Small and developing countries need help with boosting their trade and investment flows. So, in November 2015, the Commonwealth joined forces with the Governments of India, Malta, Mauritius and Sri Lanka to open a guarantee fund – the Commonwealth Trade Financing Facility – which is underpinned by voluntary contributions. This allows banks to open a credit line that guarantees 10% if there are defaults by lenders.
So far the voluntary fund amounts to US$4.75 million, which enables credit amounting to US$20 million. It provides member countries facing trade challenges with the finance they need to increase their trade capacity. It is estimated that for every US dollar invested in the fund, the credit line provided by banks is enhanced by US$20.
At the fund’s launch in Malta, the Prime Minister of Malta, Joseph Muscat, said:
“We are acting as facilitators so small traders in small jurisdictions can penetrate new markets. We are very keen to create necessary trade infrastructure for ourselves and other small Commonwealth countries.”
The facility, structured as a guarantee fund, covers risk for providers of trade credit in financial institutions of Commonwealth countries. It seeks to stimulate lending by major banks to smaller banks in member states, and reduce risk.
The Commonwealth and our four founder investors are seeking investment from member countries and other parties that have expressed an interest in participating. The first phase of the fund runs over three years followed by a review.
Malta hosts the Facility and manages its governance structure. Malta also provides oversight for contributing member countries. Commercial banks operate the fund using existing trade finance instruments, payments arrangements, and operating infrastructures.
The initiative is the result of a mandate issued at the 2013 leaders’ summit. That mandate was to help small and developing Commonwealth countries increase their trade capacity. Heads of Government welcomed a proposal developed by the Commonwealth Secretariat and the Government of Malta to launch a pilot among interested members.
A working group carried out a scoping exercise. They took into account existing trade financing agencies and other sources of trade finance, including those offered by multilateral and regional programmes. Findings demonstrated a need for this fund. Managers are hoping to make their first transaction around the time of CHOGM 2018.
More progress in trade development, 2015/16
The Secretariat supported policy-makers and stakeholder representatives from 43 member states in trade matters. Through four targeted international and regional forums, we helped them appreciate the implications of emerging issues while advancing their positions. To advise our members effectively, we used policy analysis and advice from more than a dozen analytical studies.
- Ahead of the World Trade Organization’s (WTO’s) Tenth Ministerial Conference (MC10), there was a pre-MC10 Pacific regional consultation in Tonga(November 2015). It helped ten member states understand emerging global and regional trade issues, and develop joint positions.
- Post MC10 there were regional consultations in Zambiafor Africa, and in Trinidad and Tobago for the Caribbean.
- The Secretariat, the United Nations Conference on Trade and Development (UNCTAD) and the International Oceans Institute (IOI) delivered informed assessments of oceans economy and trade issues by convening an international event in Geneva(May 2016). This was our contribution towards implementation of the trade-related aspects of SDG 14.
Number of member countries we helped on trade
The Secretariat is a member of LDC IV Monitor, which strives to accelerate the delivery of the UN-adopted Istanbul Programme of Action (IPoA) for least developed countries (LDCs). As such we monitored the progress of LDCs against the Istanbul Programme of Action (IPoA) – with UNCTAD recognising the Secretariat’s contributions during the IPoA Mid-Term Review.
- We made a submission to the G20 on Trade and Industrialisation in Africa. This contributed to an informed dialogue by the G20 Development Working Group (G20-DWG) and the Commonwealth-Francophonie-G20 DWG outcome statement.
- The Commonwealth Trade Review 2015report helped revitalise policy discourse on trade potential in the Commonwealth. Member countries and independent think tanks cited it.
- At CHOGM 2015, Heads of Government mandated the establishment of a Commonwealth Trade Finance Facility. Its founders made progress with consultations around its implementation.
- In March 2016, the Commonwealth Expert Group on Trade held its second meeting in India. Twenty experts and 40 stakeholders from 15 member countries attended. The group developed recommendations for the global community to revitalise global trade and multilateralism – an issue that various other organisations are currently discussing.
In 2016, we helped 25 member governments improve their national trade competitiveness in global markets. Of these, six – Jamaica, Botswana, Sri Lanka, Sierra Leone, India and Nigeria – and the East African Community, saw key results including finalised trade competitiveness strategies and action plans.
- Jamaica’s new government endorsed their new National Export Strategy (NES), while Botswanadesigned a new “Aid-For-Trade” strategy, and SriLanka built the capacity of its export credit industry.
- An action plan was developed for Sierra Leone’s packaging industry, despite institutional capacity challenges in the post-Ebola virus disease context.
- India’s Trade Ministry launched a Commonwealth small and medium-sized enterprise (SME) association to help Indian firms identify suppliers in least developed countries (LDCs) in Asiaand Africa, to provide goods and materials for lead export products – from clothing apparel to electronics.
- A strengthened National Trade in Services Programme (NTISP) was prepared to support the efforts of the Government of Nigeria.
In 2016, we helped 25 member governments improve their national trade competitiveness in global markets.
We also made progress incorporating two new elements into existing strategies of Mauritius, Belize and the East African Community.
- We supported advancement of regional integration and expert diversification in Mauritiusthrough deepening integration into the global financial system in negotiations for the Trade in Services Agreement. We also did this in the East African Community through a mutual recognition agreement on veterinary services including free movement of veterinary professionals, signed by Kenya, Rwanda,Tanzania and Uganda.
- Belizebrought its subsidy programme into line with WTO regulations. In addition, the country’s Economic Development Ministry developed and endorsed a business process outsourcing strategy for the potential to catalyse exports, attract foreign investment, and stimulate innovation and the employment of skilled women and young people.
The Secretariat and the Common Market for Eastern and Southern Africa (COMESA) launched the Regional Design Studio to increase the export capacity (market access) and profitability of leather producers in the COMESA region of Africa. We did this through technical training and capacity-building.
There’s more – read about the progress of our Hub and Spokes II Programme.