How does gender affect the participation of SMEs in international trade?

16 October 2016
ITC News
Keynote speech delivered by ITC Executive Director Arancha González.
Queens University
Kingston, Canada - 16 October 2016

Ladies and Gentlemen,

It is my pleasure to be here today to talk about issues that are highly relevant to achieve the U.N. 2030 Development Agenda – trade, gender and SMEs. And tonight, I would specifically like to focus on whether there is a gender dimension to the participation of SMEs in international trade and second, how the international actors should incorporate gender in their analysis of trade policy tools and potential markets.

Is there a gender dimension to the participation of SMEs in international trade?

There is a broad consensus that international trade plays a vital role in shaping economic and social performance and prospects of countries around the world, especially those of developing countries.

Trade gives countries access to new technologies available in the global market which enhances the incentives for innovation. Likewise, trade creates new employment opportunities with the expansion of export sectors, and brings structural changes that increase employment of lower skilled workers in the informal sector.

Today, it is also well-understood that both in developing and developed countries, SMEs constitute the largest part of the private sector and a vast majority of employment.

Formal and informal SMEs together represent 95% of all firms globally, around 50% of global GDP, and over 70% of total employment.

SMEs play a crucial role in Canada’s economy and international trade performance. Small businesses constitute 98% of all businesses in Canada, represent 30% of its GDP, account for 90% of Canadian exporters and are responsible for around one quarter of the total value of exports.

Enabling SMEs to trade and invest internationally can boost economic growth and productivity, which in turn will increase the benefits perceived from trade. Improving SME performance could also improve the distribution of income in our countries. Finally, greater SME participation in trade may promote formalization and create better paid jobs.

As close to 40% of all SMEs are owned by women, helping those businesses connect to international value chains has the potential to magnify the benefits mentioned above. Not only that: increased female entrepreneurship can be instrumental to tackle inequalities and poverty since poverty also has a feminine face.

Economic development and gender equality go hand-in-hand. Societies where income and gender inequality are lower, not only offer better social-economic opportunities for women, but also tend to grow faster.

The latest Africa Human Development Report finds that economic and social discrimination against women is costing Africa $105 billion a year or 6% of its gross domestic product. Closing this gender gap would be a boom for the continent’s economic and social prospects.

However, given that men and women have different skills, challenges, roles in the economy and in society, and have different access and control over resources, impacts of trade policies are not gender-neutral.

The relatively poor adaptation of women to the challenges and opportunities of integrated markets is among the most important factors why trade policies pose problems to women. This problem is more relevant in developing countries.

In fact, ITC recently published a study covering 20 developing countries that revealed not only that gender has a significant effect on SME participation in international trade, but also that there are striking disparities between men and women’s participation in trade.

To make this a bit more tangible, allow me to share with you some numbers from the study:

Across the 20 countries covered, fewer women entrepreneurs participate in trade. Only 20% of interviewed trading companies in the surveyed developing countries are owned or managed by a woman.

In addition, women-owned or managed exporting firms are less likely to be engaged in imports than their male counterparts. Whereas almost 60% of men-owned and managed exporting companies also import goods, for exporting firms owned or managed by women, the share is just over 50%.

Similarly, the study examined the relationship between SMEs financing, development and trade and showed that women experience more problems in raising funds, competing and accessing markets than their male counterparts.

As already mentioned, these gender differences are often explained by the fact that women-owned enterprises tend to be smaller than male-owned companies and therefore often lack the resources to expand into global markets.

But why is that the case? Is it because women prefer to remain small and informal by choice or are they indeed constrained?

The answer is likely to be the latter. There are various reasons for the underrepresentation of women-owned businesses in international trade and they vary across countries.

Let me present you with three major reasons that hinder many women entrepreneurs from tapping into international value chains and upgrading into higher value activities.

Regulatory biases
-- Regulatory and legal barriers are one of the main reasons that explain the lower integration of women-owned SMEs in international markets. In fact, the ‘Women, Business and the Law 2016’ report by the World Bank found that 90% of the 173 countries surveyed have at least one law discriminating against women.

In many economies, regulatory barriers restrict women’s right to work and own assets. This is most distinct in the Middle East and North Africa, where registering a business as a woman often requires permission from a male guardian.

National policies addressing land ownership and equal rights to own and rent property help eliminate these constraints. However, in practice, national land policies are politically charged and difficult to implement.

Procedural obstacles
-- ITC’s recently published SME Competitiveness Outlook 2016 finds that female-owned exporting firms report, on average, a higher share of markets where procedures are perceived as an obstacle to trade, compared to male owned firms even when the standards are the same.

Notably, female-owned micro firms experience more procedural obstacles due to “information and transparency issues”, “informal or high payments” and “discriminatory behaviour” than male-owned micro firms.

Cultural biases
-- Culture-based gender roles affect women in developing countries and developed countries like Canada, where a majority of Canadian women SME exporters perceive that gender plays a role in the operation and internationalization of their firms. In fact, a UN World’s Women report reveals that, globally, women spend at least twice as much time as men on unpaid domestic work. This significantly impedes women from fully participating in the economy. As a result, women-owned enterprises are less likely to internationalize.

Other aspects of this bias include:

Time constraints on female managers-- Due to women’s higher participation in unpaid domestic work, women often face a trade-off between job and family. Nevertheless, due to cultural norms and values, in many countries women are still expected to leave their jobs once they have children as they continue to shoulder the burden for domestic responsibilities. As a result, women are often forced to start their own, usually informal, businesses due to lack of employment opportunities.

Limited access to productive resources like finance and land
-- Women have less access to finance because they have less physical and reputational collateral. In other words, women own less property and assets and might also have weaker credit histories than men. This may explain why they are concentrated in less capital-intensive firms.

