Trade in goods

SIDS have some common characteristics regarding trade in goods. Most SIDS are net importers of goods and many have proportionally high exports in primary commodities, but country variation is high. SIDS share common challenges, but also differ significantly regarding the factors in their favor, such as, the commodities they can export. Categorizing SIDS according to geographical location does not reveal clear patterns.

Varying importance of trade for the island economies

The trade-to-GDP ratio measures the importance of trade for the economy and is often used to assess the economy’s openness for international trade. The ratio varies widely in the economies of the world, and across SIDS (see figure 1).

SIDS’ merchandise imports over GDP ranged around a global median of 33 per cent, except for Nauru (74 per cent) and Seychelles (67 per cent) that had relatively high imports of goods in comparison with GDP.

On the contrary, the exports of goods as a share of GDP are low for many SIDS, sometimes considerably below the global median of 21 per cent. Exceptions were Trinidad and Tobago, Solomon Islands, Seychelles, Nauru and Marshall Islands who all exported goods valuing more than 25 per cent of GDP. It should be noted that SIDS export, on average, more services than goods (see Trade in services ).

Figure 1. Distribution of economies by imports and exports ratio to GDP, 2019 Figure 1. Distribution of economies by imports and exports ratio to GDP, 2019
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Merchandise trade involving SIDS is, on a global scale, small. On average, between 2017 and 2019, only about 0.3 per cent of globally traded goods were exported to SIDS and only 0.1 per cent were imported from them. Geographical proximity facilitates trade in goods, as evidenced by the fact that 18 out of the top 20 economies that import the most from SIDS relative to their total imports are SIDS or other neighboring islands states (see map 1).

Map 1. Imports of goods from SIDS as percentage of total imports of the economy, 2017 – 2019
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Intra-trade among SIDS is relatively large. Even if SIDS are not big importers, 7 per cent of SIDS’ goods exports had another SIDS as destination and almost 4 per cent of SIDS’ imports came from another SIDS. Again, geography matters. Of the total SIDS merchandise exports of US$ 16 billion in 2019, only 7 US$ million (or 0.04 per cent) travelled across geographical SIDS regions (e.g. from Caribbean SIDS to Pacific SIDS). The SIDS in the Atlantic and Indian Ocean are spread out geographically and formed the group with the least intra-group trade (see figure 3). The strength of bilateral goods trade relations is also associated with the level of liner shipping connectivity (see Fleet, connectivity and port calls). Currently trade logistics are experiencing challenges due to the ongoing COVID-19 pandemic -—
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Figure 2. SIDS merchandise exports, 2019, by origin and destination Figure 2. SIDS merchandise exports, 2019, by origin and destination
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Notes: Rest of the world includes other SIDS.

Several SIDS are increasing their exports of goods, but some are falling behind the rest of the world.

The exports and imports of SIDS, as for global merchandise trade more generally, develop in cycles. Amidst the global financial crisis, global trade troughed in 2009. Another notable decline was experienced in 2016 that coincided with a low point in commodity prices. This was followed by a subsequent recovery in 2018. For SIDS however, the recovery was weaker, and exports did not return to the levels experienced prior 2016 slump.

While the longer-term trend of global trade has been slightly positive, SIDS’ exports have experienced an overall decline since the beginning of 2010. SIDS imports of goods have developed in tandem with global trade, but exports have been more volatile and more closely resembled the development of commodity prices (see figure 3).

Figure 3. Value of trade in goods in SIDS and the world, and commodity prices Figure 3. Value of trade in goods in SIDS and the world, and commodity prices
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Notes: Rest of the world includes other SIDS.

The recent trends in international merchandise trade are more encouraging for some SIDS than others. As a group, the volume of imported goods increased by around 1 per cent from 2015 to 2019, whereas the volume of exports decreased by around 17 per cent. The SIDS for which data are available can be said to form three broad groups regarding the development of goods exports from 2015 to 2019 (see figure 4).

The SIDS in one group have not kept pace with the world and their exports of goods have in fact decreased both in value and volume terms from their 2015 levels. In volume terms, by 2019 exports had decreased to 88 per cent for Cabo Verde and to only 31 per cent for Saint Lucia compared to 2015. Out of the nine SIDS in this group, seven are Caribbean. A decrease to 73 per cent of 2015 levels for the relatively big exporter Trinidad and Tobago explain a large share of the decrease for SIDS as a group.

