SIDS trade vulnerabilities

Introduction

From a macroeconomic perspective, the concept of vulnerability was first highlighted by the Maltese Ambassador to the United Nations, on 26 June 1990, during a meeting of Government Experts of Island Developing Countries and Donor Countries and Organizations, held under the auspices of UNCTAD. The Maltese Ambassador suggested in his presentation the construction of a vulnerability index, stating, inter alia, that such an index "is important because it reiterates that the per capita GDP of Island Developing Countries is not by itself an adequate measurement of the level of development of island developing countries as it does not reflect the structural and institutional weaknesses and the several handicaps facing Island Developing Countries". ¹ -—
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Briguglio -—
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—- pioneered the study of economic vulnerability in SIDSsmall island developing States (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992.
More information on UNCTAD official page.. Briguglio et al. -—
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—- defined economic vulnerability “as the exposure of an economy to exogenous shocks, arising out of economic openness.” Guillaumont -—
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—- describes vulnerability as a dynamic process, considering it to be “the risk that economic growth [in a given country] is markedly and extensively reduced by shocks.” He further developed the concept of the vulnerability of a country by examining its three components: the size and frequency of exogenous shocks (observed or anticipated), exposure to shocks and the ability to respond to shocks -—
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At the Barbados Conference on Sustainable Development of Small Island Developing Statessmall island developing States (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992.
More information on UNCTAD official page. held in 1994, SIDS expressed concern over their levels of vulnerability. The Conference recommended “the development of vulnerability indices and other indicators that reflect the status of small island developing countries and integrate ecological fragility and economic Vulnerability” ². A measure of structural vulnerability of developing countries (EVIEconomic vulnerability index (EVI): Economic vulnerability can be defined as the probability that a country's economic development may be hampered by unforeseen exogenous shocks -—
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—- which is one of the three criteria for the identification of the Least Developed Countries. It was also proposed as a criterion for the allocation of official development assistance.) has been defined by the ECOSOCEconomic and Social Council (ECOSOC) CDPCommittee for Development Policy (CDP), until 1998 the Committee for Development Planning -—
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—-. and was applied for the first time in 2000, as a criterion for identifying LDCsLeast developed countries (LDCs) are low-income countries confronting severe structural impediments to sustainable development. They are highly vulnerable to economic and environmental shocks and have low levels of human assets -—
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—-., along with GNIGross national income (GNI) is equal to GDP less primary incomes payable to non-resident units plus primary incomes receivable from non-resident units. In other words, GNI is equal to GDP less taxes (less subsidies) on production and imports, compensation of employees and property income payable to the rest of the world, plus the corresponding items receivable from the rest of the world. -—
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—- per capita and a HAIHuman Assets Index (HAI) is a summary measure of the level of human capital. It is composed of six indicators with each indicator carrying an equal weight. It comprises the under-five mortality rate, prevalence of stunting, maternal mortality rate, gross secondary school enrollment ratio, adult literacy rate and gender parity index for gross secondary school enrollment.-—
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—-. This composite index takes into account economic and natural shocks, as well as the determinants of exposure to shocks. A distinction should be made between structural vulnerability, which results mainly from external or natural shocks and the “vulnerability deriving from policy, which results from recent choices” -—
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—-. This chapter analyses trade vulnerability and, therefore, refers to a version of EVI that gives more weight to the instability of exports. In other chapters an equal weighted EVI is used as illustrated in Figure 1 of What makes a SIDS a SIDS (see also Country profiles).

According to the EVI, SIDS are 33 per cent more vulnerable to external shocks with economic consequences than developing countries excluding SIDS, and over 12 times more exposed to oil-price related shocks -—
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Map 1 shows that, on average, EVI, here jointly calculated and updated regularly by FERDIFondation pour les études et recherches sur le développement international (FERDI)³ and UNDESAUnited Nations Department of Economic and Social Affairs, is higher for SIDS compared with other developing countries.

Among SIDS, the most vulnerable are those that are least developed, as compared with the higher income SIDS (figure 1). In 2018, Pacific SIDS, including Tuvalu (76.5), Kiribati (76.3), Marshall Islands (65.5), Palau (62.3) and Tonga (58.9), were identified as having the highest vulnerabilities according to the EVI, compared with other developing economies. Barbados and Mauritius exhibited the lowest vulnerability, scoring 24.3 and 26, respectively.

