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    The Private Sector: Important Partners in Aid for Trade


    International Trade Forum - Issue 4/2009 

    Aid for Trade can provide a significant stimulus to economic growth in developing countries but decisions on where to apply it should include the views of the private sector - for indeed it is the private sector that trades and it understands the areas of greater constraint. Public-private partnerships and corporate social responsibility (CSR) programmes, which provide linkages between small and medium-sized  enterprises (SMEs) and large corporations, can also contribute to economic growth and Aid for Trade can be a facilitator of this process.

    Public-private partnerships

    Public-private partnerships (PPPs) are increasingly becoming the key to infrastructure projects in developing countries. Private sector participation in the design, financing and execution of infrastructure projects is recognized as a means to reduce the large gap between infrastructure needs and the limited investment resources governments have at their disposal to meet them.
    In relation to trade, infrastructure comprises not only roads, railways, ports, energy, water and telecommunication, but also laboratories for quality, sanitary and phytosanitary controls and verification of compliance standards with border posts and associated computer and customs software.

    The use of PPPs in infrastructure is often seen as a more economically efficient and sustainable option for governments, particularly those trying to address infrastructure shortages or improve the efficiency of their organizations.

    Securing sustainable partnerships requires sophisticated skills to assess competing interests and negotiate pragmatic agreements. Despite the benefits, many countries remain unconvinced and cautious about implementing PPPs for a number of reasons. The private sector may be fearful of what they perceive to be a risk associated with ever-changing government regulation, and both sides are often sceptical about the intentions of the other. The challenge, therefore, lies in creating awareness about the benefits of such projects, gaining the confidence of all stakeholders including civil society, building an appropriate regulatory framework and establishing a bankable business model. Finally, for the private sector to stay engaged in a PPP initiative, it is essential that tangible results be delivered in a reasonable time frame. Since the time horizons of the private sector are often short and the focus is more results orientated, Aid for Trade programmes and projects need to be designed and delivered in a "business-friendly" manner.

    Business advocacy

    Additionally, in order to correlate government trade policy and its effects on a country's business environment, business advocacy is of central importance. Business-government dialogue is important because the policy is not only about gains from trade but also about social welfare and the redistribution of income between producers, consumers and the government. Governments that pay attention to the private sector are more likely to devise reliable and feasible reforms, while entrepreneurs (including those involved in PPPs) who grasp what their government is trying to achieve with a programme of reforms are more likely to accept and support them. 

    The establishment of business linkages between large corporations and SMEs is a key way in which local firms can boost their competitiveness and become integrated in the global supply chain. This is mainly because they can attain necessary assets, which they are often not able to provide on their own, such as access to international markets, finance, technology, management skills and specialized knowledge. The scope of this chain includes backward linkages with suppliers and technology partners, and forward linkages with customers and other flow-on effects.

    Backward linkages take place when large corporations buy parts, components, materials and services from local suppliers, forming either immediate transaction relationships or close inter-firm cooperation, depending on the kinds of benefits presented by local firms. The development of backward linkages promotes a country's industrial base by strengthening local suppliers and vitalizing foreign investment.

    Many developing countries have benefited from positive linkage programmes, but for others the evidence of linkages from inward investment has often been negative. The main reasons provided by foreign investors for the low proportion of purchases from local suppliers include concerns that the goods and services supplied by local suppliers do not meet their requirements in terms of quality, price and/or delivery. From a foreign investor viewpoint, local suppliers are often regarded as unresponsive to their requests to improve the quality, delivery and prices of their goods and services.

    In order to reach regional and global markets it is necessary for SMEs to set up reliable supply chains that involve dealing with complex logistics across multiple sectors to comply with international standards. For some SMEs, particularly those who struggle to meet market requirements, accessing regional markets can be difficult, let alone global markets. Some of the difficulties facing SMEs include their need for:

    • Trade intelligence and capacity building to identify niche markets for their products and services
    • Assistance in building export logistics by facilitating linkages through the value chains from producers to large exporters
    • Building their capacity to comply with quality standards, packaging requirements and customs procedures
    • Assistance and capacity building to formulate long-term business plans that include product upgrades, innovation and diversification
    • Access to credit and long-term financing mechanisms.

    Large companies can assist in overcoming these barriers for trade and act as channels for small producers to export their goods and services. They can also help small producers to enhance their productivity and the quality of their products through training programmes, contractual arrangements and support for global marketing. For example, the textile trading firm Remei AG has built up an integrated chain of textile production through forming alliances with cotton farmers in Tanzania and India, using a network of firms for spinning and processing in many countries and selling articles through the Swiss retail chain Coop.

    In order to enhance these types of relationships, Aid for Trade initiatives can be constructed to help local suppliers attain higher standards and become reliable suppliers. Local government and international donor agencies can be an important factor in facilitating the establishment of business linkage programmes, especially when the private sector is unable to do so on its own. Their participation is particularly necessary in building awareness, ensuring commitment from other key partners and coordinating other stakeholders. Carefully designed government regulations may also help.