The second group has in broad terms increased their goods exports at the same pace as the world median in value terms and outpaced it in volume terms. The volume in 2019, in percent of 2015 levels, ranged from 106 for Palau to 133 for Vanuatu. Maldives breaks out from the rest of this group in value terms. Out of these fifteen SIDS, eight are Pacific SIDS.

The third group is made up of two extreme values: Nauru in the Pacific and the Comoros in the Indian Ocean. Both economies had uncharacteristically low levels of goods exports in 2015 but by 2019, Nauru had increased the volume of goods exports to 3.5 times 2015 levels and the Comoros to more than 5.5 times. In both cases the volume increase was bigger than the increase in value.

Figure 4. Volume and value of exports, 2019 Figure 4. Volume and value of exports, 2019
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Note: The cross represents the median among economies for which data are available in -—
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. Countries below 100 have decreased from 2015 levels, and above 100 increased. Indices for two SIDS are outside the scale of the figure: Nauru (Volume index 363, Value index 317) and the Comoros (Volume index 574, Value index 290).

Fish and ships: SIDS export primary commodities, but also some manufactured goods

As noted above, SIDS run a trade deficit, i.e., they import more goods than they export. Trinidad and Tobago was the only SIDS with a positive merchandise trade balance between 2017 and 2019. In 2019, that trade surplus amounted to 49 per cent of the value of imports. SIDS with modestly negative balances were the Solomon Islands (-12 per cent) and the Marshall Islands (-15 per cent). For 24 other SIDS, the deficit ranged from 55 to almost 100 per cent of imports. SIDS, as a group, depended on imports especially of manufactured goods and food; their exports showed a large proportion of primary commodities (see figure 5).

Figure 5. Value of merchandise trade for SIDS by product type, 2017 - 2019 Figure 5. Value of merchandise trade for SIDS by product type, 2017 - 2019
(Annual average in US$ billions)
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Note: Product groups are defined according to SITC. All food items includes SITC groups 0, 1, 22 and 4; Agricultural raw materials include SITC 2 excluding 22, 27 and 28; Fuels includes SITC 3; Ores and metals includes SITC 27, 28 and 68; and Manufactured goods includes all SITC 5 to 8 excluding 667 and 68.

As figure 6 shows, eighteen out of the 28 SIDS are primarily raw material exporters. The majority of SIDS, especially those in the Pacific and Indian Ocean, exported food in much greater proportions than the world average during the period from 2017 to 2019. In the Federated States of Micronesia, Kiribati, Maldives, Tonga, Tuvalu and Cabo Verde the proportion of food in merchandise exports is above 70 per cent. Not surprisingly, a large share of food exports is accounted for fish, crustaceans, molluscs and preparations thereof. For all mentioned SIDS, except Tonga, this category alone stood for 70 per cent or more of exports. That SIDS have a comparative advantage in exporting seafood, confirmed by RCA scores above one among 17 SIDS for fish and among 12 SIDS for crustaceans -—
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A few SIDS have highly specialized their exports towards primary commodities rather than food: the Solomon Islands on agricultural raw materials; Jamaica and Nauru on ores and metals; and Trinidad and Tobago, Saint Vincent and the Grenadines, and Timor-Leste on fuels. More specifically, two out of three dollars generated by export bills from the Solomon Islands comes from rough wood. Jamaica's and Nauru's ore exports consist almost exclusively of crude fertilizers. In Timor-Leste, 35 per cent of merchandise exports and in Saint Vincent and Grenadines 41 per cent are represented by petroleum and in Trinidad and Tobago 50 per cent of exports are made up of natural gas and petroleum, in equal parts -—
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Figure 6. Export structure by product type, 2017 – 2019 Figure 6. Export structure by product type, 2017 – 2019
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Notes: Economies are ordered according to geographical region and the share of primary commodities in total merchandise exports.
Product groups are defined according to SITC. All food items includes SITC groups 0, 1, 22 and 4; Agricultural raw materials include SITC 2 excluding 22, 27 and 28; Fuels includes SITC 3; and Ores and metals includes SITC 27, 28 and 68. Other codes are included in the group Manufactured good and other.

