WTO Accessions and the Multilateral Trading System

12 January 2016
ITC News

Speech delivered by ITC Executive Director Arancha González at the Nairobi 4th China Round Table

WTO Accessions and the Multilateral Trading System: International Economic Cooperation and African Perspective on the Future of the Multilateral Trading System

Stories and narratives from capacity building from Africa for integration into global value chains – contributions from ITC

Nairobi, 14 December 2015

Thank you for your invitation to be part of this dialogue.

This initiative is close to my heart. I saw its birth when I was at the WTO and it is a pleasure to see how much it has grown since. I commend China for its contribution to supporting acceding countries become part of the WTO family. The message is clear: reforming at home and integrating into the world economy has been good for China can also be good for others.

Openness, smart reforms and connectivity are at the heart of the International Trade Centre’s action. This message resonates particularly well in the African continent, with the challenges of its 54 countries – many small and landlocked – but also with the opportunities offered by regional economic integration, essential to the development of value chains in Africa.

With the changing economic and social landscape, this is a promising time for the continent. Education has seen tremendous progress. Growth rates have averaged over 5 percent during the last 15 years, and look set to continue.

These developments are taking place within a context of expanding participation in value chains, particularly by SMEs. Although Africa still has a relatively small share of global value-added trade (2.2% in 2011), this has increased almost 60% since 1995 and looks set to increase further.

We see this in many of the projects we are supporting on the ground, whether on horticulture between Lesotho and the Southern African region, on textiles between Ghana, Mali and Burkina Faso, on services between India and Uganda, Kenya, Rwanda and Ethiopia, on halal food between Morocco and Malaysia , or on ethical fashion between Kenya and Ethiopia.

In addition, the growing importance of services, and the seamless integration of services and manufacturing across borders also create new opportunities. Technological advances, such as E-commerce, have a strong positive impact on many SMEs by opening up new export markets and facilitating access to low cost imported inputs.

But considerable challenges remain. Africa continues to be largely agrarian, with economies fuelled by resource-driven growth and a large and expanding informal sector. The productivity across all sectors of the region’s economy – agriculture, manufacturing, and services – remains low. As a result, Africa’s participation in global trade and investment flows remains low when compared with other regions.

Intra-African trade remains low. Furthermore, Africa’s regional participation in value chains is driven by Southern and North Africa, which together account for the lion’s share of the continent’s total value chain trade at 78%, while West Africa accounts for only 14%, East Africa for 5 %, and Central Africa for 3%.

I think there is consensus on the diagnostics. The key now is to focus on a “solutions agenda”.

My suggestions today draw from our extensive work in Africa which represents close to 80% of our activities, including domestic policy and regulatory reforms related to WTO accession in countries such as Liberia, Comoros, Sudan and Ethiopia.

Just last month we launched our first-ever flagship publication, the SME competitiveness report, in which we identified three key determinants of SMEs competitiveness needed to participate in value chains: the ability of SMEs to compete, to connect and to change. Within this triple “c” lie the “solutions agenda” that I would like to share with you today.

We need to think SMEs because they represent more than 98% of the economic tissue of any African country. And we need to think of them as actors in agro-processing, in manufacturing and more and more on services, which is a fabulous engine for competitiveness. And we need to think of them as vectors for inclusive and sustainable growth, given the large number of women and youth employed in SMEs.

SME’s ability to compete, that is, to supply quality goods in a timely and cost-effective manner – does not depend only on firm’s own talents. It depends on access to an open trading system, macro level considerations like swift customs procedures and functional product quality certification system. This is what we call a “good business environment”.

Africa’s initiative of Boosting Intra-African Trade, including through the Continental Free Trade Agreement (CFTA) will result in overall reduction in tariff barriers to trade, which is an important precondition for engagement in value chains. The same can be said of Africa’s regional economic communities which are the building blocks to Pan-African integration. And while tariffs are important, policy makers should also ensure that product and service regulations are clear and transparent. This is the case also for e-commerce where weak regulatory frameworks and low banking connectivity are limiting the ability of SMEs to e-connect.

