Statement by ITC Executive Director at the ACP Trade Ministerial meeting (en)

Delivered on 18 June 2014 at the African, Caribbean and Pacific (ACP) Trade Ministerial Meeting, Nairobi, Kenya

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Secretary General Alhaji Muhammad Mumuni
Honorable Deputy Trade Minister Janet Mbene
Ministers
Distinguished Ladies and Gentlemen

I am very pleased to address this 99th Council of Ministers of the ACP Group of States here in Nairobi, and to take the opportunity to sign a Memorandum of Understanding (MOU) with the ACP that will solidify our already excellent relationship.

This year the ITC celebrates its 50th anniversary. For 50 years we have worked to unlock SME international competitiveness. We have worked to help SMEs go international and through that help them grow stronger and in a better position to generate jobs.
 
50 years later the world of trade has changed and we are changing. Instead of purely looking at exports, we now look at trade and investment as two sides of the same coin. We now focus on value addition in- country, whether for agro-processed products, for manufactured goods and increasingly, for services. Instead of looking at products, we now look to offer solutions to SMEs that will encompass different components.

Our focus on SMEs reflects the importance that all of you accord to them as the largest untapped source of growth. But for that to be realised, targeted "micro" interventions will be needed that will help them better leverage the opportunities of trade opening and regional integration.
 
Just last week ITC held its governing body meeting (JAG) and we pledged to support SMEs around six priority areas namely:

• Trade and market intelligence for SME competitiveness;
• Supporting regional economic integration and South-South trade;
• Connecting SMEs to value chains;
• Strengthening trade and investment support institutions;
• Promoting and mainstreaming inclusive and green trade; and
• Building a conducive policy and business environment through public-private partnerships.

We have also pledged to focus our efforts on least developed countries, landlocked developing countries, Small Island developing states and Sub-Saharan Africa.
 
Through our projects, we are already helping many individual ACP Member States increase their participation in the global economy and reach development goals through trade. Examples include our Ethical Fashion Initiative, which was launched here in Kenya in 2007, and which is helping marginalised artisans – 90% of which are women – in Haiti, Ghana, Mali, Burkina Faso and of course Kenya, connect to the international fashion industry.

In the Pacific region, our Women and Trade project is helping deliver increased incomes and exports for women entrepreneurs in Papua New Guinea, Vanuatu and Samoa. In Africa, our Programme for Building African Capacity for Trade, which is about to commence its third phase, has helped to strengthen and support capacity of relevant regional and national institutions to enhance the export competitiveness, market intelligence and export revenues of African SMEs in high-potential sectors.
 
And in the Caribbean, ITC signed an MOU with the Caribbean Export Agency (CE) in 2012 to establish closer cooperation for strengthening the capacities of that Organization in the areas of trade information, institutional assessment, public-private dialogue and SME competitiveness.

Increasingly our work is focusing on helping to reduce the cost of trading and of doing business. For big business these barriers mean less profit. For SMEs it often means no internationalization, continued informality and ultimately closure. It is as a result of this message that we hear over and over again from SMEs that have reinforced our support for the WTO Trade Facilitation Agreement.

It is how important to capitalize on this agreement. The ITC is ready to help all of you implement the obligations in the agreement, starting with the preparation of schedules of commitments.

High cost of trading and a challenging business environment are also barriers to both regional and ACP-wide integration. And it is greater integration that will allow regional value chains to develop, capitalising on the benefits of geographical proximity.
At the request of Secretary-General Alhaji Muhammad Mumuni, we are working on a study on: “ACP trade: prospects for stronger performance and cooperation” in the context of an All-ACP Free Trade Area. The final report of the study is due in September this year, but let me share with you some of its preliminary findings.

Firstly, we have looked at the overall context of trade in ACP countries and regions. We found that ACP exports of goods and services have grown rapidly over the last decade – by 12% and 9% respectively. The destination of exports is unsurprisingly determined by geographical proximity. African ACP countries export mainly to the EU but also increasingly to Asia – particularly China and India. The Caribbean ACP countries are heavily dependent on the US for their exports and Pacific countries rely on Australia and Asia. In terms of export diversification, ACP countries as a whole are far less diversified than other developing countries. However, they are far more diversified when it comes to export markets.
 
Next, we looked at the extent to which ACP countries participate at higher levels of the global value chain. We found that overall, 64% of total exports consist of semi-processed or processed goods. Caribbean countries outperform this average with 88% of all goods exports comprised of transformed products – very close to the share of transformed goods in developed countries’ exports.

This is important because moving up value chains by shifting the focus from exports of primary commodities to exports of products that have been processed is one way for countries to smooth, often volatile, export revenues. Processed goods are less susceptible to conditions – such as changing weather patterns – that can affect primary commodities. Furthermore, exporters have more bargaining power over the price of value-added goods.
 
As far as progress on all-ACP trade integration is concerned, our findings were not so positive. Although the market share of intra-ACP trade is higher than the market share of ACP trade with the rest of the world, the last decade has seen marked trade disintegration among ACP countries. Between 2003 and 2012, intra-ACP trade increased by 5.5% compared with an increase of 26% in ACP trade with the rest of the world. Again, the Caribbean is an outlier having achieved greater integration over the last decade.

This may be because of the geographical dispersion of ACP countries across three different continents, which makes exports of SMEs particularly uncompetitive given their higher costs of exporting goods to distant markets relative to larger firms. It could also be due to the absence of any formal trade agreement between the regional sub-groups. These are questions for further exploration as we finalise our study.
 
What we can say is that current tariff and non-tariff barriers to intra-ACP trade are significant. ACP countries benefit from a larger tariff preference margin when exporting to ACP markets as compared with exporting to the rest of the world. But the relatively higher tariffs applied by ACP markets in the first place, overrides the trade-enhancing benefits of this provision. Our study finds that enhancing trade integration through further tariff reduction remains possible.

Drawing on the ITC’s non-tariff measures (NTM) programme which covers a number of ACP countries, we find that relative to their importance as export markets, ACP countries are responsible for a disproportionate amount of burdensome trade regulations that hinder greater trade integration within the group. Phase two of ITC’s NTM programme, launched in 2013, will support the formulation and implementation of initiatives to remove these kinds of barriers in 15-25 countries that we have already surveyed.
 
It is our hope that the study can provide a solid foundation on which to build our future engagement with the ACP and to serve as one element of your tool box as you seek to increase intra-ACP trade and build SME competitiveness within the regions and countries.

The MOU, which we will now sign, will establish a framework for deeper cooperation between ITC and the ACP Secretariat in support of export competitiveness of small and medium-sized enterprises (SMEs) in ACP countries and regions. I look forward to fruitful exchanges with you on how ITC can bring its technical expertise in trade development and trade and investment promotion to assist with the ACP’s goal of promoting sustainable development.

Finally, I would like to take the opportunity to invite you all to our annual World Export Development Forum which takes place on 15 – 17 September 2014 in Kigali, Rwanda. This is the first time in our 50 years of existence that the Forum comes to Africa. Long overdue. The theme of our forum this year is ‘SMEs: Creating Jobs Through Trade’, reflecting the importance that ITC and its partners attach to the role of a vibrant private sector in driving trade-led growth and development. We hope to see you there.