’s SMEs to access Chinese markets.
International organizations are equally relevant in shaping the global trading landscape and ensuring small and medium firms have the necessary resources and representation. Organizations like the World Trade Organization (WTO), the United Nations Conference on Trade and Development (UNCTAD), and the International Trade Centre (ITC) play a pivotal role in creating and advocating for global rules to promote trade. A central focus of these organizations is the creation of policies that reduce barriers to market entry. In a “flat” and interconnected world, these organizations’ role in fostering trade relations between the global north and south is critical.
For example, the WTO’s Trade Facilitation Agreement (TFA) aims to simplify and speed up customs procedures, making it easier for businesses to move goods across borders. This agreement is a vital cushion for companies to expand regionally and globally. By reducing red tape and improving transparency in trade processes, the TFA lowers trade costs and makes it easy for smaller firms to compete globally.
Enhancing small and medium-sized enterprises’ (SMEs) access to global markets requires a collaboration between governments, international organizations, and the private sector. This article proposes strategies to strengthen African SMEs’ position in international trade.
Other challenges affecting SMEs access to global markets
Despite progress, other challenges persist in integrating African SMEs into global trade. In addition to poor infrastructure, complex trade regulations, technical capacity constraints, limited financial resources, and complex international regulations, the challenges below inhibit SMEs’ ability to access global markets.
Protectionism – One issue is the need for more alignment between national and international trade policies. While organizations like the WTO establish global standards, national governments do sometimes maintain different regulations, creating friction that complicates trade for small and medium enterprises. Africa’s trade policies, often perceived as protective, can pose restrictions on international trade. The International Monetary Fund (IMF), notes that despite the continent’s significant progress, its policies are still, on average, more protectionist than those of its trading partners and competitors.
Political Tension: Getting caught up in tensions or other political issues between developed countries, such as the U.S. and China trade war, or the U.S. and Russia relations. Restrictions on trade due to opposing geopolitical blocs can impact SMEs. For example, Russia’s relationship with a country could affect its chances of trading with the United States and vice versa.
Less politically aligned countries are also more likely to have trade barriers, even within regions. Take, for example, Burkina Faso, Mali, and Niger quitting the Economic Community of West African States (ECOWAS) regional bloc, which can affect trading with its neighbors or exclude those countries from other international agreements like AGOA.
Geography: Africa is fragmented, with 54 countries and over 3000 tribes, each with its own language. Language can be a barrier for small and medium-sized enterprises within regions because moving from one country to another may require knowledge of a different language. Language can also hinder trade for small businesses wishing to trade with countries of other languages. Furthermore, some countries’ geographic locations, being landlocked and physically distant, can impede the movement of goods and services between countries, resulting in high transportation costs for SMEs wishing to engage in regional or global trade.
Recommendations
While progress has been made, continued work is needed to help small and medium enterprises increase their participation in global and regional trade. The following recommendations focus on simplifying trade measures, improving access to finance, promoting digital trade, and strengthening public-private partnerships to enhance SMEs’ access to global markets.
1. Enhance Trade Facilitation Measures – SMEs often face complex customs procedures, excessive documentation, and high transaction costs. Simplifying custom processes is critical to enabling small and medium businesses to trade out of their regions. African governments should effectively implement the WTO Trade Facilitation Agreement (TFA), which streamlines customs procedures and reduces trade barriers. Expedited customs clearance and preferential treatment for SMEs can further help smaller exporters overcome the complexities of international trade.
Digitalizing customs procedures is another effective solution to reduce administrative burdens on SMEs. Automated systems for trade documentation, along with electronic platforms for payments and compliance, can significantly speed up processes and lower costs for businesses looking to export.
2. Promote Regional Trade – Intra-Africa trade, as a share of global trade has been stagnant and showing a downward trend. Improving regional trade is an excellent way for small and medium-sized firms to start exporting. Low manufacturing and processing capacity has been reported as a major limiting factor for trade among African countries. While progress towards regional trade has been slow, the African Continental Free Trade Agreement (AfCFTA) is valuable for trade intra-African trade promotion.
