Trade and investment: one mantle, many sizes
National trade and investment promotion services have sharply accelerated since 2000, with some 65% of developed and 40% of developing countries already combining trade and investment promotion, according to new ITC research on the services offered by trade promotion organizations.
These organizations are merging to save costs, create synergies and provide more coherent leadership and knowledge sharing. This complementarity is especially important in developing countries, where capital markets are less developed.
Performance indicators are overlapping, as trade promotion targets diversification of new markets, exporters and products, in addition to export volume. As TPOs support their clients to grow and invest abroad, outward investment has also become a key performance indicator for some organizations.
Research has shown that the two-way relationship is valuable. With a 1% increase in investment, trade rises 0.8%; a 1% increase in trade triggers a rise in investment of 1.2%.
While the trend is clear, how to combine trade and investment strategies and objective has no “one size fits all” solution, participants agreed. “Where does the line stop?” asked Ashraf Mahate, Senior Manager of Export Market Intelligence of Dubai Exports, who moderated the session. Does it stop with inward investment? Or with free trade zones? Should it stop with specialization in one part of the value chain?
An integrated vision boosts trade and investment
Costa Rica, which has successfully integrated small and medium-sized enterprises into value chains, does not combine trade and investment in a single agency.
Yet ITC recently evaluated the national trade promotion agency as the best of its kind, with a composite score of 92% in leadership, resourcing, service delivery and performance measurement.
The country’s long-term vision to improve competitiveness, increase transparency of domestic markets and institutions and open its economy has helped it diversify from agriculture to high-tech manufacturing and services, and expand its geographic markets.
The World Bank ranks Costa Rica fourth globally in high technology exports. The country has hundreds of multinational investors, and the benefits are evident in the indicators for education and health, comparable to the developed world, explained Alejandro Mora, Minister of Foreign Trade of Costa Rica.
One key to success is the synergy of three agencies: COMEX (trade and investment policies), PROCOMER (trade promotion) and CINDE (investment promotion).These are under the umbrella of the Ministry of Foreign Trade, which embeds trade policy in broader framework. A set of multilateral, plurilateral and regional and bilateral agreements provides a platform for trade that covers two-thirds of the value of global gross domestic product.
The agencies operate with a matching funds arrangement structure in cooperation with integrated data collaboration.
As trade and investment integration helped the country move from exports of bananas and sugar to high-technology exports, it has brought SMEs into value chains and linked them to multinationals.
Since 1999, non-traditional exports have represented over 85% of total exports, covering microprocessors, aeronautics, the automotive sector, medical devices, film and broadcasting.
“We are having a second breakthrough now, as Intel transfers its research and product testing laboratory to Costa Rica. Products will be tested here before entering manufacturing processes,” said Alejandro Mora, Minister of Foreign Trade of Costa Rica. “This represents an important evolution towards higher-value added activities and participation in global value chains. Currently, 39% of goods are in global value chains. My aspiration is to see this figure rise even further.”
Building seamless transition
“It is the end of the age of plenty,” said Daniel Kung, CEO of Switzerland Global Enterprise, advocating for the seamless integration of trade and investment. “We have to do more, feed more, and take care of more waste, so we must become more effective and efficient.”
He finds it valuable to combine trade, import and investment promotion in one agency, because interdependence is so much greater now. While a product may have a foreign origin, for example, it may be transported, insured and assessed for quality by Swiss firms. Similarly, a Swiss export may lead to investment linkages abroad. “If we help to find a distributor for this pen in my pocket, and it leads to a joint venture where we can provide support, our organization made a seamless transition from trade to investment promotion,” he added.
Regional focus affects priorities
Austrade has successfully combined its services for trade investment and promotion. “Having a clear view of priorities is important,” said Bruce Gosper, CEO of Austrade. Eight out of 10 of Australia’s top export markets are in Asia. It is focusing on investment in ports, railroads, energy, agribusiness and tourism infrastructure. “We expect more links with Asia. We focus on increasing our productivity where we see demand and job creation in the coming decades. It gives a sense of where future growth and jobs will come from.”
Among his take-aways for TPOs, he concluded, “There is a shortage of investment-ready proposals, not capital.” Austrade’s combination of trade and investment provides power through synergy by setting strategic priorities, coordinating decentralized government regulations, building complementary skill sets and markets for trade promotion and investment, and being in a position to provide credible proposals to investors.
Strategy before structure
“Things are made in the world, not in a specific country. Global value chains compel us to merge,” said Senen Perlada, Director of the Export Marketing Bureau of the Philippines. “We have limited resources to address stakeholder needs.”
One big change has been a shift to a policy orientation for trade and investment promotion. Another has been to combine the functions for trade and investment commissioners. With 68% of exports conducted in areas in which the Philippines has free trade zones, it has focused its policy and SME training to take advantage of these agreements. “We determined strategy before structure,” he concluded.
Combining trade promotion and investment helps improve understanding of both investor and exporter needs, said Jalil Bulatov Kaznex-Invest. Communication between the two areas in the same organization can be a challenge, which the agency is meeting by working with ITC to develop benchmarking and client relationship management tools.
Enterprise Mauritius commented that its agency was independent, then merged with investment, and finally separated again. This sparked debate, showing that indeed, challenges abound – and each country has its own set of conditions that will shape the institutional linkages between trade and investment.
- Combining trade and investment makes sense in a world dominated by global value chains. How one participates in an R&D relationship is as important as the final goods or services.
- Challenges abound in making trade and investment promotion work under one roof. How each country addresses the integration depends on its own national context.
- Policy coherence and coordination among national agencies will help countries sharpen their comparative advantage, essential to develop priorities and allocate resources.
- Policy coherence is also critical for investors. They are looking for strong governance and policy frameworks and for well-researched proposals. Green investment proposals are especially important, attracting 80% of the investment market in developed countries.
- Country branding has renewed importance. Linking trade and investment promotion of goods and services to national branding brings synergy and power. This is especially important for small countries, which have much to gain by uniting forces behind a consolidated brand.
- Recruit staff with specialized and complementary knowledge. Food and beverage experts are valuable for trade promotion, but pension fund investors want to liaise with finance experts, said Bruce Gosper of Austrade.
- Concentrate investment representatives in investment hubs like Shanghai and New York, and focus trade promotion representatives on emerging markets.
- Digital tools for stakeholder management are critical.
- Find and understand the line between public and private service.
View more about ITC Publication "Global value chains in services: A case study on Costa Rica"