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African countries and the world’s least developed countries have much to gain from the development of new “green” value chains and a boom in global services trade. With abundant sustainable resources, from natural fibers to sunlight, these countries are well-positioned to develop thriving industries focused on exporting green products and services, such as renewable energy and ecotourism. Moreover, the success of certain African companies specializing in financial services or e-commerce clearly demonstrates that high-value services can represent a new development path for least developed countries, provided that appropriate trade policies are accompanied by technology transfer and investment in skills and infrastructure.
A month ago, trade experts from around the world gathered in Geneva to take stock of the Aid for Trade initiative – which has mobilized $648 billion in investments for developing countries between 2006 and 2022 – three new studies presented in a new policy brief, Trade Priorities for Least Developed Countries: Looking Ahead, examine its transformative potential. They offer guidance on how developing economies can use the World Trade Organization (WTO) process to more actively advocate for favourable trade policies in strategic sectors and seize opportunities arising from the green transition and the global shift towards services. They further underscore the responsibility of high-income trading partners to continue investing in Aid for Trade and reducing export barriers in LDCs to ensure that trade truly benefits all.
Service-driven transformation
In their study on promoting a services-led transformation in Africa, Richard Newfarmer, Christian Lippitsch and Andrew Womer of the London School of Economics’ International Growth Centre argue that Africa could replicate the export-led “miracle” East Asia experienced by increasing the volume and value of its services exports.
The authors highlight how Africa’s reorientation towards services has been successful, with 70 of the continent’s 100 fastest-growing companies primarily providing services in sectors ranging from fintech to healthcare. They also highlight how trade in services complements trade in goods.
In Africa, more mature service sectors such as tourism and transport deserve policy support because of their ability to stimulate growth and create jobs. However, the authors note that the continent risks becoming overly dependent on these industries.
Higher-productivity sectors such as finance, insurance, and business services may offer Africa a more sustainable path to improved employment and economic development. To take advantage of these opportunities, African governments and their international partners (including through Aid for Trade) need to invest in digital infrastructure and skills and work towards greater openness in services trade.
The authors say the African Continental Free Trade Area (AfCFTA) will provide strong support. By promoting trade in goods, it can also promote related trade in services. Moreover, given the commitments made within its framework to reduce non-tariff barriers to trade, the AfCFTA encourages governments to put in place legal and regulatory systems that support and attract foreign investment in priority sectors, such as e-commerce.
New ideas for special treatment
David Luke of the London School of Economics and Kulani McCartan-Demmy, founder of the Economic Transition Organisation think tank, argue for a change in the discourse on global trade in their study on the changing priorities of African countries and least developed countries in the global trading system. The WTO needs to support these countries in their long-awaited industrialisation despite climate change and rapid technological advances.
The authors highlight the synergies that exist between the requests made by African countries, LDCs and small vulnerable economies at the WTO. Thus, at the WTO’s 13th Ministerial Conference earlier this year, the WTO African Group called for financial support and technology transfer to help mitigate and adapt to climate change, while LDCs highlighted how infrastructure and technological challenges limit their ability to benefit from digital technologies. Both groups of countries have made it a priority to advance the WTO’s special and differential treatment negotiations, which they say remain essential for their sustainable development.
To enable developing economies to achieve better outcomes at the next WTO Ministerial Conference in Cameroon, the authors recommend a rethinking of special and differential treatment, in particular with a greater emphasis on financial and technical assistance and less reliance on exemptions from WTO rules or commitments made within the framework of the organization.
However, special and differential treatment alone is not enough. The authors say the implementation of the African Continental Free Trade Area would be a game changer for African countries. In addition, the least developed countries and small vulnerable economies also need help to wean their economies off resource extraction, and investment in education, energy and infrastructure.
Preventing the “Green Divide”
In her research on business opportunities offered by the green transition for LDCs, Colette van der Ven, an international trade lawyer and founder of TULIP Consulting, explores the issue of how to avoid the emergence of a “green divide” between the least developed economies that are vulnerable to climate change and those that have the capacity to lead new value chains related to adaptation and mitigation.
It highlights concerns about unilateral and uncoordinated green trade measures implemented by developed economies, whose high compliance costs discourage LDCs from participating in green trade. However, LDCs have many natural advantages, such as abundant renewable energy, environmentally friendly agricultural products, and plants that can be used to make sustainable non-plastic alternatives or medicines.
The lawyer believes that in order to transform it into an export industry, the least developed countries should be more proactive in using WTO procedures to support their interests. For example, they can build on the structured discussions on trade and environmental sustainability, an environmental initiative led by WTO members to strengthen work on trade and environmental sustainability. LDCs can also benefit from reduced tariffs on equipment such as solar panels and wind turbines. Such measures can help them develop successful renewable energy industries and improve the efficiency of business activities across the economy.
Ms. van der Ven believes that these efforts can be supported by strengthening cooperation between different WTO committees, which would allow trade, environment and development to be discussed simultaneously. In addition, Aid for Trade can also help the least developed countries adapt to the changing trade landscape and support global efforts to achieve net zero emissions.
Zhang Xiangchen, Deputy Director-General, WTO
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