Latest / TIPS Podcast / AfCFTA, Regional Integration, and Green Industrialisation: Insights from Rob Davies – TIPS Forum 2025

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AfCFTA, Regional Integration, and Green Industrialisation: Insights from Rob Davies – TIPS Forum 2025 · TIPS Podcast

• 0:04
  SPEAKER_01: Welcome to Tips Official Podcast, the show where we delve into the fascinating world of economics, policy research, and development.
• 0:13
  SPEAKER_01: In each episode, we'll bring you conversations with leading experts, policymakers, researchers, and business voices to explore the economic transformation agenda in South Africa, from industrial policy to regional trade integration to green economy shifts and more.
• 0:27
  SPEAKER_01: We at TIPS strive to create dialogue that supports development in various industries.
• 0:32
  SPEAKER_01: I'm your host, Dr.
• 0:33
  SPEAKER_01: Michael Hector, and welcome to another episode of the TIPS podcast series.
• 0:37
  SPEAKER_01: Today I am proud to be in the presence of such an amazing guest.
• 0:41
  SPEAKER_01: He is a former Minister of Trade and Industry in South Africa and has a long list of accolades.
• 0:48
  SPEAKER_01: Excuse me if I do miss some.
• 0:49
  SPEAKER_01: It is your very prestigious in South Africa.
• 0:53
  SPEAKER_01: So he has been instrumental in major trade negotiations tripartite, SADAC, GEMESA, EAC FDA, BRICS, the EU ACP Economic Partnership Agreement, USAGOA, the WTO Bali Package, and many more, such as the automotive master plan.
• 1:11
  SPEAKER_01: So, ladies and gentlemen, please welcome Dr.
• 1:14
  SPEAKER_01: Rob Davies.
• 1:16
  SPEAKER_01: Thank you, Dr.
• 1:17
  SPEAKER_01: Rob Davies, for joining us today.
• 1:19
  SPEAKER_01: We really appreciate it and are excited to hear about your insights on the topic of this year's W forum.
• 1:26
  SPEAKER_01: It's a pleasure and I'm looking forward to the conversation.
• 1:28
  SPEAKER_01: Thank you.
• 1:29
  SPEAKER_01: Dr.
• 1:29
  SPEAKER_01: Rob Davies, I just want to hear from you your ideas and the prospects that you perhaps foresee with the AFC FDA and what these things present in South Africa.
• 1:42
  SPEAKER_01: At the forum on day one, we've spoken a lot about the opportunities that this free trade area presents in South Africa.
• 1:50
  SPEAKER_01: But what we've heard little about and some of these could maybe be long-term issues.
• 1:56
  SPEAKER_01: But I would like to hear your ideas around some of the challenges that South Africa may face, but also some of the challenges that the continent as a whole may face with this free trade area.
• 2:07
  SPEAKER_00: Yeah, well, I think first of all, the free trade area has huge potential and opportunities, but it does require that we take the right decisions and build it in an appropriate developmental way.
• 2:19
  SPEAKER_00: That's what I think I would say about that.
• 2:21
  SPEAKER_00: So what I mean by that, well, if you look at the combined GDP of the 54 countries that are members of the CFTA, I'm assuming that Eritrea will eventually join, I suppose, but the combined GDP would make this the eighth largest economy in the world.
• 2:37
  SPEAKER_00: I think if you look at geopolitics and the way things are working out, even if deals are struck with the United States, they will be at a higher tariff level than has been prevailing up to now, which means it'll probably be more difficult to get value-added products into the US market.
• 2:53
  SPEAKER_00: At the same time, we've got a rising floor of climate-justified protectionist measures in the European Union, new regulations, things like CBAMs and stuff like that, which I think is making it more difficult to access their market.
• 3:08
  SPEAKER_00: And if you look at what the successful economies in Asia have been doing, they have had large regional markets, or large domestic markets rather, and those that don't have a turning to their regional markets.
• 3:20
  SPEAKER_00: I think this is becoming the age of regionalism.
• 3:24
  SPEAKER_00: Now, I think that there have been a number of paradigms that have shaped the construction of the continental free trade area.