Key to the ability of SMEs to compete is also facilitating cross border trade, starting with the implementation of the WTO Trade Facilitation Agreement. This has to be driven at the national level but carefully coordinated at the regional level, to support building regional markets.

Trade facilitation is not a choice. It is a must for any country wanting to support stronger SMEs better connected to value chains.

Given the potential for agro-processing in Africa, support for product quality enhancement is essential. Supporting SMEs capacity to meet technical requirements in export markets and to overcome technical barriers to trade, including sanitary and phytosanitary measures, will be key. As will be available accredited laboratories for testing and certification.

SMEs’ capacity to ‘connect’ - the way they absorb and exploit information to better understand and target customers is another important determinant of participation in value chains.

Access to trade and market intelligence tools help SMEs understand the best opportunities for their internationalisation. ITC has a set of market analysis tools, which help over half a million users, both SME suppliers as well as sourcing managers in value chains, to research market trends and requirements and connect with each other. These tools are free and reduce the costs for SMEs of finding opportunities and connecting to value chains.

It is also with this in mind that ITC has launched the Blue Number Initiative. The concept is straightforward: farmers are provided a geo-location number - the Blue Number. The Blue Number is part of a profile that contains the farmer’s name, gender, product, and email address or mobile number. Once the farmer is in the registry, he or she can e-connect on a sustainability marketplace with other trading partners and share with them their sustainability achievements. Think of it as an online networking platform – a Facebook or LinkedIn for farmers.

Having a Blue Number gives farmers a voice and access to sustainability resources. It increases their visibility and allows them to better connect with global buyers. This initiative will also help buyers with improved traceability of their value chains, as well as with data to make informed purchasing decisions such as identify women-owned farms with whom to trade. Today, over sixty thousand farmers have already accepted the invitation to receive a Blue Number. The registry is already on line and the marketplace site will be fully functional by the first quarter of 2016.

SME’s ability to ‘change’ – to constantly adapt to shifting market forces – depends to a great extent on the education level of the work force, or access to credit in the economy, not just the internal dynamism of a given company.

It is about accessing finance. This is why we are supporting SMEs in Kenya, Tanzania, Uganda, Zambia, Rwanda and Comoros with pre- and post-finance coaching through local Business Development Services (BDS) Providers trained and certified as Financial Management Counsellors (FMCs). ITC also builds the capacity of trade and investment support institutions and financial service providers to develop appropriate instruments for SMEs in given sectors such as agriculture. Finally ITC facilitates mobilisation of credit guarantee facilities and/or credit lines from national, regional and international Development Financing Institutions (DFIs) to comfort financiers.

SMEs participating in value chains can accelerate African economic transformation and have economy-wide benefits. ITC’s 2015 Competitiveness Outlook clearly demonstrates the catalytic role that SMEs have, particularly when empowered and equipped to do so through effective market access, good market and trade intelligence, e-connectivity, supportive national policies, conducive infrastructure and purposeful capacity building.

Accelerating the implementation of regional trade agreements should help African SMEs. In particular, domestic SMEs are more likely to succeed first in regional markets, where they tend to have better market knowledge, be more familiar with standards requirements, and have better access to lead firms, and then at a later stage develop a capacity to compete on a global scale.

ITC’s growing partnership with African countries at the national, regional and continental levels spans many areas of technical assistance that can help inform policymaking to support Africa tapping into the full potential of value chains. ITC will continue to play its part in this process by working through its network of policy makers, SMEs and trade and investment support institutions. Through this work, and the work of other international organisations, countries can learn from each other to design and implement better policies, which should ultimately translate into higher living standards for African citizens.

During this ministerial in Nairobi, the WTO’s tenth ministerial and the first one to take place on Sub-Saharan African soil, the nations of Africa can speak with one voice in order to strengthen the multi-lateral trading system in a way that ensures concrete actions and clear, positive pro-development results throughout supply chains in order to benefit their SMEs.