Commonwealth Trade - time for action!
A seminar organised by The Worshipful Company of World Traders and the Institute of Directors City Branch held at Marlborough House on 30 September 2010
Keynote Speeches
Keynote speeches were given by Lord Howell, Minister of State, Foreign and Commonwealth Office, H.E. Kamalesh Sharma, Secretary-General of the Commonwealth, and Alderman Nick Anstee, Lord Mayor of London.
Lord Howell described the Commonwealth as a network for the future, not the past, and as an ideal platform for the more complex world of the 21st century. It was a template which could be fitted on the website pattern of the planet today. Prosperity through trade was the reverse of the coin of the value based activities of the Commonwealth. Many studies reinforced the concept of the 'Commonwealth premium' covering flows of trade and investment much more complex than the traditional flows between developed end developing countries. Government level activity underpinned an ever more important mosaic of soft power links. For the UK it was necessary to look at markets beyond Europe and the US.
The Secretary General commented that it was necessary to look at trade in a holistic way. Statistics for the growth of trade and of sustainable development tracked each other closely. The Indian Prime Minister had observed that democracy and development were two sides of a coin which could not be separated. The relationships between the UK and India were an example of mutual flows of trade and investment. The Commonwealth had a toolkit of ways of encouraging trade. It worked with other organisations on the aid for trade agenda and had worked with the EU to find ways of reducing the perceived inequalities of the EU's agreements with ACP countries. There was an initiative relating to private investment in trade including the involvement of SMEs. There was a need to empower the young and women, for example through development of 'character lending' requiring no collateral. The UK needed markets: the Commonwealth market place provided an existing network with good prospects.
The Lord Mayor called the Commonwealth a valuable overlay to more formal bodies. The City of London (broadly defined) brought together capital and expertise in a competitive but regulated cluster which could support most fields of Commonwealth economic activity. Like the Commonwealth the City was an existing reality and one which could be turned to the service of global prosperity. It was well adapted to support the Commonwealth reality of shared histories and common approaches and many Commonwealth nations used the City to tap into its role as a global hub.
The 'Commonwealth Effect'
Professor Steve Godfrey, Managing Director of the Commonwealth Business Council, described the Commonwealth as a potentially important economic engine. Speaking to the paper 'Global growth and the Commonwealth' by Dr Mohan Kaul, World Trader and Director General of the CBC in June 2010, Professor Godfrey said the Commonwealth had strong corporations and standards of government.
Many Commonwealth countries ranked high on indices for doing business. Mobility of people, language, and strong and growing middle classes were among the factors bringing comparative advantage. Dilution of state control and transition to market economies were drivers of growth.
The CBC had funded research in 1997 which showed that a combination of 'hard wiring' (eg common language) and the 'software' of shared values meant that trade within the Commonwealth flourished despite the absence of formal structures and programmes. The CBC pursued the facilitation of trade and investment to build sustainable growth, using both public and private investment, to complement the political and values based activities of the Commonwealth. At the same time there was still a problem in fully engaging Government agencies like DFID with the wealth creating activities of the private sector.
Dr Danny Sriskandarajah, Director of the Royal Commonwealth Society, referred to the 'Commonwealth Conversation' initiated by the RCS in 2009. One conclusion from the attitudes it revealed was a need to address issues of the profile of the Commonwealth around the three vs - value, value added, and value for money. This demanded a sustained and radical effort to further develop ways of raising value. The Commonwealth should be bold not old.
He introduced 'Trading Places, the Commonwealth effect revisited'. Taking the earlier CBC work as a starting point this re-examined trade flows between Commonwealth countries using a different methodology emphasising value rather than cost. The proportion of Commonwealth members' trade conducted with other members varied widely (8% for the UK; over 80% for some small members in the Caribbean and the Pacific). At the same time the overall proportion of trade conducted within the Commonwealth had risen from 12% to 16% over two decades, and trade between pairs of Commonwealth countries was likely to be between a third and a half greater than with non Commonwealth countries with similar characteristics.
In a comment from the floor Bashir Siman, World Trader, commented on the desirability of a conceptual shift from considering the Commonwealth as a bloc with a history to thinking of it as a network of markets, peoples, and activities. This could lead to different flows of trade and investment in which the Commonwealth could have a key competitive edge. This could in turn lead to engagement with new partners.
Issues affecting Commonwealth trade
Dr Gregor Mackinnon, Managing Director of CBC spoke about 'tapping the Commonwealth's potential' from a CBC perspective. How best to harness the 'Commonwealth factor' of language, law, political structures, and business practices? Intra Commonwealth trade was worth in the order of $4 trillion. It represented a bridge between the developed and now crucial emerging economies, and reflected good law and governance, strong investment climates and higher than average growth. 5 of the 10 top places to do business and 17 of the 20 top places in Africa to do business were Commonwealth members. In a UK context a significant number of FTSE 100 companies derived a significant proportion of their revenues from emerging markets. There are 127 Commonwealth listings on the LSE. Current CBC priorities are the Doha round, intra regional trade and investment, practical projects for infrastructure, agriculture in Africa, and the extension of reach to SMEs.
Edwin Laurent, Head of International Trade and Regional Cooperation at the Commonwealth Secretariat said the test was whether business was easier because of the Commonwealth. If the MDGs were to succeed in helping generate sustainable growth international trade had a critical role to pay because internal markets were too small. The Commonwealth could contribute in a number of ways, such as the aid for trade debate, and trade facilitation programmes like the North-South corridor in Africa.