• 3:33
  SPEAKER_00: One has been the orthodox trade integration paradigm, the one that holds that trade liberalization is a good thing and that trade liberalization should eventually lead to trade liberalization to the rest of the world as well as within the CFTA.
• 3:49
  SPEAKER_00: So that one would focus on things like reducing tariffs, reducing the impact of other regulations and so on, trade facilitation, customs procedures becoming more efficient.
• 4:00
  SPEAKER_00: But I think that if you look more closely, you'll see that the biggest barriers to interregional trade are related to the productive economies, the characteristics of the production economies, the fact that Africa has remained tied, as Adadeji put it, the well-known head of the UN Economic Commission for Africa, the author of the African Alternative to Structural Adjustment, Arabayo Adadeji.
• 4:27
  SPEAKER_00: And he talked about being tied to the apron strings of dependence on the production of primary commodities used in industries outside of the continent.
• 4:35
  SPEAKER_00: That's been the position that the continent is in by and large.
• 4:39
  SPEAKER_00: In the few countries where there have been a bit more industrialization, at least in South Africa, which is the most industrialized country on the continent, we've had premature de-industrialization.
• 4:49
  SPEAKER_00: So I think that the real opportunity of the CFTA, which we have to discover, is that it should form a basis for a deeper and a more inclusive industrialization than is possible in any one of our countries.
• 5:03
  SPEAKER_00: So none of us has got the size of the domestic economy that can support really strong industrialization.
• 5:11
  SPEAKER_00: And it won't be inclusive.
• 5:12
  SPEAKER_00: I think that if a few of us are a little bit more capable of delivering products to other countries, just look at it in a mercantilist way, we're going to get a backlash.
• 5:21
  SPEAKER_00: Countries are going to refer to bringing imports from elsewhere outside of the continent.
• 5:27
  SPEAKER_00: Countries are going to retaliate if they can't see any benefits to themselves.
• 5:31
  SPEAKER_00: So I think that the real opportunities are that we build regional value chains.
• 5:36
  SPEAKER_00: And there is some work that's going on.
• 5:38
  SPEAKER_00: It's identifying those.
• 5:39
  SPEAKER_00: The African Union has identified a number of them.
• 5:43
  SPEAKER_00: They include automotives, agriculture, and agro processing.
• 5:47
  SPEAKER_00: And I think we need to understand that there is something called the industrialization of fresh.
• 5:52
  SPEAKER_00: So high-quality agricultural products, I think, are increasingly recognized as value-added products.
• 5:58
  SPEAKER_00: There are things like the clothing textile, apparel, and value chain, where I think we've seen some interesting developments where near shoring has led to a willingness to even support investments that are supplying the African market as well as Europe, for example.
• 6:15
  SPEAKER_00: And then I think there are things like pharmaceuticals, where I think the pandemic has taught us that we better not be dependent on long supply chains.
• 6:24
  SPEAKER_00: And the other one I think is the green industrialization, the transition to the low-carbon economy.
• 6:31
  SPEAKER_00: So I think all of these are critical importance.
• 6:34
  SPEAKER_00: So if I can just turn to the green industrialization, because that is the theme of the TIPS conferences here.
• 6:41
  SPEAKER_00: I think my point of departure is that Africa is the least industrialized part of the world.
• 6:46
  SPEAKER_00: We need to move and break those apron strings that Adadeji talked about.
• 6:50
  SPEAKER_00: We need to move into high-value added production.
• 6:53
  SPEAKER_00: We are not going to be able to develop and ignore the transition to the low-carbon economy, as some have put it, develop now and clean up later.
• 7:03
  SPEAKER_00: That's not an option.
• 7:04
  SPEAKER_00: I think it's also not an option for us to simply stay where we are and just decarbonize, reduce our dependence on fossil fuels and have renewable energy and stuff like that.
• 7:16
  SPEAKER_00: Because I think that any such scenario where there's no industrialization will be one which is highly unjust.
• 7:22
  SPEAKER_00: There will be people losing their jobs in fossil fuel-dependent industries.
