Keynote speech at the CBI-sponsored “Inspiration for Development” conference
Speech by Ms. Arancha González, Executive Director, International Trade Centre
Delivered on 30 January 2014 at the CBI-sponsored “Inspiration for Development” conference, The Hague, Netherlands
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First of all, let me start off by thanking CBI for the invitation to address you today on the “inclusion of SMEs in value chains”.
The “Inspiration for Development” Conference is about finding new thinking and new ideas which can be channelled into mechanisms that can tackle the challenges of development in the twenty-first century. CBI, a sister organization to the ITC, has always been ahead of the curve. Since the 70’s – CBI has been helping trade of developing countries as a means to development.
When one thinks development, “SMEs” come to mind. SMEs are the biggest source of untapped growth potential and will be generating the bulk of the 500 million new jobs that will be required by 2030. Since value chains are the vectors of trade of the twenty-first century for the private sector, we need to intelligently marry the two things – “SMEs” and “value chains”. How SMEs participate in value chains is key to understanding the future and particularly the post-2015 development agenda.
The nature of value chains have become more global in reach and are important avenues for SMEs to diversify and innovate – gone are the days of products from a single location; the world has moved towards trading in tasks across borders. Also, when one talks about “export” of goods and services, one also has to talk about “import” of goods and services. This is an extremely relevant issue to the developing country clients which ITC and CBI serve.
To ensure that SMEs can internationalize and effectively participate in value chains, there are many essential ingredients. These include strong skills, education and vocational training; sound infrastructure; and accessible trade financing. There are several others. Today, however, I will focus on three ingredients which have a direct impact on the SME participation in value chains:
- First, technology as a delivery channel for more sustainable and inclusive growth in developing country SMEs, and as a leveraging tool to attract impact investors and deliver impact at scale;
- Second, the need for integrated approaches to facilitate SMEs’ adjustments to trade facilitation reforms agreed at the Bali Ministerial last year; and
- Third, the importance of pragmatic solutions which can help SMEs to better understand and address non-tariff measures which continue to prevent them from connecting to or moving up value chains.
1) For ITC, technology as a delivery channel represents a game-changing opportunity for developing countries. Evolving technologies and technology solutions offer an increasingly diverse set of opportunities to SMEs in developing countries. Over the last 20 years, the Internet has grown to become a global trading platform and a global knowledge platform. Ease of access to the internet and knowledge networks is prompting new ways of doing business and offering new opportunities for youth in developing countries.
Widespread use of technology solutions today enable the development of cost effective solutions and new business models which can more easily and efficiently connect grass root producers to supply chains. ITC has some examples of how this has occurred. In Fiji, ITC linked rural producers with traders and exporters in the agriculture sector through an innovative e-business-matching platform which combines mobile and web applications. Also, micro-work and freelance marketplaces enable entrepreneurs in developing countries to bid for work they did not have access to before.
We can further see this in Bangladesh where ITC, with CBI’s support, has been working with the local IT and business-process outsourcing (BPO) industry to expand its footprint on the global sourcing market. As a result, NTF II beneficiaries have reported improved online visibility for their companies and landed new clients. More than half of the beneficiary SMEs reported significant increase in exports.
It is clear that the growing knowledge economy has the potential to transform how businesses trade and open new opportunities- and to countries There are however some challenges which would need to be addressed such as insufficient internet connectivity, e-data privacy and digital literacy which prevent developing countries from benefiting from the use of technology solutions for value chain integration and development.
This is where development partners can play a role, and where impact investment comes in. Simply put, impact investments generate social or environmental value, as well as financial return. This year alone, impact investors will channel billions of dollars to fund impactful innovations in a wide range of sectors, institutions and individual enterprises. J.P. Morgan has estimated that global impact investments exceeded $50 billion in 2010 and predicted that invested capital in the impact investing market could reach $400 billion to $1 trillion by 2020.
Development partners, including ITC and CBI, can help facilitate growth in this area to achieve lasting developmental impact in developing countries and economies in transition by supporting promising innovations and helping scale market-based solutions within and across national borders – in other words, facilitating the internationalization of SMEs.
What more could we do together in this area? Digital technology has already transformed our lives significantly. As development assistance providers we need to better realise the potential that technology can have for SMEs which are situated traditionally marginalized countries and communities. We need to spend a bit more time to develop and channel technology solutions with a view to increasing the exposure of innovative SMEs to socially-conscious investors – so called “tech-for-good” approach. There is great scope for ITC and CBI to refine our online portfolio to encourage impact investment through web-based investing networks and platforms. Also, CBI is in a good position to engage mainstream investors from Dutch industries. The impact investing activities of the Dutch DOEN Foundation is a good case with impact investment totalling approximately USD 180 million. This is concentrated in the areas of fair trade, renewable energy, social ventures, and micro, small, and medium enterprise financing. ITC is willing to play its part in building awareness among Dutch industry on the win-win business case for impact investment in developing countries.
We also need more advanced technological solutions if developing countries are to pursue the trend to large-scale deployments of e-business services across global markets. We need to support entrepreneurial services suppliers, including women and youth, so they can access the global market for on-line execution of services tasks, and so support a higher level of innovation in their communities. This is the discourse of the future, in which ITC and CBI should remain engaged.
2) In terms of adjusting to the WTO Trade Facilitation Agreement, it is important to recall that open and transparent trade is important for SME success as it not only promotes access to market opportunities and employment generation, but it also facilitates access to component imports which is critical in a world increasingly characterised by value chains. Essentially, open trade borders allow SMEs to connect to and operate within regional and global value chains, including by importing to export. Trade facilitation reforms will help facilitate expanded business opportunities for SMEs. However, to realize these new opportunities will require operationalising the Agreement.
