Each week David Souter comments on an important issue for APC members and others concerned about the Information Society. This week's blog post looks at ICTs and trade facilitation.
Some aspects of ICT4D (ICT for development) excite development activists more than others. There's a lot more written from an ICT4D perspective about social issues like health, education and empowerment, for example, than there is about macroeconomics. The impact of ICTs on economic trends tends to be left to intergovernmental agencies, business analysts and the Financial Times.
But development's not just about what happens to individuals. National development's all about big economic issues. This week I'll say something about the potential and limitations of ICTs in one of these, in international trade. Like last week, I'll draw on past work of my own, this time an assessment of ICTs and African trade for the African Development Bank and World Bank.
Trade matters more than aid to developing countries, including (most) Least Developed Countries (LDCs). Small changes in global prices for the commodities they export – tin, say, or coffee – can dwarf changes in international development assistance. We should pay more attention to it.
Trade's changing, not least because of ICTs. Services are more important now than goods for many countries. Expensive goods (like cars) are made through global supply chains, with components crossing borders more than once, rather than in single countries. Middle-income developing countries are taking market share from traditional manufacturers – especially in Asia, above all China.
To LDCs as well
But trade's been slow to grow in lower-income countries. Africa accounts for 15% of world population but just 3% of world trade. Why? In our study we identified three reasons:
Structural problems – LDCs and other low-income developing countries mostly export commodities, demand and prices for which fluctuate in global markets. Most of them manufacture little: their domestic markets are too small, and mass-produced Asian goods usually cheaper. Tariffs and non-tariff barriers (like incompatible standards) often apply between neighbouring countries. As a result, there's less cross-border trade in Africa than there is in other regions.
Infrastructure problems – Ports, road and rail networks, and power infrastructure, are typically poorer in low-income countries. Unreliable power supplies adversely affect production and trade management. Bad roads mean longer transit times. Queues at borders can take days. Longer transit times mean higher costs, which make locally produced goods less competitive.
Inefficiencies – Sending goods by land or sea, from one place to another, is a complicated business. Lots of different stakeholders are involved, sometimes in several countries. Information needs to be shared between them, and is often unreliable. Multiple transactions need to be made, with scope for fraud, bribery and corruption.
What do low-income countries need to improve their trade potential? Three things, especially, we cited. Diversification (which would make them less vulnerable to commodity price fluctuations). Better infrastructure (especially power and transport). And trade facilitation (improved efficiency). ICTs can't do much about the first and second, but they can address the third.
What can ICTs do?
Our report identified three areas in which ICTs could have an impact:
They could improve efficiency, transparency and accountability – largely through automation.
They could improve coordination between stakeholders along supply chains – largely through sharing information.
And they could improve information about business opportunities, making it easier for smaller traders to explore new markets.
I'll focus on the first and second.
When goods are being traded, there's a deal of information that's associated with them – about their nature and their value, their routing, the international standards that they meet and don't. Many different people along supply chains need to know the details. Digitising – not just of documents, but tagging goods themselves – makes it easier to share information and should, if digitising is secure, make it harder for consignments to be altered while in transit. More speed, less fraud, and less need (or scope) for inspections time and again along the route.
Ports and border posts are major sources of delay and higher costs. Customs automation has been happening at developing country borders since the 1980s. But lots of processes happen at ports and borders: not just customs but also immigration, health and safety inspections (for food quality, for instance), quarantine. Consignments can be held for days negotiating between these, first on one side, then the other. Each day's delay is increased cost and profit lost. If progress through a port or border can be coordinated, information and approvals shared, it can be expedited; even more so if it's shared on both sides of that border. Lower cost and profit gained.
The future standard that's aimed at here depends on single windows – defined by the UN as ‘a system that allows traders to lodge information with a single body to fulfil all import- and export-related regulatory requirements.' A single window can operate in just one part of a supply chain, which may be the best way to begin. The more ambitious goal's to cover everything from a consignment leaving farm or factory to arrival at its final destination.
Experience with systems like this is, not surprisingly, much more extensive in major trading countries than in those that are less connected to international markets, but it's growing there, usually incrementally. Experience is mixed. More's needed.
The potential and its limitations
As in other areas of ICT4D there's much potential here, but there are also limits to what can be achieved.
Automating big systems like port communities is challenging and it's expensive. A lot of different stakeholders need to be brought together, from different industries, different bureaucracies and different countries. They need to change their ways of working radically: if they keep doing things the way they've always done, they won't make the efficiency savings that they're hoping for. Changing complex systems always takes longer than expected. There are lots of vested interests.
The greatest value, too, is going to be derived from bigger systems – single windows that run the length of whole supply chains rather than only parts of them; comprehensive port communities rather than merely customs automation. The challenges increase as systems get more complex. And the overall investment costs are very high. Small countries like LDCs can't afford or implement them without support from international financial institutions.
And whatever lower-income countries do to automate trade systems, they're likely to be following behind industrialised and middle-income countries with bigger shares in global markets. Automation should help developing countries keep up with those competitors as they improve efficiency, but it won't necessarily increase their total market share.
The bigger picture
ICTs have great potential for trade facilitation, then, but it's going to be easier for larger, richer, more extensive trading countries to achieve that potential than for LDCs. That makes trade facilitation more, not less, important as, without it, developing countries are likely to lose out.
It's only part, though, of a bigger picture. ICTs can improve efficiency and coordination in trade relationships. But they can do much less about the underlying structural and infrastructure problems that beset many developing country trade environments. They're not an easy route to economic diversification (especially now that automation's overtaking outsourcing), and they don't build better roads.
The UN's 2030 Agenda for Sustainable Development calls for increased exports from developing countries, ‘with a view to doubling the least developed countries' share of global exports by 2020.' The latter is immensely challenging (I suspect few countries have ever doubled their share of global exports in five years).
If they're to increase exports substantially, developing countries need strategies that address all three challenges identified above – economic diversification, infrastructure and trade facilitation. As in other areas of development, ICTs are not the answer, but strategies to address the challenges developing countries face in international trade will not get anywhere without them.
Next week I'll look at some new projections for digital trends over the next ten years.
Image: Dar es Salaam Port, Tanzania. Photo: Rob Beechey / World Bank.