• 7:27
  SPEAKER_00: But more than that, the climate science tells us that Africa will be disproportionately affected by rising global temperatures and that adaptation will be a very, very significant challenge for the African continent.
• 7:40
  SPEAKER_00: No resources available for adaptation coming from, well hardly any, coming from international bodies.
• 7:46
  SPEAKER_00: So I think that the only way that a transition to the low-carbon economy becomes a just transition is if the continent succeeds in industrializing.
• 7:55
  SPEAKER_00: And South Africa's got to be part of that story.
• 7:58
  SPEAKER_00: But South Africa's got to position itself that it's a partner with the rest of the continent and doesn't seek to simply uh, you know, just try to dominate and offload its finished goods in a mercantilist way in the rest of the continent.
• 8:10
  SPEAKER_00: So I think those are the challenges, those are the issues that confront us at the moment.
• 8:15
  SPEAKER_01: And from an interesting point of departure, the green industrialization topic.
• 8:18
  SPEAKER_01: It's as we have many times at various conferences and papers, that industrial policy is backed, essentially.
• 8:26
  SPEAKER_01: And when we speak about green industrialization, one thing that does come to my mind is obviously the EU C BAM.
• 8:31
  SPEAKER_01: But from my side, we know with the USIRA or the climate references have now sort of been removed, so to speak, um, and the focus is no longer climate change and green industrialization that's in Trump's words, draw baby drill.
• 8:47
  SPEAKER_01: But when it comes to the EU C BAM and the African continent, do you foresee this being a major barrier?
• 8:54
  SPEAKER_01: And is there some sort of way that countries like South Africa that are capable, they do have the infrastructure and perhaps the foundation essentially to have some sort of coordinated response?
• 9:08
  SPEAKER_01: Um we know that South Africa is very much carbon intensive.
• 9:12
  SPEAKER_01: So just some thoughts from your side on that.
• 9:14
  SPEAKER_00: So I think that the transition to a lower carbon economy, and I'm only calling it low, I'm not necessarily saying it's low.
• 9:20
  SPEAKER_00: I think it's going to be a long-term trend that's going to be ongoing.
• 9:24
  SPEAKER_00: It's going to move in fits and starts, there's going to be reversals.
• 9:27
  SPEAKER_00: I think it's probably likely to be behind the curve of responding adequately to the threat of catastrophic climate change, which means that we must expect proliferation of extreme weather events and the impact they're going to have on communities.
• 9:40
  SPEAKER_00: So I think that that is going to be a reality.
• 9:44
  SPEAKER_00: You know, and there are going to be resistances by important lobbies, you know, like fossil fuel lobbies and particularly big oil.
• 9:52
  SPEAKER_00: And governments, certain governments are going to respond to those.
• 9:56
  SPEAKER_00: And I think that what we've come up against in a number of ways, first of all, because of the well, the way in which the United States has been outcompeted by China.
• 10:05
  SPEAKER_00: Not just China is a manufacturer and a producer of manufactured goods, an exporter manufactured competitively priced manufacturing goods, but also a technological leader at the forefront of both digital technology and also low-carbon technology.
• 10:20
  SPEAKER_00: So it's moved decisively into this space.
• 10:23
  SPEAKER_00: I think that what has happened is that the United States has been departing unilaterally from all of the trade rules that it itself crafted in the era of globalization.
• 10:35
  SPEAKER_00: And so the competition with China has led to the recovery of industrial policy by the developed world.
• 10:41
  SPEAKER_00: So we used to think of industrial policy as something which was done by countries that were on the transition from non-industrialized to industrialized.
• 10:51
  SPEAKER_00: But what about countries that are industrialized and are de-industrialized and are facing competition?
• 10:56
  SPEAKER_00: They've also recovered industrial policy.
• 10:58
  SPEAKER_00: So the Inflation Reduction Act, I think, was an example of that, targeting low-carbon industries.
• 11:04
  SPEAKER_00: But here's our departure.
• 11:06
  SPEAKER_00: Part of it was you've got a$15,000 tax credit if you bought a battery manufactured in the United States.