Development partners, including ITC and CBI, have a special role to play in delivering the necessary capacity building in this regard. ITC has already begun to provide assistance to SMEs and developing countries. The ITC Business Guide to the Trade Facilitation Agreement seeks to help countries and their SMEs to better understand the opportunities of the multilateral agreement and ITC will continue to strengthen its intervention in this area through its extensive SME and TSI network and through its public/private dialogue. ITC will assist countries to identify and schedule commitments under the different categories and provide assistance in implementing the transparency elements of the Agreement.
ITC is working closely with government officials in facilitating dialogue with the private sector to ensure new rules are implemented in a way that enhances business competitiveness. On one side, this requires working with authorities in capitals, ports and border posts to ensure that they understand not only the rules but their effect on traders as well. On the other side we ensure that SMEs are aware of the new rules and their benefits, including greater predictability and certainty for traders, leaving fewer opportunities for corruption, in providing training and assistance to government officials on developing user-friendly communication materials to educate SMEs about the new rules and their benefits and trough effective monitoring tools to measure implementation of laws and related practices and procedures at the border. This is how concretely we are bridging the “hard” with the “soft” infrastructure in doing trade for the benefit of the competitiveness of enterprises and of the country overall.
Trade Facilitation measures will have also positive effect on many other aspects; and the first of them will be on regional integration. One example again: rules relating to transit trade, such as documentation requirements and the treatment of traffic in transit, are particularly important for landlocked developing countries (LLDCs). 16 of Africa’s 54 countries are LLDCs. Regional integration is critical to bring those nations closer to the multilateral trading system.
There is also much for us to do together when it comes to the wider trade facilitating mandate in enabling SMEs to cross borders efficiently and safely. At ITC we understand the wider mandate to include all actions that help SMEs to increase production of goods and services; to enter and move up value chains; to diversify outputs and markets; as well as, to help informal small traders to cross borders and to eventually to formalize through legally recognized structures and to do business safely. This will have a particularly important impact for women informal traders.
3) Any discussion on the inclusion of SMEs into value chains needs to also touch on the issue of non-tariff measures or NTMs. On that note, let me recall some key information derived from a recent ITC survey which was conducted with over 7,000 developing country SMEs:
- Lack of access to trade finance and problems related to the business environment were cited by more than a third of respondents as posing major export constraints.
- Two-thirds of respondents listed tariffs as a minor or no constraint; meanwhile NTMs were seen as a growing concern.
- 70% of exporters and importers in LDCs reported that they faced burdensome NTMs, compared to an overall average of 54% from developing countries.
- Cumbersome administrative procedures were seen as a major burden for exporters as these had a greater impact on SMEs given lack of resources to deal with obstacles such as complex certification-linked processes and sudden changes in regulations and permit delays.
All of this to say that exporting companies seeking access to foreign markets and companies importing products need to comply with a number of behind-the-border requirements or NTMs including technical regulations, product standards and customs procedures. The issue is not to circumvent or undermine these NTMs, many of which are legitimate measures to protect the consumer, but rather to build the capacity of SMEs to identify and comply with these measures, including in the area of private standards. Through this type of technical assistance we can expect to see more SMEs participating in regional and global value chains. Here lie clear opportunities for ITC and CBI to increase their cooperation, as the findings which emerge from ITC’s NTM business surveys are concrete inputs for joint programming and implementation.
In concluding I will leave you with three messages which are critical to the ITC-CBI partnership:
1. Cooperation- the mandates of both institutions are well aligned and are too important for us not to strengthen our cooperation. As ITC celebrates its 50th anniversary this year, CBI has been one of the most productive partnerships.. Some immediate opportunities for cooperation will emerge from ITC’s upcoming flagship events later this year. Here we see a role for CBI to mobilize Dutch industry to participate in the women vendors’ B2B meetings which will take place during the World Export Development Forum in Rwanda, in September 2014. Also, we also clearly see that during the World TPO Conference in Dubai, in November 2014, CBI can contribute thought leadership on how institutions such as CBI can support the enhanced competitiveness and internationalization of SMEs.
2. Collaboration- the comparative advantages of us working together has yielded destiny-changing results for many men and women-owned SMEs – we accept the challenge to deliver more impact on the ground with you. In particular, we look forward to even stronger transitions and linkages from when ITC’s capacity building interventions end and CBI technical assistance begins. This worked well, for instance, in Bangladesh where following ITC’s capacity building in web strategy formulation and implementation to export-oriented SMEs from the local IT industry, CBI continued providing technical assistance to the same companies targeted by ITC. Also in ITC and CBI have found smart ways of targeting the same sector and institutions, as is the case in Uganda with NUCAFE in the coffee sector.
3. Cohesion- ensuring that trade and the growth power of SMEs is reflected in the post-2015 process. Among global development partners, and notably also within the post-2015 agenda-forming process, there has been a growing call for greater support and collaboration with SMEs. The development and economic growth of SMEs locally, regionally and internationally is critical, not least of all, because SMEs are expected to create most of the jobs that the estimated 500 million people entering the labour market by 2030 will need. Many of these job-seekers will be women and youth. Trade, and specifically a focus on helping SMEs to become greater engines of growth, must be a central feature of the Post-2015 dialogue. I will be addressing the 8th session of the Open Working Group next week on the importance of working towards and tracking economic growth and entrepreneurship as an inevitable anchor and force for the kind of development that can be sustained outside of shrinking and unpredictable ODA and other types of aid assistance. Entrepreneurship must be a part of the post-2015 agenda.