ITC: partners must support services SMEs in developing countries

(WASHINGTON, DC) – The public and private sectors need to work together to assist Least Developed Countries (LDCs) in growing their services exports, creating jobs and reducing poverty, Ms. Arancha González, Executive Director of the International Trade Centre (ITC) told services industry leaders and government officials yesterday. Ms. González addressed the annual Global Services Summit, organized by the United States’ Coalition of Services Industries (CSI) in Washington, DC.

While developing countries’ share of services exports has tripled over the past two decades to 30% of the market, LDCs account for only 0.6% of services trade, even less than their 1% share of global exports overall. The underrepresentation of LDCs in services exports matters, because growth in services shows a strong correlation with poverty reduction and job growth, she said. The services sector has a higher proportion of female employment than other sectors, making a significant contribution to the economic empowerment of women in many developing countries. Furthermore, efficient services are also a key enabler of merchandise exports: services inputs account for more than one third of the value of exported goods.

Despite the benefits, many developing countries and most LDCs have not yet taken significant enough steps to improve the competitiveness of their services industries, especially small and medium-sized enterprises (SMEs), which make up the bulk of the sector, González said.

‘The solution, and also the single biggest challenge facing developing countries, is to become competitive,’ she said. Governments need to invest in education and skills building and create an enabling business environment for services exports with digital infrastructure and light regulation, she said. ‘It is important that developing countries are helped to understand this and to intensify their efforts to build a more enabling export environment,’ she said, calling on support from services industry groups in developed countries to share their experience and know-how and assist their developing country peers in better organizing and in more effective lobbying. It is through assisting the services sector, including SMEs, in organizing and making their voice heard that governments will realize the importance of a supportive business environment and change legislation and regulation accordingly, she said.

As an example, she pointed to an ongoing partnership between the Australian Services Coalition , AUSAid, Indonesian services companies and ITC to equip the newly formed Indonesian Services Dialogue with research and preparing them for the advocacy role necessary for effective engagement with the government.

The fastest growing areas in services exports are business process outsourcing and other IT-related services, but the only LDC to have carved out significant market share in this area is Bangladesh , Ms. González pointed out. This is a missed opportunity for firms in other countries, as outsourcing has grown to a US$ 250-billion industry, with 4 million employees around the world. LDCs other than Bangladesh have largely not managed to join the outsourcing revolution despite the opportunities it offers. ‘Remoteness of location and distance from market have become less significant,’ she said. ‘There is no need for a coastline, nor access to a super highway corridor to participate effectively in these new IT-enabled services opportunities.’ She encouraged trade negotiators from developing countries to support the Trade Facilitation Agreement currently being negotiated under the auspices of the World Trade Organization and use the new multilateral agreement as a springboard to improve the export competitiveness of their services sectors.

Click here to read more about ITC’s results in helping Bangladeshi IT firms find clients in Europe and here for more information on the continuation of this programme.

Next year, ITC will also pilot activities on improving services SMEs’ access to finance, and called for GSC members to share their experience in this area. Members could also assist in working with ITC in training and mentoring services SMEs in developing countries, Ms. González said.

‘The services business community has made it clear how important it is that the environment be right for innovation, and we want to learn from you so that we can help get it right in the developing world,’ she said.