    As most linkage programmes develop over time to meet changing market conditions, the ongoing success of the Aid for Trade initiative requires that both the government and the private sector frequently review the linkage programme and assess if the procedures are still relevant and effective. In some cases this will entail major changes to the principles of the programme.

    Business and corporate social responsibility

    Through strategic CSR programmes large companies play an important role in working with SMEs in developing countries as part of their supply chains. In recent years companies have been pressed by advocates, labour unions, the media and even shareholders to consider the consequences of their activities to a greater extent than they may have done previously. In response, individual companies, both multinational corporations and larger local firms, are introducing CSR programmes to tackle particular needs. These companies are beginning to implement CSR measures through management systems and consideration of reconciling respect for the environment, social equity and financial profitability  as being good for business. It is no longer sufficient for large corporations to regard their investment and job creation activities as a satisfactory reimbursement to the host country.

    Despite positive steps taken, the potential for an alliance between social and commercial interests remain largely unfulfilled. Most of the efforts have concentrated in traditional philanthropic or charitable models: building schools and health clinics or supporting cultural and artistic organizations. As the UNDP report, Unleashing Entrepreneurship, states: "Though valuable and perhaps necessary, this model is more window-dressing than a substantive or sustainable contribution to the lives of the poor. Because it lies outside the traditional business model, the benefits are measured in intangibles-such as reputation, risk reduction and license to operate rather than the bottom line. It represents mainly short term, unquantifiable and unaccountable financial contributions. And commitments can come and go with changes in the business climate or management."

    The challenge for government and international organizations motivated by Aid for Trade lies in how to channel this desire on the part of large companies to undertake CSR measures for the benefit of social and economic development of developing countries. This relationship ought not to be built solely on the philanthropic goodwill of corporations but on the mutual benefits both parties can gain. One way of achieving this is through business linkages in recognition of the fact that they have a social responsibility to the host country where they are located. Moreover, coinciding with the growing importance of the "moral" market, it is becoming increasingly common for large companies to see how best to assist in developing the local economy.  

    For information on ITC and Aid for Trade seewww.intracen.org/AidforTrade 

    Case study: Tourism Services Liberalization in the Caribbean-European EPA negotiations 

    In Barbados, collaboration between the public and private sectors successfully secured better tourism trade conditions than that afforded by the World Trade Organization's General Agreement on Trade in Services.

    The Economic Partnership Agreement (EPA) between the CARIFORUM Group of African Caribbean Pacific countries and the European Union (EU) represented enhanced and new market access opportunities for CARIFORUM investors and service providers in the tourism industry in the EU market. The outcomes of this process demonstrate that the private sector in developing countries, including small and vulnerable economies, can reap significant rewards from the adoption of a proactive approach to and early engagement in trade negotiations.

    The issue 

    From the perspective of the Barbadian and broader Caribbean tourism industries, the global tourism industry is characterized by consolidated distribution channels controlled by a limited number of large international players, many of which are based in the EU.

    In spite of this situation, a key objective for the CARIFORUM tourism services was to secure better market access conditions and trade facilitation mainly to enable small service suppliers in the region to export for the first time and/or increase exports to the EU.

    The solution 

    At the centre of the process was the Caribbean Regional Negotiation Machinery (CRNM), which partnered with the Caribbean Tourism Organisation and the Caribbean Hotel and Tourism Association to drive regional national collaboration at the industry level. The Ministers of Tourism of the Caribbean Community (CARICOM) and the CARICOM Council of Trade and Economic Development supported these partners.

    The partnership created a new entity - the Barbados Private Sector Trade Team (PSTT) - which was mandated to research, document and promote private sector interests likely to be affected as a result of international trade negotiations. The PSTT played an important business advocacy role in the EPA process including lobbying, engaging in both formal and informal consultations with the Ministry of Foreign Trade, and coordinating the public and private sectors at national, regional and international levels.

    In conjunction with the Barbados Hotel and Tourism Association and other key private and public stakeholders, the PSTT facilitated focus groups to identify the tourism sector's offensive and defensive positions. PSTT prepared a report that highlighted areas in which Barbadian service providers expressed interest in gaining enhanced access to the European market and requested the removal of specific barriers to tourism services exports.

    The outcomes 

    • Creation of meaningful, innovative, market-opening rules for the sectorEstablishment of a common understanding on issues facing the sector - particularly in the area of standards and anti-competitive practices
    • Creation of mechanisms to make it easier for EU investors to choose the Caribbean
    • Strengthening of the capacity of CARIFORUM operators to increase tourism exports and the industry's competitiveness.

    Reasons for success 

    • Determination of the private sector to engage actively in the negotiation process
    • Effective use of business support organ-izations to formulate and convey positions to the Government and the regional negotiation authorities
    • Commitment manifested by both the Barbadian Government and the country's tourism stakeholders to creating and maintaining a constructive and cooperative working relationship throughout the negotiating cycle
    • Ability of negotiators to successfully pursue the interests of private operators.

