The impact of the financial
crises on trade and
investment in ACP countries:
A focus on SMEs
Alberto PORTUGAL
The World Bank
Outline of the presentation
1.
2.
3.
4.
The impact of the crises on trade
The impact on investment
SMEs in times of crises
SMEs and the way forward: opening the
discussion
1. The impact of the crises on trade:
The Decline in Trade Now and Then..
Mean and medium of monthly trade growth :
4 previous global slowdowns episodes
(1975, 1982, 1991, and 2001)
Source: Freund (2009), World Bank
ACP exports growth to US, EU & Japan
60
40
ACP
20
0
-20
Other
Developing
WORLD
-40
-60
Constructed with quaterly moving average monthly series.
Data collected by Trade Watch, World Bank
Breaking down ACP exports growth
80.0
60.0
Other Developing
40.0
ZAF
20.0
0.0
NIG
-20.0
Other SSA
-40.0
Caribbean &
Pacific
-60.0
-80.0
2, The impact of the crises on investment
FDI to Low Income Countries (LIC)
Source: IMF, World Economic Outlook (WEO)
3. SMEs in the times of crises

SMEs have suffered a dual shock as result of the
financial and economic crises:
1.
A drop in the demand for their goods and
services
2.
tightening in their access to finance.

SMEs a significant role in all economies

key generators of employment and income

drivers of innovation and growth.

essential for the economic recovery.
4. SMEs and the way forward

SME support programs to address firmspecific constraints :





access to finance
technology upgrading (and training to use new
technology)
promotion of quality control
market development, network formation, and
export promotion
skills development for workers
4. SMEs and the way forward

Economy-wide policies :

Improve the Investment Climate



Business Environment constraints adversely affect all
enterprises, especially SMEs (WDR 2005)
Regulatory reform
Trade-enabling policies

Expand the benefits of trade to SMEs trough



raising the prob. of entering foreign markets and
exporting new products
increasing export value of existing exporters
Effect on SMEs producing non-tradable
intermediates and services
4. SMEs and the way forward

Trade-enabling policies
1. Facilitating trade (~ policies to lower trade costs)
i) Investment in infrastructure (roads, rail, ports, airports, etc.)
ii) Institutional reform (customs administration, transparency and
corruption, regulatory environment)

Some findings: If Ethiopia improves logistics half-way to
Mauritius’ level, exports would grow as if tariffs faced by
Ethiopian exporters would be cut by 7.6% (Portugal-Perez and
Wilson, 2009).

Reducing a day of delay in shipping increases trade by 1
percent + equivalent to 70 km. (Djankov, Freund and Pham, 09)
2. Market access (~ preferential trade agreements:
EPAs, AGOA, etc.)
Summary




The reduction in exports growth was more
considerable for ACP countries than for other
developing countries.
FDI went down after reaching a peak before
the crises.
SMEs play a key role and are important for
the economic recovery
What are the best policy options to help
them?
Appendix: Design of preferences
matters: ex. rules of origin for African
countries
AGOA
Source: de Melo and Portugal-Perez (2008)
Appendix: some facts on SMEs

Although data is hard to obtain and compare, a few
facts:
 SMEs in Congo: ~80 % of firms <5 workers. 2 100
firms in the formal and 10 000 in the informal sector.
 Nigerian SMEs ~95 % of formal manufacturing activity
and 70 % industrial jobs.
 South Africa: Micro and very small businesses >55 %
employment and 22 % GDP in 2003.
Small firms ~16 % (both) jobs and production and
medium and large firms ~26 % jobs and 62 %
production.
Source: African Development Bank and OECD Development Centre,
African Economic Outlook (2004-2005).