Aid for eTrade: Accelerating the E-commerce Revolution

Published in http://e15initiative.org/blogs/aid-for-etrade-accelerating-the-e-commerce-revolution/

As the June global Aid for Trade Review approaches, a quiet revolution is unfolding in international trade: individuals and small businesses around the world are increasingly engaging in cross-border trade by selling goods and services online. In fact, data shows that in every country, practically all businesses that engage in e-commerce also export, in stark contrast to the small share of brick-and-mortar sellers that export. While e-commerce opens great opportunities for small businesses to export, much of the world and most businesses remain disconnected from the web. In addition, the dozens of emerging markets that are quite connected still struggle to translate their connectedness into exports and economic and social gains.

To accelerate the spread of e-commerce around the world, a new, coherent “Aid for eTrade” initiative is needed.Detailed in a CSIS policy paper I prepared with eBay’s support, Aid for eTrade is a close cousin of the Aid for Trade initiative, which has channeled more than US$200 billion in bilateral and multilateral trade-related assistance to developing nations over the past decade, largely to build up infrastructure and productive sectors such as agriculture. It has worked: each doubling of overall assistance boosts developing countries’ exports by 5 percent, while each doubling of assistance in trade facilitation increases developing countries’ exports by 10 percent.

If there is one silver bullet for promoting small business exports and entrepreneurship and boosting export diversification in developing countries, it is e-commerce. For example, in Chile, 100 percent of companies that sell on eBay also export (on average to 28 different markets), in contrast to the 18 percent of offline Chilean sellers that export (typically to 1-2 markets). The data are nearly identical in all other advanced and emerging markets: all or almost all online sellers export and export to great many markets, while few offline sellers export, selling only to a couple of foreign markets.

Online selling is highly beneficial for SMEs. Surveying 3,250 SMEs in 11 countries, Boston Consulting Group finds that SMEs that are heavy web users have a vaster market – they are almost 50 percent likelier to sell products and services outside of their immediate region. They are also 63 percent likelier to source products and services from farther afield – in other words, the web tools them to shop around for the best deal.

E-commerce spells death to geographic distance which for centuries has curtailed visibility, trust, and trade between buyers and sellers located far apart. Though world trade is increasingly generated bottom-up by thousands of small businesses and entrepreneurs trading online, many parts of the world have yet to get connected to the web. Even some of the better connected emerging and transition economies have yet to leverage the web in full, lagging behind the social and economic gains that advanced economies have scored from the internet. In addition, digital protectionism, censorship, poor online payments systems, and arcane customs procedures all limit the spread of e-commerce.

New investments and smart technical assistance are needed to overcome these challenges and to accelerate emerging and developing nations’ transition to the digital era. Such efforts should usefully be grouped under a new, coherent initiative, “Aid for eTrade.” Aid for eTrade should be a concerted public-private initiative to channel US$100 billion in e-commerce-related investments in the developing and emerging world in 2016-2020.

The annual Aid for Trade funding has grown by 80 percent since 2005 – but IT-related investments make up only 1.2 percent of the total. Given the catalytic potential of online trade, even modest pro-e-commerce investments could yield great gains. But unless a stand-alone initiative, Aid for eTrade risks being overshadowed by the traditional focus areas of Aid for Trade.

The timing for Aid for eTrade is excellent. It can ride on the momentum of mega-regional FTAs, and be piloted in the context of the Trans-Pacific Partnership (TPP), a group composed of aid recipients and leading donors; and/or as a collaborative pilot in the Trans-Atlantic Trade and Investment Partnership (TTIP), so as to bolster the Eastern European economies’ so-far limited gains from the web.