Figure 1. Economic vulnerability of LDC and non-LDC SIDS, 2018

(Economic vulnerability index)

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Openness to trade

SIDS’ economies are more open to trade than other developed countries and LDCs, as demonstrated by a relatively high share of trade in goods and services in GDPGross domestic product (GDP). Openness to trade is not the cause of their economic vulnerability per se, but rather provides “the means through which the effects of exogenous shocks are amplified and transmitted to the domestic economy” -—
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—-. In other words, the degree of trade openness might explain slowdowns in export revenues, but the scale of impact depends largely on the degree of export concentration of products and markets.

The high level of trade openness exposes SIDS to greater market fluctuations than other developing economies. Briguglio et al. -—
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—- note that this openness makes SIDS particularly vulnerable to external economic conditions, over which, they have no direct control. The smaller the size (population) of the country, the higher the trade to GDP ratio, and the greater the impact of external (trade and exchange-rate related) shocks, such as, fluctuations of commodity prices, slumps in external demand, and international interest rate volatility. Foxley -—
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—- argues that export-led production structures expose countries to external shocks more than production structures focused on domestic demand.

Figure 2 shows that trade flows, expressed as the average of sum of exports and imports of goods and services relative to GDP for the period of 2005-2019, are far higher in SIDS than in all other developing economies, transition economies, LDCs and LLDCsLandlocked least developed countries (LLDC). For the SIDS, this indicator averaged 95 per cent. The equivalent numbers for all developing countries, transitions economies, LDCs and LLDCs were 65 per cent, 59 per cent, 57 per cent and 68 per cent, respectively.

Figure 2. Trade flows relative to GDP by groups of economies

(Percentage of GDP, average 2005-2019)

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Note: This index measures the relative importance of international trade in goods and services (sum of exports and imports) relative to the domestic economic output of an economy.

SIDS’ trade in goods is particularly volatile compared with other developing countries, as demonstrated by table 1. The coefficient of variation for SIDS’ trade in goods relative to GDP for the period from 2005 to 2019 is 53.9, compared to those for all developing economies and LDCs, of 37.6 and 16.3, respectively.

Variations in the levels of trade openness among SIDS are illustrated in figure 3. The decline in trade volumes in 2019 reduced the degree of export dependency in SIDS, with the exception of Pacific SIDS. The fall in the trade-to-GDP ratioTrade-to-GDP ratio can be calculated for exports, imports and the sum of exports and imports as percentage of GDP. was largest in Caribbean SIDS (from 101 per cent in 2008 to 82.2 per cent in 2019), followed by Atlantic and Indian Ocean SIDS (from 122 per cent in 2008 to 107.1 per cent in 2019).

In 2019, Atlantic and Indian Ocean SIDS were more open to trade, driven by Seychelles (205.1 per cent), Maldives (136.7 per cent), and other tourism-dependent SIDS. However, for this group of SIDS, trade openness narrowed in the 2012-2019 period, reaching 107.1 per cent in 2019, the lowest level since 2005. Only one country in the region, the Comoros, has constantly exhibited lower openness compared to other SIDS, averaging below 40 per cent.

For Caribbean SIDS, trade openness has generally trended down since 2012, reaching its lowest level among all SIDS regions in 2019 (82.2 per cent). Nonetheless, several countries had trade-to-GDP ratios exceeding 100 per cent, such as Antigua and Barbuda (132.8), Saint Kitts and Nevis (121.2) and Saint Lucia (111.8).

Pacific SIDS were less open than other SIDS owing to their remoteness, poor infrastructure and low competitiveness. However, their trade openness has increased by 22 per cent over the period of 2012-2019 to reach 89.3 per cent in 2019.

Figure 3. Trade openness of SIDS, 2005-2019

(Percentage)

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Note: This index measures the relative importance of international trade in goods and services (sum of exports and imports) relative to the domestic economic output of an economy.

Net trade in goods and services – SIDS' trade balance

High trade openness in the SIDS contributes to magnifying the effect of terms of trade shocks. Some SIDS are heavily dependent on strategic imports of goods and services, such as energy, fuels, food, industrial supplies and emergency health care. While revenues from tourismTourism refers to the activity of visitors -—
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—-. International tourism expenditure is often approximated by the sum of travel services and transport of passengers, reported under balance of payments statistics (see Trade in services). Transport of passengers not considered, tourism represents a subset of travel, as some travelers, such as border-workers, travel for regular work, as they are holding employment contracts outside their usual residential environment. Activities of border-workers and similar travelers do not belong under tourism. -—
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—- and other sources have tended to decrease since 2013, the fixed costs of import fuels, foods and other necessities have remained constant. As illustrated in figure 4, the overall trade deficit of goods and services has increased in the SIDS since 2005 rising from US$1.7 billion to US$6.6 billion by 2019, i.e., an increase of about 3.9 times.

