Examination of Witnesses (Questions 360-366)
Ms Patricia Francis and Mr Rajesh Agarwal
10 JULY 2008
Q360 Lord Woolmer of Leeds: You talked
about the importance of infrastructure and some of the witnesses
before us have talked about the positive impact of liberalising
financial service markets in developing countries to have more
competition in providing financial services, and legal services
and so on. Do you agree that in the area of financial and other
services this is an area where liberalisation could be of assistance
to SMEs to help encourage both their domestic and export production?
Ms Francis: I think it is more than financial
services because in our experience we have seen that something
like telecommunications is critical for the competitiveness of
enterprises. When we look at the infrastructure which is necessary
we have seen huge improvements where infrastructure has been put
in place and the services associated with trade facilitation actually
allow for greater levels of efficiency. I would want to go beyond
financial services, but I would want to put a caveat on that.
Financial services which are liberalised without a proper regulatory
environment are doomed to failure, and we have seen many examples
of this across the world where there have been huge investments
in liberalised financial services, no regulation and then the
normal greed syndrome comes into play and all of a sudden financial
institutions are in businesses that they ought not to be in, and
then you have a collapse. It is important that before any huge
liberalisation takes place, a proper regulatory environment is
critically important for the functioning of a good financial services
sector. That is a prerequisite, to have the prudential mechanisms
in place to be able to ensure the financial sector functions well,
whether it is banking, insurance or whatever other mechanisms.
It is also important in any liberalisation process to have good
competition policy in place, to have a mechanism where consumers
can have some recourse. All of these things are critically important.
It is not, "Let's liberalise and tomorrow everything will
be rosy". Liberalisation is great and our small and medium-sized
enterprises are pushing for it, and in many cases pushing without
understanding you also need these other safeguards. It is only
when the bank has crashed with their money in it that they realise
maybe they should have had the safeguards in place first and then
put the liberalisation on top of that, or in parallel. These things
take time to work.
Q361 Lord Woolmer of Leeds: That
almost sounded like saying, "Yes, SMEs would like this, but
there are lots of reasons why we should not liberalise".
Ms Francis: Oh, no.
Q362 Lord Woolmer of Leeds: Let me
push you on that. As you said, you are a very practical organisation.
How do you get the kind of improvement in financial, legal and
other service areas that SMEs really do need in many of the countries
in which you work? How do you get those improvements and work
to ensure at the national level that the arguments about, "It
must not be done too fast. Be very careful, you could have crashes",
and overcome strong domestic objections to any liberalisation
at all? In many a country in which I have worked, frankly, there
have not been big issues of big crashes and that kind of thing—you
used very dramatic language—there has been strong resistance
to getting any kind of liberalisation of services at all and SMEs
have not had the kind of access to facilities and services they
need.
Ms Francis: If I gave the impression
that I did not believe in liberalisation, it was certainly the
wrong impression. I would like to correct that. Not only do I
personally believe in it, but the organisations that we interact
with very much desire to have this competition in the marketplace
because in many cases what you are dealing with are cartels and
pricing becomes exorbitant for the entities that we are dealing
with. Access is non-existent for many of the entities we are dealing
with. We believe that the two things need to happen in parallel.
It is ensuring that we have the kind of public-private dialogue
that we have that does always bring out this question in most
of the countries that we are working in. In most of the countries
we are working in, access to finance is one of the biggest issues.
I just want to make sure that liberalisation does not take place
without regulation. That was the point I wanted to make.
Q363 Lord Woolmer of Leeds: Absolutely.
Ms Francis: I was involved in a process,
unfortunately it was against a British company, Cable and Wireless,
which had a huge monopoly. I am from the Caribbean and I was involved
in an advocacy role to try and break the monopoly in telecommunications.
At the end of the day everybody, even Cable and Wireless themselves
who came to the table at the end of the day and voluntarily agreed
that liberalisation was important, posed all the arguments as
to why this was important. We spoke about what was happening in
other countries, what the pricing was in other countries, what
it would mean to jobs and competitiveness. From everywhere we
have been able to see liberalisation of services has had a huge
impact on the competitiveness of the economies that we have been
working in. In fact, from one of the dialogues that we have been
involved in, which is fostering trade through public-private dialogue,
moving goods, services and people across borders, one of the things
that came out of that was a liberalisation of delivery services,
having the private sector involved, and what opportunities that
provided immediately for the private sector. That is something
we put 100 per cent of our weight behind. Basically, we have these
public-private dialogues on various issues. I would be happy to
give you some of these documents which show what comes out of
this public-private dialogue. We are teaching people advocacy
skills, but advocacy skills based on solid research so that when
governments are made to listen on solid numbers, they cannot refuse
to listen. It is building that skill set in the public and private
sector organisations to be able to fight the oligarchy, so to
speak, which is where we think the emphasis should be, because
it is only through broadening the public voice that you can finally
whittle down, whittle down and break the monopolies that exist.
