The Role of Trade Facilitation and MSMEs in Fast Tracking International Trade in Developing Countries

The Role of Trade Facilitation and MSMEs in Fast Tracking International Trade in Developing Countries

MSMEs remain invisible in trade, yet as revealed by many numerous researchers, MSMEs Entrepreneurs and Women-Owned businesses are the engine drivers of Africa’s economies both at informal and formal levels as they provide the much-needed jobs.

The participation of MSMEs and Entrepreneurs in regional value chains requires trade facilitation programmes that will overcome trade barriers that inhibit these groups to become part of international trade. As manufacturers of perishable -time-sensitive goods and intermediate goods, MSMEs require trade processes that are predictable and certain as delays result in insurmountable costs that are detrimental to these small businesses. 

Despite major technological advances in reducing trade costs, MSMEs and Entrepreneurs continue to face barriers associated with costs comprising the border, at the border,  and behind the border. This chain reveals that the trade impediments disproportionately face MSMEs and other similar players because of their invisibility and limited clout to hold the policymakers and customs administrators to account. Trade Facilitation reform should be tailored in a specific way that addresses the concerns of specific groups. 

Trade facilitation is linked to Sustainable Development Goal 8.3 as it supports formalization and growth of MSMEs through enabling their better participation  in foreign trade while promoting good trade governance.

Fixed costs and variable costs impact small companies  relatively more than large companies. Furthermore  studies reveal that depending on whether an entity exports or imports the impact of fixed and variable costs will be different. However  “small exporting firms benefit relatively more when trade facilitation improvements relate to information availability, advance rulings and appeal procedures. In comparison, large exporting firms benefit relatively more when the importing country’s facilitation reforms relate to simplifying formalities (i.e. harmonization of documents, automation of processes, and streamlining of border procedures)”. Harmonized specific  trade facilitation reform will benefit businesses regardless of size or whether they are exporters or importers.

At times policy makers misconstrue  that trade facilitation reform may result in loss of revenue and therefore consider it as  competing  with the provision of public services like health and consumer safety. On the contrary, trade facilitation reform through various instruments enhances trade transparency and overcomes trade barriers with increased flows of revenue.

The World Bank Report on the Africa Continent Free Trade Agreement posits that gains from trade facilitation reform will relatively exceed gains from any other intervention like elimination of tariffs and Non-tariff barriers. 

Author: Tshengi Ndlovu, currently serves as the Co-Vice President Chapter Development at OWIT International and Trade Facilitation expert with SADC Secretariat.

[1] J Hoffman:Trade Facilitation and Development

[2] J Hoffman:Trade Facilitation and Development

[3] OECD Trade Policy Paper:Helping SMEs Internationalize through trade facilitation

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