• 11:12
  SPEAKER_00: Now that's a violation of the World Trade Organization TRIMS.
• 11:17
  SPEAKER_00: Then they went along and they extended it when the EU complained to any country that had a free trade agreement with the United States.
• 11:24
  SPEAKER_00: That also is a violation of the MFN principle.
• 11:28
  SPEAKER_00: So, you know, one by one they've been violating the norms of the WTO.
• 11:33
  SPEAKER_00: And then the European Union, I think the European Union is really lost out in the tech space.
• 11:39
  SPEAKER_00: So there's no giant tech company from Europe, you know, the US or China.
• 11:46
  SPEAKER_00: And I think Europe was trying to become a leader in low-carbon technologies.
• 11:51
  SPEAKER_00: And its uh net zero policies were becoming uh its major policies.
• 11:57
  SPEAKER_00: I think those have been out competed now by China, but it was starting to occupy that space.
• 12:02
  SPEAKER_00: And I think it itself also then departed from the norms of the WTO, and one of those was the CBAN.
• 12:09
  SPEAKER_00: So you're not supposed to put levies on top of tariffs.
• 12:12
  SPEAKER_00: You were supposed to turn every levy you had into a tariff.
• 12:16
  SPEAKER_00: You're supposed to tariffise everything and then have a set of WTO buy-ins.
• 12:20
  SPEAKER_00: Well, the EU has just imposed a levy on top of tariffs, and it's using climate as a justification.
• 12:28
  SPEAKER_00: So I think that also represents a departure from the WTO rules.
• 12:33
  SPEAKER_00: But now the Trump II has gone much further and quantities turned into quality.
• 12:39
  SPEAKER_00: They've basically upended the entire system.
• 12:42
  SPEAKER_00: So everything that's around now, uh the reciprocal tariffs, the 232 tariffs, which by the way, also in violation of the bindings, the MFN principle, all sorts of things.
• 12:53
  SPEAKER_00: And then the uh side deals which are being negotiated are also quite out of sync with all the architecture of the World Trade Organization.
• 13:01
  SPEAKER_00: At the same time, everyone who has reached a deal with the US is accepting that it's going to work outside of the architecture of the WTO as well.
• 13:11
  SPEAKER_00: So I think that's the world we're in.
• 13:13
  SPEAKER_00: But what's interesting is that one or two developing countries have realized that that's expanded policy space for industrial development.
• 13:21
  SPEAKER_00: And the one I'm aware of most is Indonesia.
• 13:24
  SPEAKER_00: So they have nickel, which is a critical mineral used in low carbon products, and they introduced a regulation, I think it was an export tax, on their raw nickel exports.
• 13:36
  SPEAKER_00: They got investments just in, as far as I know at this point, smelting.
• 13:41
  SPEAKER_00: And that has increased 30-fold the earnings in the Indonesian economy from the nickel value chain.
• 13:48
  SPEAKER_00: They were challenged by the EU and the WTO.
• 13:51
  SPEAKER_00: The European Union won its case, but then the appellate body in the WTO has been disabled by the United States, which doesn't want any cases against it.
• 13:59
  SPEAKER_00: So it's disabled it by refusing to appoint judges, and it's been in limbo for years now.
• 14:04
  SPEAKER_00: And so Indonesia appeals to this non-existent body and is able to continue with its measures.
• 14:10
  SPEAKER_00: So I think that we've got a we need to find ways of leveraging off our resource base, and not in a haphazard way, because I think what Trump is doing is having tariffs without industrial policy.
• 14:23
  SPEAKER_00: And I think the cost-raising effects in the United States and the disruption of supply chains and things like that is likely to be greater than the industrial development benefits that they derive from this.
• 14:35
  SPEAKER_00: But I do think that the reality is that we need to start deploying policy tools like that, like, well, local content regulations have now through the IRA precedent have now been made legitimate.
• 14:49
  SPEAKER_00: Well, there's a precedent, shall we say, and we can extend a precedent to countries with whom we have a free trade agreement.