Chairman: Thank you very much. Ms Francis, I
am conscious that we are trespassing on your time. If you have
another five minutes, Lord Haskins has another question and I
would like Lord Trimble to ask a question.
Q364 Lord Haskins: It seems to me
the gist of what you are saying all the time is that the world
trade agreements are important but only part of a much more complicated
pattern. I am a farmer, so I think I understand a bit about this,
and one example I give is a farmer in Africa who wants to take
advantage of new markets, open markets, and the high prices that
exist for food at the moment, but he cannot do it because he cannot
borrow the money to buy the fertiliser to put in the ground to
get the crop, he does not have the asset base to do that. Some
of these countries actually disapprove of this fertiliser being
applied, so it is even more difficult because he may be working
against the system. It is all about banking and financial services.
How do we create a basis upon which those types of businesses
can borrow?
Ms Francis: It is a long process. I did
not answer part of your question about the legal framework. If
this farmer were able to actually find a buyer then in most developed
countries you would have a factoring mechanism and he could discount
in some kind of legal agreement, purchase agreement, and would
normally be able to do that in a place where banking was properly
developed. In the absence of that kind of thing, and Ethiopia
is a good example, the last time I was there we were meeting with
the Chamber of Commerce and the banking regulations there mean
you have to transfer 100 per cent of the money before they give
you the export permit. If you have had a longstanding relationship
with a company and they trust you then, indeed, they will be happy
to wire transfer the money for you, but can you imagine some of
the little companies we are working with, it is absolutely impossible,
so they cannot make the sale. They have the orders, they can produce
it, but how do you make this transaction happen? We are working
with the African Development Bank and a bank called Ecobank which
has branches in many countries across Africa and we have been
trying to train the people in the banks to understand risk because,
of course, understanding risk is one of the first steps in being
able to lend. While we might be able to have some impact in a
few countries where there is a borrowing mechanism, a little organisation
like ITC cannot be the solution for the person in Ethiopia. However,
consistently putting the discussion on the table in a coherent
way in a forum where these issues are being discussed, if it is
said over and over again, eventually there will be some movement
on it. A country like Ethiopia coming into the WTO is a huge step
in the right direction for the private sector because all of a
sudden there are obligations which have to be put in place. I
recall at one of our annual meetings there was someone there from
the Oman Export Development Agency and he said that joining the
WTO was the greatest thing because it was an excuse to move forward
on all of the business environment things that they had had on
the agenda for a long time. Before they had been blocked but because
the government had to sign up to the agreement, had to step up
to the table on all of these issues and sign off on them, it then
allowed the private sector to push and cause these things to move
faster than perhaps they would have.
Chairman: I think that is phenomenal. We have
seen that with people joining the European Union, in fact.
Q365 Lord Trimble: There is a lot
of pessimism with regard to the Doha Round. If it fails, what
next? What impact would failure have on the World Trade Organisation?
Ms Francis: The WTO has demonstrated
that in many of these disputes that we think about that have happened
around the world, they have an effective mechanism to deal with
these. If we think about the US and steel, that is probably a
very good example of where they have been very effective. There
are many more that we could go on and speak about. The Doha Round
is a hugely ambitious Round. It is talking about cultural change,
behavioural change, things which are really quite radical for
the people both in the developing and developed world. It is asking
people to make certain sacrifices for the good of all. If it were
to fail then there are certainly many things which the WTO would
still be very relevant to and trade disputes is one of them. I
do not think globalisation is going away, let me put it that way,
and therefore the relevance of the WTO is still important.
Q366 Lord Trimble: I take your point
about the dispute resolution in which the WTO has a very valuable
role, although some people worry that if Doha fails in some respects
that might undermine the dispute resolution procedures. Has the
WTO reached a position with regard to its size and the complexity
of the issues that the sorts of Rounds we have had in the past
are no longer possible, or is that too speculative?
Ms Francis: That sounds like a lengthy
discussion.
Chairman: Since Ms Francis has already been
with us for ten minutes longer than we asked, perhaps we will
leave it for discussion later. Thank you very much for coming,
it has been enormously helpful, and the kind of evidence we have
not heard before about the detail of getting trade to work, which
I am very glad to have heard. Thank you very much.
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