Limited access to information and networks-- Cultural biases and social norms also prevent many women from joining formal business networks, which usually make it easier to identify and seize market opportunities. Instead women tend to rely more on informal and personal contacts.

Together, these barriers can explain why women-owned businesses are generally smaller and less productive than their male-owned counterparts.

Due to their small size, women-owned companies also suffer disproportionally from trade-related fixed costs, such as non-tariff measures (NTMs). The reason for this is simple: NTMs such as standards or lengthy customs procedures often lead to higher transaction costs for exporters. For SMEs that tend to trade in lower volumes, this implies that fixed trade costs make up a larger share of the unit costs in comparison to firms that export larger quantitates. As women-owned enterprises tend to be smaller than male-owned firms, NTMs hit women harder than men.

I think by this point the answer to my first question should be evident: there is a gender dimension to SME participation in international trade.

As I mentioned before, SMEs are a big part of making sure that the gains from trade are more equitably distributed. So, too, are women. That’s why we at the ITC are convinced that connecting women-owned SMEs to world markets is more important than ever.

So, how can we address these problems and allow women to participate in and reap the same benefits from trade as men?

There are several ways we can work towards achieving greater gender equity and equality. So far, most initiatives undertaken by trade and investment support institutions (TISIs), governments, multinationals, international organizations and NGOs to provide women-owned businesses with access to markets are based on a combination of facilitating access to finance; facilitating access to market information and networks; and capacity building and training.

However, establishing an enabling environment for inclusive and sustainable trade goes beyond that – it also requires changes in the international trade arena.

This brings me directly to the second question: How should we incorporate gender in our analysis of trade policy tools and potential markets?

Recent experiences in trade opening and their effects on gender equality make a strong case for the need to incorporate gender dimensions into overall trade policy design and implementation.

Women’s economic empowerment must be an integral part of trade policy not only because it generates employment but because women reinvest up to 90% of their earnings in their families and communities, and are a powerful tool linking trade to development. Therefore, including gender perspectives in our analysis of trade policy and related agreements is an essential element of an integrated development policy framework.

There exist several policy instruments that provide specific entry points to mainstream gender dimensions in international trade policy.

Allow me to talk about a few:

First, incorporating gender perspectives in the process of trade opening is one way to make sure that women are equally impacted by international trade.

At the bilateral and regional level, some free trade agreements include a social clause: a provision to insert to some extent regulations and labor issues along with other related issues to poverty, minority protection and social development in general.

However, in order to ensure inclusive gains from trade and to address particular challenges facing women, the way forward in free trade agreements should be more focused featuring gender issues through, for example, incorporating specific gender clauses.

Chile and Uruguay have included an entire chapter of provisions on gender in their recently signed free trade agreement: not only acknowledging the importance of enhancing women’s opportunities to participate in the international economy to boosting sustainable economic growth in their countries, but also calling for the establishment of a Gender Committee to oversee the mainstreaming of gender in the implementation of their trade agreement.

The gender dimension should feature in the analysis of offensive and defensive interests at the start of a trade negotiation and should inform the negotiating positions. And this requires gender disaggregated data.

Areas of particular interest are non-tariff measures, including rules of origin as well as services commitments or government procurement. Not that these areas require specific “gender rules” but rather that the rules and commitments should be crafted through a specific gender lens.

In addition, the impact of these agreements on advancing women’s economic empowerment should be regularly examined, included in WTO Trade Policy Review Mechanisms.

Finally, the conclusion of bilateral trade agreements or unilateral trade preferences could be made conditional on the removal of legal discriminations to women’s economic empowerment.

Second, multilateral development assistance frameworks, including Aid for Trade provide other entry points to mainstream gender perspectives in trade capacity-building. The Enhanced Integrated Framework, a multi-donor programme which supports LDCs to be more active players in the global trading system by helping them tackle supply-side constraints to trade, has recognized the need to address gender-specific constraints to trade and with support of the ITC it has incorporated gender issues across its projects.

Building the competitiveness of women-owned SMEs and linking them to regional and global markets is at the heart of what we do at the International Trade Centre with the invaluable support of Canada. Our SheTrades Initiative seeks to galvanise global efforts to connect 1 million women entrepreneurs to markets by 2020.

Through the SheTrades mobile app, women entrepreneurs are able to share information about their companies, increase visibility, expand networks, connect and internationalize. Through our Global Platform for Action on Sourcing from Women Vendors we help connect partners who purchase more than $1 trillion dollars in goods and services with a network of over 50,000 women vendors. Through it we help operationalise pledges to increase the amount of procurement from women-led businesses.

Last but not least, multilateral platforms and intergovernmental fora such as the UN Sustainable Development Goals (SDGs) and the Women20 (W20) are crucial for fostering gender-related discussion and action among experts and for providing a good basis for consensus-building.

Similarly, the Asia-Pacific Economic Cooperation (APEC) has incorporated discussions and assessments of how trade agreements impact women and men within its fora, and works to advance women economic empowerment and women’s inclusion in the regional economy through its Policy Partnership on Women and the Economy.

The Southern African Development Community (SADC) recognizes gender equality as a fundamental human right and an integral part of regional integration and economic growth. This is demonstrated through accession to and ratification of frameworks that promote women’s human rights, such as the Convention on Elimination of All Forms of Discrimination Against Women.

Yet, as trade policies interact and are mutually affected by many other domestic policies and international factors, there is a need for enhancing overall coherence and fostering a more coordinated approach in order to remove barriers for women entrepreneurs more rapidly.

Let me conclude by saying that now, more than ever, it is imperative that all actors work together to make equal economic opportunities for men and women a reality. Lifting the barriers that prevent women from fully participating and benefitting from trade is a common interest to all of us. When women are better off, the world is better off.

Thank you