• 14:55
  SPEAKER_00: Well, why not other members of the African Continental Free Trade Area?
• 14:59
  SPEAKER_00: The EU has uh claimed climate change levies on top of tariffs.
• 15:03
  SPEAKER_00: Well, if they go ahead, why don't we put a levy on top of their uh tariffs and use the money to fund climate change adaptation?
• 15:11
  SPEAKER_00: I mean, South Africa, it's only hitting us in floods, but we know from the climate science that rising sea levels and droughts will also be a factor in other areas.
• 15:21
  SPEAKER_00: But in the floods, we have a situation where I see now that Toyotas don't sue the uh Etiquini municipality because it says that the drains weren't properly maintained, where people who were affected by the 2022 floods were moved to some area, and that area was hit by floods later on.
• 15:40
  SPEAKER_00: So, you know, public employment programs at municipal level to proactively reinforce and climate-proof our infrastructure, I think is long overdue.
• 15:50
  SPEAKER_00: So I think all of these measures that have been introduced by the advanced industrialized countries of the global north have created precedents that we need to take advantage of for our own development using the Continental Free Trade Area.
• 16:04
  SPEAKER_00: And by the way, if we use some of those policy tools, I think we can bargain much more effectively if we do so as a bloc rather than as individual countries.
• 16:13
  SPEAKER_00: Because against that, the trend line is lots and lots of seeking of critical mineral deals about the supply of the dirt out of the ground and investment maybe in the mining and in some of the infrastructure to get that to the global north.
• 16:27
  SPEAKER_00: But we're not going to get just by the virtue of having the minerals, we're not going to get the value addition unless we act.
• 16:34
  SPEAKER_00: So I think these are the kind of challenges that that face us as a continent at the moment.
• 16:39
  SPEAKER_01: Yeah, definitely.
• 16:40
  SPEAKER_01: And whenever I think of industrial policy and actually seeing these initiatives, master plans, etc., are being put into effect, we always talk about infrastructure.
• 16:50
  SPEAKER_01: Um and this leads into my next question about what sort of infrastructural bottlenecks or challenges do you foresee not only South Africa having, but also the members of the continental free trade area?
• 17:03
  SPEAKER_00: Well, let me talk first about South Africa.
• 17:05
  SPEAKER_00: I'm I'm not a fan of this uh blended finance Wall Street consensus stuff that we're into now.
• 17:12
  SPEAKER_00: So just to explain what that Wall Street consensus is, uh the Washington consensus earlier on said you must prioritize your macroeconomic ratios, your budget deficit, your inflation level, all of that, you must do that.
• 17:24
  SPEAKER_00: And then, as they put it, as one Thomas Friedman put it in a well-read book, you put on the golden strait jacket, it's not quite nice, but you put it on, and then the electronic herds like what you're doing, and they pump tons and tons of investment.
• 17:36
  SPEAKER_00: Well, that didn't happen.
• 17:38
  SPEAKER_00: So the Wall Street consensus now wants to say what you need to do is you need to de-risk, and then you're going to turn billions of dollars of potential investment into trillions.
• 17:48
  SPEAKER_00: Now, I think that slope has been shown not to be a reality because what you're supposed to do is guarantee not just against expropriation or physical loss or anything like that.
• 17:59
  SPEAKER_00: You're supposed to guarantee a rate of return no less than if you engaged in financial speculation.
• 18:06
  SPEAKER_00: And I think it's been shown to be everywhere a high cost and low yield option.
• 18:12
  SPEAKER_00: So, you know, the big infrastructure build is just around the corner.
• 18:16
  SPEAKER_00: The market is liking it, but it's still around the corner.
• 18:19
  SPEAKER_00: And it's been around, in the case of South Africa, it's been around the corner for quite a while.
• 18:23
  SPEAKER_00: And I think that much of the continent, uh, with its high levels of indebtedness and so on, is being persuaded to go in a similar direction.
• 18:30
  SPEAKER_00: And I think he's having a similar set of results.
• 18:33
  SPEAKER_00: So I think that most of the progressive thinkers about financing are saying that we've got to go back to our development finance institutions.