Caribbean SIDS export more manufactured goods than Pacific and Indian Ocean SIDS– some at a proportion similar to or higher than the global average. These comprise Antigua and Barbuda, Saint Lucia, and Dominica. Their manufacturing exports, like those of the Marshall Islands in the Pacific, consist largely of ships, boats and floating structures. These products are especially important for the Marshall Islands, where in 2019 they made up 88 per cent of all goods exports, but also for Antigua and Barbuda (47 per cent), and Saint Kitts and Nevis (17 per cent). Ten other SIDS also have a comparative advantage for exports of ships and boats. In Dominica, 42 per cent of merchandise exports consist of soaps, cleansing and polishing preparations. -—
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Commodity prices driving the trade bill

Dependence on commodities for exports is a source of trade vulnerability and is associated with slower economic growth over time. According to a definition previously used by UNCTAD an economy is considered commodity dependent when 60 per cent of its exports in goods are primary commodities. This puts the majority of SIDS in this category. One of the vulnerabilities is exposure to commodity price volatility -—
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As can be seen from figure 3, the evolution of international merchandise trade in value and that of commodity prices are related. Movements in one variable can be predicted from changes in the other and both are related to global economic activity -—
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. Demand for commodities is more elastic than their supply which means that a decrease in commodity prices not only reduces the unit value of commodity exports but often reflects a reduced volume demand for the commodity -—
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. Given that SIDS’ exports are heavily geared toward primary commodities, these relationships help explain the pattern in figure 3 where SIDS exports over the last 15 years more closely follow the movements of commodity prices than either the SIDS imports or the World exports do.

The correlation coefficients in table 1 confirm that commodity prices are an important determinant of the development of SIDS' earnings from exports, especially for those SIDS highly specialized on a particular commodity. The value of SIDS' imports , although seldomly dominated by a single commodity group, are in many cases even more strongly affected by commodity price fluctuations than exports.

Table 1. Correlation between changes in commodity prices and changes in SIDS' external trade, 2009-2019
Commodity groupShare in merchandise
imports/ exports
(2018-2019)
ImportsExports
Number of SIDSCorrelation coefficient1Number of SIDSCorrelation coefficient2
FoodLess than 50%280.61140.68
50% or higher-/140.50
Agricultural raw materialsLess than 50%280.41270.24
50% or higher-/10.76
FuelsLess than 50%280.66270.50
50% or higher-/10.88
Minerals, ores, metalsLess than 50%280.44270.32
50% or higher-/10.91

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Notes:

  1. Median correlation coefficient between the annual percentage change of commodity prices and the annual percentage change of merchandise imports (based on 3-year averages).
  2. Median correlation coefficient between the annual percentage change of commodity prices and the annual percentage change of merchandise exports (based on 3-year averages).

The SIDS with 50 % or more of their merchandise exports in a given commodity group are for food: Cabo Verde, Comoros, Fiji, Grenada, Kiribati, Maldives, Federated States of Micronesia, Palau, Samoa, Sao tome and Principe, Seychelles, Tonga, Tuvalu, and Vanuatu; for agricultural raw materials: Solomon Islands; for fuels: Trinidad and Tobago; and for minerals ores and metals: Jamaica.

Figure 7 depicts the impact of changes in prices of specific commodity groups on total merchandise exports of the SIDS that are highly specialized on those commodities, over the last 15 years.

Figure 7. Commodity prices and merchandise exports of highly specialized SIDS Figure 7. Commodity prices and merchandise exports of highly specialized SIDS
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In the Solomon Islands, a country with high exports of wood (see above), an initial surge of merchandise exports came to a halt in 2011 when the prices of agricultural raw materials started declining. The exports of the Bahamas and, to a lesser extent, of Trinidad and Tobago, both primarily export oil or gas, corresponded closely with the upswings of fuel prices from 2009 to 2011 and from 2016 to 2018 as well as their downswing from 2014 to 2016, whereas the exports of Saint Vincent and the Grenadines remained almost unaffected by those fluctuations, according to the reported data. The exports of Timor-Leste, another mainly oil exporting SIDS, showed an atypical development, not shown in the figure, due to rocketing oil exports to Singapore and China in recent years. The cyclical movements of the prices of minerals, ores and metals – which strongly resembled the movements of prices of fuels and of the UCPI as a whole – were led to almost simultaneous ups and downs of the Jamaican merchandise exports.

References
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