‘Expensive access to credit a universal issue for SMEs’

‘Making finance work for them better than closing markets’

Updated - May 31, 2019 11:03 pm IST

Published - May 31, 2019 10:52 pm IST

FOR COIMBATORE 18/05/2019: 
Arancha Gonzalez, Executive Director of International Trade Centre.

FOR COIMBATORE 18/05/2019: 
Arancha Gonzalez, Executive Director of International Trade Centre.

Arancha Gonzalez the Executive Director of International Trade Centre (ITC) since 2013, is also the co-chair of the World Economic Forum’s Council on the Future of Trade and Investment. She served as the Chief of Staff to WTO Director-General Pascal Lamy between 2005 and 2013. Prior to that, she was a spokesperson and trade negotiator for the European Commission. A regular visitor to India, an issue close to her heart is the empowerment of women entrepreneurs in different countries and connecting them to international markets. Excerpts from an interview:

What is the focus of ITC?

It [ITC] is an agency that belongs to the World Trade Organisation and to the United Nations. Embedded in the organisation’s DNA is how to use trade, investments, to get people out of poverty, to provide opportunities, foster development and generate jobs. Our focus today is not just trade per se, but supporting trade aligned with specific development objectives. This means trade that is inclusive, sustainable and responsible, and aims at improving people’s lives. So for us it is about good trade. We know that if we attach specific development objectives to trade, it is going to be more efficient in the long-term and also more acceptable for people.

You spoke briefly at Mekelle about the need for trade cooperation in the current scenario. Can you elaborate?

What we are witnessing is deterioration in the perception of trade in some parts of the world, but it is not universal. In some places, trade is seen as a lose-lose game and some argue that ‘for me to win you have to lose’, and ‘if you win in trade, I must be losing’. There is also a perception that international cooperation and multilateralism is for the weak. Some argue that ‘if you are strong, you should not engage in international cooperation’ or that you should be either managing your relations in a unilateral manner or, at best, bilaterally; but not through an international cooperation framework. The inauguration of the KPR Garment factory in Mekelle, Ethiopia, is of course the opposite, and rather a demonstration of good, multilateral trade. In fact, it was the result of a triangular cooperation among the U.K., the ITC and India, which led to an Indian company to invest and create more than 1,000 jobs in Ethiopia. Especially during this time of doubt about the value of trade and cooperation, we have to demonstrate trade’s value, it’s effectiveness and efficiency, and that it is not for the weak but for those who want to manage their long-term relations in a peaceful manner, in a win-win manner.

How do you see ITC’s role when there are such perceptions about international trade?

What we try to do is, demonstrate in our everyday work that trade can be win-win for all parties. At ITC, we see our role as defending the values of multilateralism, the values of openness, the values of predictability and transparency. And we demonstrate this work through concrete examples, which, in my view, is much more forceful than abstract speeches.

For example, Ethiopia has for many years been a rather closed economy. Lately, though, it has decided – and nobody has imposed this on Ethiopia – to open up, reform, become competitive, become more attractive for foreigners. It is important to stress that this is something Ethiopia has decided [by] itself, because it has realised that it will benefit the country and will generate jobs. However, it is also true that international trade does not automatically benefit everybody. International trade is not a magic recipe for economic success, but a tool. And you have to use this tool with other ingredients in the tool box.

For example, if you are not ensuring the necessary skills for your workforce, good infrastructure or healthcare, and if you do not have fair taxation systems, trade is going to work less. In other words, for trade to be effective you also have to dedicate your resources to ensuring that other parts of your governing system and economy functions well.

We see pressure on sectors such as SMEs in every country. How can there be a balance?

I think what we have basically seen is an over reliance on closing domestic markets to protect SMEs. In my view, that does not work because essentially what you do is you protect very inefficient companies to work in very inefficient conditions. It does not make the SMEs stronger, it does not allow SMEs to generate better quality jobs or better paid jobs. My view is, it is more intelligent to gradually open, but also put in place mechanisms to support the SMEs domestically.

One universal problem facing SMEs is very expensive access to credit and capital. So, instead of closing markets to imports, you would gain more from providing better access to credit for SMEs.

You have to make the finance sector also work for SMEs. Rather than relying solely on keeping the market closed, you have to combine intelligently the gradual opening up [of the economy] with mechanisms to facilitate and support the SMEs. The challenge is to boost the competitiveness of SMEs and trade can be a way to boost competitiveness.

Do you have specific projects for India?

We do not have many projects in India itself, but ITC works with India to support other countries, which again helps Indian companies. India, through the government and its private sector, has become a crucial partner to ITC in supporting other more vulnerable countries. For example, in Ethiopia we combine the technical expertise of ITC with Indian knowledge and business acumen to strengthen the competitiveness of Ethiopian enterprises.

You spoke on women empowerment. What is SheTrades?

ITC launched the SheTrades Initiative in 2015 with the goal of connecting three million women entrepreneurs to international markets by 2021. When you look at international trade data, you will find that women entrepreneurs are less present than men in international markets despite the fact that across the world, 40% of businesses are women-owned. There are specific reasons for this: women suffer from specific obstacles such as lack of access to finance, discriminatory property and ownership laws, or from non-legal cultural and social norms. In response to such challenges, we decided there was a need to have a stronger spotlight on women entrepreneurs, and help connect more of them to international trade. So far, we have connected 1.7 million women to markets. SheTrades is an umbrella programme through which partners commit themselves to a variety of concrete actions such as purchasing from women-owned business, helping ensure finance, sharing skills, building networks, or providing mentoring. We are now working with a group of ‘patient capital’ investors that help women businesses gain access to capital and credit. These are investors that are willing to forego a quick profit, but instead take a longer-term view. We are talking to financial sector, including impact funds, so that they invest with purpose, with a sense of more patient capital. Our main role is to be a convener and connector between women entrepreneurs and the investors. For women entrepreneurs in India, we are working towards launching SheTrades India in the near future.

(The correspondent was in Ethiopia at ITC’s invitation.)

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