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. The impact of the crises on trade 2. The impact on investment 3. SMEs in times of crises 4. SMEs and the way forward: opening the discussion

1. The impact of the crises on trade: The Decline in Trade Now and Then.. Source: Freund (2009), World Bank Mean and medium of monthly trade growth : 4 previous global slowdowns episodes (1975, 1982, 1991, and 2001)

ACP exports growth to US, EU & Japan Constructed with quaterly moving average monthly series. Data collected by Trade Watch, World Bank

Breaking down ACP exports growth

2, The impact of the crises on investment Source: IMF, World Economic Outlook (WEO) FDI to Low Income Countries (LIC)

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 firm- specific 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 firms in the formal and 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 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 ( ).