• 18:43
  SPEAKER_00: Our development finance institutions have got to mobilize more resources internally.
• 18:49
  SPEAKER_00: They've also got to act with a developmental mandate.
• 18:52
  SPEAKER_00: Of course, they've got to be operating in ways that don't allow the funds to be looted for private gain and for corruption and whatever.
• 19:01
  SPEAKER_00: But that development finance institutions are critical.
• 19:05
  SPEAKER_00: And when I was first in government, we were learning about the B and DES, the Banco de Desenvolvimento Económico Social, the equivalent of the IDC in South Africa and the DBSA combined in Brazil.
• 19:20
  SPEAKER_00: And all the industrial projects in Brazil had a huge role of the B and DES in their funding.
• 19:27
  SPEAKER_00: So we were trying to create something like that in South Africa.
• 19:32
  SPEAKER_00: Unfortunately, I think the you know the interests of a very highly financialized economy and whatever, and the interest groups that work there, where we have, as far as I know, according to Duma Kubouli, we have investable funds sitting in fund managers about three times the GDP of South Africa.
• 19:51
  SPEAKER_00: It's not that it's not been invested, of course it's been invested, otherwise it's not capital, it's just not been invested in the productive sector or in infrastructure.
• 19:59
  SPEAKER_00: So I think we've got to go a different route.
• 20:01
  SPEAKER_00: And some of that route has got to be to turn around and say there are conditions attached to your operating, and those conditions are that a certain percentage has to go into infrastructure build and things like that.
• 20:14
  SPEAKER_00: And I think that until those things begin to happen, I think we're going to have infrastructure which is going to be lagging, except where outside parties have an interest in building or rehabilitating infrastructure so that they can get raw materials out of the continent and to the coast, which is what colonialism did, to the ports and then out to the uh to the you know as resources in economies in other countries.
• 20:39
  SPEAKER_01: Definitely.
• 20:40
  SPEAKER_01: I think that is all for today.
• 20:42
  SPEAKER_01: Thank you, Dr.
• 20:43
  SPEAKER_01: Rob Davies.
• 20:44
  SPEAKER_01: And if you've got any closing remarks, feel free to add anything.
• 20:48
  SPEAKER_00: No, I think that I would say we need to take this green transition very seriously.
• 20:53
  SPEAKER_00: We need to be very wary of people who are coming along and bearing gifts, you know.
• 20:59
  SPEAKER_00: You know, the old adage about uh the Trojan horse and so on.
• 21:03
  SPEAKER_00: And when somebody comes and tells us that, you know, there's one thing or another where we can be, you know, producers of green hydrogen, for example, we want to say, well, okay, but we don't want to be producing fuel and putting it on ships and sending it to you.
• 21:17
  SPEAKER_00: We want to be moving up the value chain, producing fuel cells, using fuel cells in underground mining vehicles, public transport vehicles, small power stations, and so on.
• 21:28
  SPEAKER_00: And I think that must be a consistent message, and it needs to be driven now, I think, by some real measures.
• 21:33
  SPEAKER_01: Definitely.
• 21:34
  SPEAKER_01: Thank you, Dr.
• 21:34
  SPEAKER_01: Rob Davies.
• 21:35
  SPEAKER_01: From TIPS, we really appreciate you for taking some time out of your busy schedule to join us and bring us some valuable insights.
• 21:42
  SPEAKER_01: Thank you so much.
• 21:43
  SPEAKER_01: And that's it for today in our TIPS podcast.
• 21:46
  SPEAKER_01: We heard the views from Dr.
• 21:48
  SPEAKER_01: Rob Davies, any suggestions regarding the African Continental Free Trade Area.
• 21:52
  SPEAKER_01: Let those empower in decision making take heed to what was discussed here today.
• 21:57
  SPEAKER_01: I'm your host, Dr.
• 21:58
  SPEAKER_01: Michael Hector, and don't forget to subscribe, leave a review, and connect with us on social media.
• 22:04
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• 22:11
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• 22:16
  SPEAKER_01: Thank you.