A new report released 22 January 2013 Enabling Trade: Valuing Growth Opportunities finds that if all countries both developed and developing reduce supply chain barriers halfway to global best practice, global GDP could increase by 4.7%, and world trade by 14.5%.
Economic gains from reducing supply chain barriers are more evenly distributed across countries than the gains associated with tariff elimination. Developing countries could stand to gain immensely by this kind of policy change. For instance, poor quality infrastructure services can increase the input material costs of customer goods by up to 200% in certain African countries. Agribusinesses in developing countries are more inclined to be producers of raw material, therefore stand to gain directly from improved trade supply policies.
Large increases in GDP would trickle down and have positive effects on unemployment, thereby increasing the purchasing power of the people in Sub-Saharan Africa and South East Asia. Improved purchasing power by people facing food insecurity would be a good starting point in tackling the food security crisis being faced by many of the countries in these two regions. If aspects of Global Warming render poverty stricken subsistence farmers incapable of yielding as much produce as is required to sustain them from their farms, more money for their available produce would go a long way in increasing the resilience by these families. Increase in a country’s GDP also allows for employment in other industries by previous subsistence farmers. Countries should however be prudent and embrace policy changes very cautiously—allowing them to exercise reasonable restrictions in trade processes.
According to a new trade database by UN ECAP and the World Bank (reported in the World Bank’s Group Press Release 2013/242/PREM), trade costs fall disproportionately on developing countries. The Trade Cost database focuses on agriculture and manufactured goods. The data covers the period 1995-2010 and strongly highlights the importance of supply chains and linkages constraints. Ravi Ratnayake states, “Technological factors are responsible for a significant share of the differences in trade costs around the world.” This is obviously a no brainer to anyone in this day and age. The bigger question is what should or what can developing countries do to level the playing field and break the trade ‘glass ceiling’ in totality? Mr. Ratnayake also states “From a policy perspective, reforms in areas such as infrastructure, core trade-related services sectors, and private sector development can thus have significant benefits for countries in terms of lowering trade costs.”
Developing countries are required to strengthen their institutions to enable the private sector space to do business, by improving infrastructure, revising trade policies that would focus on reducing the amount of time required to start a business in these countries. Trade support services like banking and access to credit should also be strengthened as well. The current state of affairs is not always attractive to investors and some countries are not securing sufficient bilateral or multilateral trade even though tariffs in many countries are now at historical lows. The trade cost database is a good tool to help identify key determinants of these prohibitive costs as countries focus their efforts on the reduction of costs and an increase of trade flows.
For more information, contact
Ms. Sheilah Njalaleh
Agribiz & Food Security Research Associate
Sub-Saharan Africa Chamber of Commerce