Figure 4. Net trade balance, SIDS

(Goods and services, US$ billions)

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SIDS rely heavily on tourism. In 2019, SIDS exported more than 20 US$ billions of travel servicesWithin the balance-of-payments classification of services, travel services cover goods and services - for own use or to give away - acquired from an economy by non-residents during visits to that economy. In this context, travel does not include passenger transport. -—
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—-., which represents 50 per cent of total exports of goods and service together. By contrast, more than 20 US$ billions of imports of manufactured goods were recorded in 2019, which represent 40 per cent of the total value of imports making SIDS net importers of that product worth -14.5 US$ billions. SIDS are net importers of many other products, including machinery and transport equipment with a net trade of -8.2 US$ billions, primary commoditiesPrimary commodities are goods where all, or almost all, of the value-added during production has been generated by the primary sectors of the economy i.e. primary commodities are largely unprocessed or unrefined. -—
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—- (-6.9 US$ billions) and basic foods (-3.6 US$ billions). (See figure 5.)

Figure 5. SIDS net exports and imports, by product

(Millions of US$)

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Note: Product groups are defined according to SITCStandard International Trade Classification (SITC). Ores and metals include SITC 27 + 28 + 68; Chemical products SITC 5; Fuels SITC 3; Primary commodities, excluding fuels from SITC 0 to 2 + 4 + 68; Food, basic SITC 0 + 22 + 4; All food items SITC 0 + 1 + 22 + 4; Other manufactured goods SITC 6 + 8 excluding 667 and 68; Primary commodities SITC from 0 to 4 and 68; Machinery and transport equipment SITC 7; and Manufactured goods includes all SITC 5 to 8 excluding 667 and 68.

According to the available data for individual SIDS, only four ran a trade surplus in 2019: Antigua and Barbuda, Grenada, Saint Vincent and the Grenadines, and Trinidad and Tobago, and only one country, Trinidad and Tobago, had a trade surplus for the whole period from 2005 to 2019 (figure 6).

Figure 6. Net trade balance selected SIDS, 2019

(Goods and services, Millions of US$)

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Note: Latest available year for Comoros, Kiribati, Micronesia (Federated States of), Nauru, Vanuatu and Tuvalu.

Product and market concentration in SIDS

SIDS’ exports are highly concentrated in terms of products exported and their markets. Exports from SIDS in 2019 were almost twice as concentrated on a few products as exports from developing economies, and 3.5 times more diverged from the developing countries’ trade pattern. In 2019, the concentration index was 0.180 for SIDS and 0.095 for developing economies, and the diversification index stood at 0.06 and 0.187, respectively. Moreover, SIDS tend to lack competitive export products that could improve the performance of the entire economy, as their small domestic markets do not offer sufficient economies of scale to support large enterprises -—
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—-. Consequently, average import and export prices may fluctuate to a larger degree than in countries with more diversified trade patterns, leading to increased exposure to external shocks.

Mohan (2016) presents a comprehensive literature review of the various inherent features of small economies responsible for their limited abilities to diversify. For example, she underlines Krugman's -—
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—- findings which show that the narrow domestic markets of the Caribbean islands and their limited capital and technology are responsible for the lack of the diversification in the region. Krugman -—
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—- argues that diversification is particularly challenging for small economies, the majority of which are ex-colonies, who were initially specialized in the production of primary commodities, which considerably impacts their degree of dependence on a single commodity. Gamberoni -—
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—-, citing the Lomé agreement ⁴, argues that preferential agreements have created disincentives for diversification. The Lomé agreement "has created an ‘anti-diversification’ effect in Africa, the Caribbean and the Pacific by encouraging specialization in agriculture exports” (Mohan, 2016, p.1). According to Vettas -—
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—-, Hausmann and Rodrik -—
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—- and Klinger and Lederman -—
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—-, externalities in the search for new export products might negatively impact developing countries’ ability to diversify. Mohan (2016), by examining the Caribbean SIDS, provides empirical evidence that diversification in this region is occurring primarily through a shift from primary commodities to existing low and medium-skill-intensive manufacturingManufacturing can broadly be understood as "the physical or chemical transformation of materials, substances, or components into new products" -—
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—-, consisting of section D in ISIC Rev. 3 -—
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—-., as opposed to new high-skill-intensive manufacturing.

Product concentration of exports is particularly high for the SIDS: With the exception of Fiji and Vanuatu, product concentration is notably high for Pacific islands, such as Marshall Islands (0.87), the Federated States of Micronesia (0.851), Kiribati (0.85), Tuvalu (0.70) and Solomon Islands (0.67). Caribbean islands, such as, Barbados, Saint Lucia, Grenada have the most diversified tradeable sectors among the SIDS (figure 7).