    To see full case studies visit ITC's Business and Trade Policy web page:www.intracen.org/btp 

    Case Study: Public-Private Partnerships for Integrated Customs Services in Ghana 

    Over the last ten years, the Government of Ghana has shown a firm strategic commitment to attracting export-oriented investments, facilitating trade and enhancing Ghanaian competitiveness. Reforming the processes and procedures used by the nation's Customs, Excise and Preventative Service was a major contributor in working towards these goals.

    In recognizing the important role played by the private sector in driving economic growth for Ghana, the Government looked to a PPP to help build, own and operate the process of integrating and improving its customs operations.

    The issue 

    Central to the issue of Ghana's customs operations was the need to reduce and improve the process time for customs documentation and standards while preventing fraud and improving revenue collection.

    Facing financial constraints and a dearth of technical capacity, and learning the lessons from previous, unsuccessful e-governance projects, the Government needed to establish a partnership structure that would not only support costs but also foster stakeholder buy-in and drive the implementation and sustainability of a new automated system and its processes.

    The solution 

    A key priority for the Government of Ghana was to build the capacity of private sector groups and business associations to play a greater advocacy role in policy formulation and implementation. It established an umbrella body for various private sector business associations and created a Ministry of Private Sector Development to promote public and private sector collaboration with the Government. In addition to this, new legislation was passed to recognize the electronic processing of transactions and payments.

    In October 2000, the Government set up the joint PPP Ghana Community Network Services Limited (GCNet). It selected the Société Générale de Surveillance (SGS) SA as its strategic technical partner to bring financial resources and best practice technical skills and support to the project.

    SGS had proven experience and success in implementing a similar project in Singapore. The Government mandated SGS to identify and consult with suitable partners for the PPP. Ultimately the GCNet PPP comprised a 35:65 per cent ratio between public (Ghana Customs, Ghana Shippers' Council and Ghana Commercial Bank) and private sectors (SGS and EcoBank Ghana Ltd). The PPP was regulated and reviewed internally by a board of directors and externally by the Ministry of Trade and Industry.

    The outcomes 

    • Simplified customs procedures
    • Faster clearance times
    • Quicker transit with a satellite tracking system
    • Increased revenue collection
    • Improved competitiveness and recognition for Ghana from the International Finance Corporation as one of the countries that had improved the most as regards doing business.

    Reasons for success 

    • Government support and belief in the project
    • Credible partners
    • Development of its own infrastructure to overcome core infrastructure issues
    • Phased project implementation that controlled costs and delivered consistently high-quality service
    • Tangible manifestation of the transformation and improvements of processes
    • Training, sensitization and extensive capacity building
    • Responsiveness to emerging trends and demands
    • A sustainable self-financing arrangement.

    To see full case studies visit ITC's Business and Trade Policy web page:www.intracen.org/btp 

    Case Study: Viet Nam's Fisheries Exports to the EC 

    The fisheries and aquaculture sectors are significant contributors to the economy of Viet Nam. However, between 1976 and 1992, the Vietnamese fisheries sector experienced rapidly declining outputs due to adverse conditions such as low skills in aquatic management and exploitation, irregular and low-quality supply of raw materials to the processing industry, worn-down production facilities and limited knowledge of modern marketing principles.

    Countering these constraints and deficiencies was crucial for Viet Nam to increase its fisheries and agricultural exports by gaining access to the highly regulated markets of the European Community (EC). Market access to the EC is granted to selected private operators and is the result of fulfilling a number of health and supervisory requirements. The crucial issue is the evaluation of the country's organization and capability to control safety at both the administrative and the enterprise levels.

    In order to do this Viet Nam developed a twofold strategy:

    • The creation of a legal and regulatory framework, fitting the legal standards required to access the specific market
    • Private and public sector involvement in investments in processing, facilities, machineries and marketing skills, which are drivers for competitiveness on global markets.

    The national organization responsible for this matter was the Ministry of Fisheries and Aquatic Resources (MoFI). As a first priority, it upgraded the country's domestic sanitary legislation and food processing in line with international standards.

    Capability enhancement in market control, production monitoring and inspections at a governmental level was achieved through both Vietnamese private and governmental efforts and international technical and financial support. The Danish International Development Agency was, and continues to be, the largest bilateral donor in the fishery sector and its support was instrumental in strengthening the Fisheries Administration and upgrading the private sector.

    In the fishery sector, business played an important role in providing inputs of equipment and services as well as upgrading processes and mass organization. The independent professional association VASEAP played a central role in enhancing competence and good practices in the sector. As a non-governmental organization representing business operators exporting 80 per cent of the total seafood exports of Viet Nam, VASEAP helped to improve the sector's relationship with the Government by collecting and reflecting members' opinions on their difficulties with state-managed policies in the sector.

    Viet Nam's eventual success exporting to the EC was the result of a strategy planned and implemented at both government and business levels, partially funded by international aid programmes. The project highlights what it takes for all stakeholders to turn the challenges stemming from non-tariff measures into business opportunities. It underlines the importance of public and private sector collaboration for creating an enabling business environment for economic growth. As a result, the competitiveness of Viet Nam's fisheries exports was significantly improved.

    To see full case studies visit ITC's Business and Trade Policy web page:www.intracen.org/btp