Since the launch of the Aid for Trade Initiative in 2005, value chains have become an increasingly dominant feature of world trade and investment. By providing access to networks, global markets, capital, knowledge and technology, integration into an existing value chain can provide a valuable step to economic development that is easier than building a fully integrated value chain. Developing economies can integrate into value chains by opening their markets for trade and foreign direct investment, improving their business and investment environment and strengthening their domestic supply-side capabilities. Aid for trade can help to these reform programmes.
On the occasion of the 4th Global Review of Aid for Trade, the OECD and the WTO, in collaboration with GrowAfrica; the International Chamber of Commerce; the International Trade Center; the International Telecommunications Union; and the United Nations World Tourism Organization, conducted a survey among the private sector to identify the barriers that suppliers in developing countries face in connecting to value chains.
Aid for Trade and Value Chains in Agrifood
This report (produced in collaboration with GrowAfrica) highlights that urbanisation, rising income and changes in retail markets in developing countries are catalysing ever greater private sector engagement in agrifood markets. The main constraints affecting the ability of developing countries to connect to value chains are access to finance, compliance with standards, and trade facilitation issues. Aid-for-trade flows to the agriculture sector have risen steadily since 2005, while the private sector has also become an important actor, both in joint activities with the public sector and through company and sectoral initiatives – with significant scope to expand public-private collaboration.
Aid for Trade and Value Chains in Textiles and Apparel
The main findings of the study, produced in collaboration with IDE/JETRO (The Institute of Developing Economies/Japan External Trade Organization), show that market access matters (notably preferences); the termination of the multi-fibre agreement increased trade in textiles and apparel substantially for large economies, whereas Free Trade Agreements have enabled small economies to enter value chains. The most competitive sectors in developing countries remain in lower-end activities (cutting, making and trimming) since it is very difficult to move up to the design state. Economies tend to shift to other labor intensive sectors with higher returns rather than moving up the textiles and apparel value chain. Constraints are access to finance, customs paperwork, shipping costs and delays. Adding value to textiles and apparel production requires attention to services such as branding and design.
Aid for Trade and Value Chains in Information and Communication Technology (ICT)
The study highlighted that ICT manufacturing is highly fragmented internationally with value chains mainly concentrated in "Factory Asia". Barriers for developing country firms to enter, establish or move up ICT value chains are access to (trade) finance, the business and regulatory environment and customs procedures and delays. In addition, more ICT-related constraints are the lack of ICT skills in the labor force, telecommunications infrastructure and the regulation of telecommunications market. Given the "digital divide" between developed and developing countries and the importance of ICT for a country's economic and social development, aid for trade could play a prominent role in facilitating investments in ICT infrastructure, particularly for the "Least Connected Countries" and certain LDCs.
The study, produced in collaboration with the UN World Tourism Organization, highlights that international tourist arrivals exceeded 1 billion in 2012, with developing countries expected to receive the majority of arrivals by 2015. Tourism is one of the top three exports for most developing countries, and the lead export for at least 11 LDCs. However, tourism's role in development is typically underestimated, both by donors and partner governments. Significant potential exists to increase average tourist spend, alongside increasing tourism arrivals. To fully exploit the sector’s potential, the multiple linkages to the rest of the economy need to be strengthened, notably through closer public-private sector co-operation. Obstacles to connecting to tourism value chains included issues such as business environment issues, low skill levels, lack of access to finance, and poor infrastructure, as well as sector specific issues such as visa rules.
Aid for Trade and Value Chains in Transport and Logistics
The study highlights that in some cases, transport and logistics accounts for 20-60% of the cost of a final good. Though there have been improvements across regions in recent years. Major constraints include transport infrastructure, customs and border procedures and regulations, red tape and governance issues. The report indicates that, although aid-for-trade flows to infrastructure are still substantial, support declined in 2011. Furthermore, there is a need to increase coordination and collaboration between donors, partners and the private sector.