African nations and the world’s least-developed countries (LDCs) have much to gain from the development of new “green” value chains and a global surge in services trade. An abundance of sustainable resources – from natural fibres to sunlight – positions them well to develop thriving export industries for green goods and services such as renewable energy and eco-tourism. And the success of some African businesses that focus on financial services or e-commerce proves that high-value services can represent a new development route for LDCs – as long as the right trade policies are accompanied by technology transfer and investments in skills and infrastructure.
As trade experts from around the world gather to take stock of the Aid-for-Trade Initiative – which delivered US$ 648 billion of investment for developing countries from 2006 to 2022 – three new studies reported in a new policy note LDC Trade Priorities: Looking forward explore its transformative potential. They offer pointers on how developing economies can grasp opportunities from the green transition and global swing to services by using World Trade Organization (WTO) processes to argue more proactively for supportive trade policies in strategic sectors. They also underscore the responsibility of higher-income trading partners to continue investing in Aid for Trade and lowering barriers for LDC exports – to ensure that trade really does benefit everyone.
Services-led transformation
In their study on promoting services-led transformation in Africa, Richard Newfarmer, Christian Lippitsch and Andrew Womer of the International Growth Centre – an economic research centre based at the London School of Economics – argue that Africa can replicate East Asia’s export-driven “miracle” by expanding the export volume and value of services trade.
They highlight how successful Africa’s pivot to services has already been, with 70 of the continent’s 100 fastest-growing companies offering mostly services, ranging from fintech to health care. They also highlight how services trade can complement trade in goods.
More established service sectors in Africa such as tourism and transport deserve policy support because they can stimulate growth and create jobs. And yet, the continent risks becoming over-reliant on them, the authors note.
They argue that higher-productivity sectors such as finance, insurance and business services could offer Africa a more sustainable route to better jobs and economic development. Tapping opportunities here will require African governments – and their international partners, including through Aid for Trade – to invest in digital infrastructure and skills, and to push for further opening services trade.
The African Continental Free Trade Area (AfCFTA) will be hugely supportive, the authors find. By boosting trade in goods, it can also stimulate trade in associated services. And by committing to reduce non-tariff barriers to trade, it provides an impetus for governments to develop legal and regulatory systems that support and attract foreign investment to priority sectors, such as e-commerce.
Fresh thinking about special treatment
In their study on the evolving priorities of African countries and LDCs in the global trade regime, David Luke of the London School of Economics and Kulani McCartan-Demie – founder of the think tank Organisation for Economic Transformation – call for a narrative shift at the WTO on the support needed to help them achieve long-overdue industrialization in the face of climate change and rapid technological advances.
They highlight synergies between what African countries, LDCs and small, vulnerable economies advocate for at the WTO. For example, at the WTO’s 13th Ministerial Conference earlier this year, the WTO African Group called for financial support and technology transfer to help with climate change mitigation and adaptation, while LDCs highlighted how infrastructural and technological challenges limit their ability to leverage digital technologies. Both groups prioritized advancing the WTO’s special and differential treatment negotiations, which they argue remain critical to their sustainable development.
For developing economies to secure a better new deal at the WTO’s next Ministerial Conference in Cameroon, the authors propose a rethink of special and differential treatment, including focusing more on financial and technical assistance and relying less on exemption from WTO rules or commitments.
But special and differential treatment alone is not enough. Implementing the AfCFTA will be game-changing for African countries, they argue. And LDCs and small, vulnerable economies also need support diversifying away from resource extraction, plus investments in education, energy and infrastructure.
Avoiding a “green divide”
In her study on trade opportunities for LDCs from the green transition, Colette van der Ven, an international trade lawyer and founder of TULIP Consulting, discusses how to prevent a “green divide” emerging between low-income economies that are most vulnerable to climate change and economies with the required capacity to dominate new value chains associated with adaptation and mitigation.
She highlights concerns that developed economies are pushing through unilateral, uncoordinated green trade measures whose high compliance costs exclude LDCs from participating in greening trade. This is despite LDCs having many natural advantages, such as an abundance of renewable energy resources, eco-friendly agricultural products, and plants that can be used to make sustainable non-plastic or medicinal products.
To develop these into export industries, LDCs should be more proactive about using WTO processes to support their own interests, she argues. For example, through the Trade and Environmental Sustainability Structured Discussions – an environmental initiative among a group of WTO members aimed at intensifying work on trade and environmental sustainability. LDCs could benefit from lower tariffs on equipment such as solar panel and wind turbines. And such steps could help LDCs develop successful renewable energy sectors and improve the economy-wide efficiency of doing business.
Greater cross-committee cooperation at the WTO to simultaneously discuss trade, the environment and development could support this work, Ms van der Ven proposes. In addition, Aid for Trade can also help LDCs in adapting to the evolving trading landscape and supporting global efforts to achieving net zero.
Author: Mr Xiangchen Zhang, a Deputy Director-General