A number of issues were raised from the floor in discussion:
- the need for greater emphasis on intra regional (especially intra African) trade;
- responding to the development of increasingly complex supply chains;
- the need for fair and transparent accounting practices and consistent regulatory frameworks; consistency in intellectual property agreements
- access to finance for SMEs
- improved business transparency and tackling corruption.
Financing of trade
Dr Neville Bain, Chairman of the Institute of Directors, commented that the financial sector's important role in trade development was not helped if it was 'demonised'.
Sir Malcolm Williamson, former Chairman of Standard Chartered and CDC, cautioned against expecting too much of the Commonwealth. Commonwealth trade flows were a relatively small proportion of developed country members' total flows and other non Commonwealth markets played a more central role. At the same time CDC experience pointed up some positive areas in contributing to expanded growth in Africa - an expanded banking sector, mobile telephony, increased value added before produce was exported, and growth of retail activity. There was an ongoing need to promote models which emphasised greater trade and value added.
There were then short presentations promoting three ways of bringing improved financing of business and trade to bear:
- Microfinance. This was described as 'banking the unbanked', bringing financial services to the poor. It was a huge market. The Commonwealth had 640 million people living in poverty and the microfinance market within the Commonwealth was worth £70 billion. A crucial issue in its orderly expansion was development of appropriate regulatory regimes in which the separation of lending and deposit taking appeared to be a critical element.
- Remittances. This was currently an activity running at $320 billion for the G20 countries and growing at 15% pa. Of this some $40bn went to Africa. Compare this with the $10bn provided annually by the World Bank. How could these flows be mobilised for development, given that a significant proportion was already being harnessed for discretionary not subsistence expenditure?
- The potential for a Commonwealth Development Bank. This not for profit concept rooted in commonwealth standards would focus on selected sectors such as the development of small states, micro banking, agro industry, public/private infrastructure projects, and trade.
Westminster School Commonwealth Youth Ambassadors
Eight students from Westminster School summarised wide ranging conclusions they had reached in research in preparation for a visit to New Zealand in October. These covered:
- the importance of the Commonwealth to young people and vice versa. To deal with the apathy demonstrated by the Commonwealth Conversation the Commonwealth must work harder to engage with young people not just in talking shops but by giving them a voice in decisions at all levels in order to provide them with the knowledge and skills, and create the will, to enable the Commonwealth to realise its full potential.
- 'social capital', the networks of people within the Commonwealth, is a crucial Commonwealth asset and should be regarded as 'the glue which holds the Commonwealth together'.
- the Indian approach to the Commonwealth emphasises the sharing of experience with the smaller and more vulnerable members as a critical part of the 'Commonwealth factor'. The watchwords of the Commonwealth should be 'connect, share, adapt'.
- there is huge scope for the expansion of intra Commonwealth trade. Political capacity building is an important factor in this.
- corruption is a major obstacle in a number of Commonwealth nations. It should consider a Commonwealth Transparency Charter and a Commonwealth Democracy Charter to ensure transparency and proper checks and balances.
- there should be coordinated Commonwealth support for the Aid for Trade agenda, especially for the small states, and its expansion at the regional level. 'By promoting political stability, increasing the effectiveness of trade facilitation, and strengthening social capital, the Commonwealth can make the preconditions for take off significantly more likely.'
 Final Project Findings |
 Executive Summary |
Concluding comments
Mrs Patricia Francis, Executive Director of the International Trade Centre Geneva and member of the Commonwealth Eminent Persons Group set up at the Trinidad CHOGM, offered some concluding comments. On the work of the EPG she commented that, having had an initial meeting, it aspired to be selective, and to develop ideas which were actionable and financeable.
From an ITC perspective she said that research undertaken for a recent meeting in China validated the RCS's work to the extent that it identified language, common borders, regional structures, former colonial ties, and common currencies as drivers for trade flows. From a historical perspective it suggested that by 2050 the relative weights of India and China combined in relation to the countries of the G7 would have returned to roughly where it was in 1820 (40-45% compared with 5% in 2000). She agreed both about the crucial role of emerging markets in the present situation and that trade was a driver of sustainable development and growth for all. The Commonwealth could help weaker performers to learn the lessons from stronger ones, including on dealing with corruption. There was still in her view plenty of scope for additional cross border activity - the world was as yet much less fully globalised than commentators implied. Addressing the bottom of the pyramid though the empowerment of women and the young as well as the creation of a formal private sector to replace informal economies was also important. Strong economies were the most effective framework in which to develop the Commonwealth's governance agenda. The private sector should be regarded as a voice, a partner, an advocate in this process.
Themes to emerge from the seminar
Some of the afternoon's presentations had a UK perspective as their starting point whereas others were looking at the broader Commonwealth agenda.
Several themes emerged which were referred to by more than one speaker, and which appear worthy of consideration and further discussion. These included:
- the need to raise the profile of the Commonwealth and engage with young people in practical and relevant ways
- the relevance of the Commonwealth with its loose structures and overlapping networks to the 21st century internet driven world
- the importance in current economic circumstances of optimising the $4 trillion of intra Commonwealth trade, in particular building on the unique combination in the Commonwealth of developed and emerging markets
- enhanced trade is a driver of sustainable growth which in turn enables the pursuit of the Commonwealth's values based agenda. The two are not in conflict or competition but are two sides of one coin.
- the Commonwealth should support the Aid for Trade agenda and other mechanisms (such as a possible Commonwealth Development Bank) for strengthening its weaker and smaller members, bringing the poor into the formal economy, and building up the private sector and particularly SMEs.
