Aid for trade initiative can benefit SME sector

The Small and Medium Enterprise (SME) sector in Sri Lanka plays an important role in the economy. It is established right across most sectors of the economy, including the export sector.

Those in the export sector, whether small or medium, also face most of the problems faced by larger export organisations when entering and retaining export markets.

Their problems are more due to more constraints faced by them. SMEs operate in an increasingly borderless world. Globalisation for them also means that markets are becoming more competitive and that they have no option but to learn to compete effectively within this increasingly competitive global market place.

Such a situation creates significant challenges for the SMEs. These are not challenges faced only by Sri Lankans, but those faced by such companies all over the world, particularly those in the developing countries.

Challenges include access to finance, market intelligence, skilled human resources, management experience and skills, lack of sufficient knowledge of internationally accepted languages to communicate with importers, lack of entrepreneurial culture, etc.

It is argued that SMEs, if they are to go international, must learn to operate effectively when they are outside their ‘comfort zone’. All countries recognise that governments clearly have a key role to play in helping SMEs compete effectively within their international markets.

The initiative known as Aid for Trade can assist exporters, particularly, those in the SME sector to improve themselves in order to enter the competitive world of international trade.

Aid for Trade is a programme launched in 2005 at the WTO Ministerial conference held in Hong Kong which is designed to assist developing countries to build the trade capacity and infrastructure they need to benefit from openings in international trade. It is a part of overall official Development Assistance (ODA) – grants and concessional loans – targeted at trade related programmes and projects.

Most Aid for Trade is disbursed bilaterally by donors or through multilateral and regional finance and development organisations such as the World Bank. Aid for Trade is a broad programme and not easily defined.

It includes (a) technical assistance – helping countries to develop trade strategies, negotiate more effectively and implement outcomes; (b) infrastructure — building roads, ports and telecommunications linking domestic and global markets; (c) productive capacity — investing in industries and sectors so that countries can diversify exports and build on comparative advantages; and (d) adjustment assistance — helping with costs associated with tariff reductions, preference erosion or declining terms of trade.

Aid for Trade can help strengthen the supply capacity and knowledge of trade preferences. Sri Lanka is a beneficiary of a number of preferential trade agreements. These could help in diversifying and expanding export markets.

However, some smaller and medium sized companies are not aware of the advantages offered by such preferences and in some cases, even if they are aware, are unable to proceed due to lack of understanding of the sometimes complex Rules of Origin.

No matter however much State agencies responsible for implementing such preferential schemes try to increase the awareness s by various methods, smaller companies often tend to miss out. Programmes under Aid for Trade for SMEs on how to maximise benefits from the various preferential schemes is one way of assisting such companies to penetrate export markets.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)