AfCFTA will strengthen the capacities of African businesses to access and supply world markets. The agreement provides hope for Africa’s trade prospects, with the World Bank estimates showing that it could raise Africa’s exports to the rest of the world by 32% by 2035. Increasing intra-African trade will be critical to Africa’s participation in global trade and bringing SMEs to access international markets.
3. Increase Financial Support for SMEs – Financial resources for African SMEs generally need to be improved. Estimates put the funding gap for African SMEs at more than $140 billion. Although governments offer grants and loans, many SMEs still struggle to secure the necessary export financing and venture capital. The financial gap restricts SMEs’ ability to scale or invest in international expansion. Export credit insurance is also less accessible to SMEs, particularly in developing countries, further limiting their participation in global markets.
Expanding financial support through targeted export credit lines and guarantees is essential. Development banks, such as the World Bank and the African Development Bank (AFDB), have done great work providing financing resources for African SMEs. Additionally, governments should promote venture capital and private investment funds geared toward export-oriented SMEs and partner with financial institutions to target SMEs with growth potential.
4. Promote Digital Trade and E-commerce – The growing significance of digital trade presents a vast opportunity for African SMEs. However, many SMEs, especially in developing countries, lack the digital infrastructure, skills, and access to online platforms needed to engage in e-commerce. Governments and international organizations must invest in building the necessary digital ecosystem. The necessary digital ecosystem involves a) enhancing Internet accessibility, b) ensuring robust digital payment systems, c) providing reliable and affordable electricity, and d) fortifying cybersecurity. Additionally, governments can provide tax incentives to encourage SMEs to develop and adopt e-commerce platforms. Expanding access to digital tools will enable SMEs to compete globally.
5. Strengthen Public-Private Partnerships (PPPs)– Public-private partnerships (PPPs) can play a critical role in helping SMEs integrate into global markets. Public-private partnerships (PPPs) can play a critical role in helping SMEs integrate into global markets. PPPs offer significant benefits, such as assisting SMEs to meet international standards, accessing technology, and benefiting from market linkages. Large corporations, governments, and SMEs can collaborate to create inclusive supply chains that provide access to international markets. Including SMEs in provisions within the public procurement process, leveraging policies, and raising awareness through the chamber of commerce can help increase the number of African SMEs in global value chains.
6. Build Technical Capacity – For African SMEs to trade globally, they must increase their capabilities to manufacture products/services with high export potential and conform to international standards. Increasing SMEs’ capabilities will require skills development initiatives to help them navigate complex global regulations, customs paperwork requirements, marketing, and export rules.
Governments and development institutions should offer knowledge sessions through chambers of commerce or small business support organizations and agencies to strengthen SMEs’ ability to produce and trade efficiently and at scale.
Conclusion
Implementing the recommendations above could significantly impact Africa’s intra- and global trade. By creating a regulatory environment enabling SMEs, African governments can help these businesses trade in global and regional markets, increasing Africa’s share of international trade, creating jobs, and leading to economic growth.
Governments and international development institutions are crucial in addressing challenges that hinder SMEs from participating in global trade. While barriers like poor infrastructure, lack of technical skills, access to finance, and a complex regulatory environment present enormous obstacles for SMEs to access international markets, other challenges like protectionism, political tensions, and geography can significantly limit SMEs’ ability to participate in global markets.
In an increasingly connected world, government efforts must align policies, expand financing options, encourage digital adoption, promote AfCFTA, build SMEs’ technical capacity, and foster collaboration between the public and private sectors. By implementing these strategies, stakeholders can create a more enabling, sustainable trade environment that promotes African SMEs’ involvement in global markets.
It’s crucial to recognize that Small and Medium-sized Enterprises are the backbone of the African economy. Their pivotal role in increasing intra-African and global trade cannot be overstated. Implementing SME-friendly trade policies is an urgent need to see more SMEs involved in global value chains.
About author:
Elfreda K. Sheriff is the Managing Director of KilSah Consulting, a development firm that provides research, policy advisory, training, and mentoring services for Micro, Small, and Medium-sized Enterprises (MSMEs).