Figure 7. Product concentration of exports, 2019

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Note: Concentration index, also named Herfindahl-Hirschmann Index, is a measure of the degree of product concentration. An index value closer to 1 indicates a country's exports or imports are highly concentrated on a few products. On the contrary, values closer to 0 reflect exports or imports are more homogeneously distributed among a series of products.

Economic dependence can take different forms. For example, alumina and bauxite are Jamaica’s key export products, which together represent approximately half of its exports. Samoa’s exports of fish account for almost half of its total exports, which makes this tradeable sector particularly vulnerable to natural disasters. In 2013, for instance, Samoa’s total merchandise exports contracted by 18 per cent following Cyclone Evan that hit in 2012.

Approximately 30 per cent of Pacific SIDS's exports go to two (non-SIDS) countries: Australia and China. Seychelles is highly dependent on the European market (33 per cent of total trade and trade in servicesIn the international trade in services context, services are understood as the result of a production activity that changes the conditions of the consuming units or facilitates the exchange of products or financial assets -—
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—-. Following the balance-of-payments classification, trade in services refers to manufacturing services, repair services, transport, travel, construction, telecommunications, computer services, financial services, insurance, intellectual-property related and other business services, as well as personal and cultural services, and government services. - 67 per cent of GDP). Thailand is a major partner of the Federated States of Micronesia and Kiribati accounting for a high percentage of their respective total trade (50 per cent and 70 per cent) (see figure 8).

Figure 8. Market concentration of SIDS, by country

(Percentage of total exports)

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On average, 27 per cent of SIDS’ merchandise exports go to one trading partner, compared to 16 per cent in developing countries as a group (figure 9). This exposes SIDS to volatility in commodity prices, changes in exports demand and economic growth of main trading partners, which all adds to their vulnerability -—
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Figure 9. Market concentration of SIDS and developing countries exports, 2019

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Figure 10 illustrates that, in 2019, the Caribbean SIDS' exports were more homogeneously distributed among a series of products due to the lowest value of concentration index. The exports of Pacific SIDS, notably Kiribati, Micronesia and the Marshall Islands remained highly concentrated on a few products with concentration index closer to 1 and showed the greater divergence from word structure, with the diversification index greater than 0.8.

Figure 10. Export diversification and concentration matrix for SIDS, 2019

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While export flows are highly volatile, “the import demand of many small island economies is typically inelastic” -—
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—-. Briguglio et al. -—
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—- state that “there is a tendency for small states to be more vulnerable [because of strategic import-dependence] than other groups of countries”.

In 2019, food imports of SIDS accounted for more than 15 per cent of all allocated merchandise imports compared to the 8.4 per cent world average (figure 11). The share of food imports was the largest in Cabo Verde (31.6 per cent), Sao Tome and Principe (29.5 per cent) and Samoa( 25.6 per cent).

Figure 11. SIDS imports, by selected product groups, 2019

(percentage of total imports)

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Notes: 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. Non-allocated products are not considered.

Fuel imports are also significant and represented 22.7 per cent of total imports of SIDS in 2019. The majority of SIDS are increasingly dependent on imported fossil fuels, much of which is used for electricity generation and the transportation of commodities. Fossil-fuel-based electricity generation results in very high electricity costs in the SIDS. For example, the Solomon Islands has one of the highest electricity prices in the world, at US$0.99 per kilowatt hour -—
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—-. The average retail price of residential electricity in the Federated States of Micronesia is nearly four times higher (US$0.48 per kilowatt hour) than the average residential rate in the United States (US$0.13 per kilowatt hour) -—
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SIDS remain particularly vulnerable to global commodity price shocks. The high dependence on food, fuel and other essential goods imports increases SIDS’ exposure to volatility in the terms of trade. A shock to global food production and supply chains could translate to food price inflation for many SIDS.

Terms of trade

Global terms of trade remained relatively stable during the decade after the 2008-2009 financial crisis. In contrast, developed economies and developing economies had the opposite terms of trade trend during the last two decades. For transition economies, however, index trends were the most volatile, peaking in 2012 at 139 per cent. Among developing economies, the case of SIDS is unique. SIDS have diverse economic structures, and some rely mainly on natural resources. Due to their geographical locations, they all suffer from high transport costs (see section transport cost) which makes them more sensitive to high fuels price volatility, which in turn hampers resource allocation to other development actions.

Over the period from 2000 to 2019, developing economies recorded an increase of 8 per cent in their terms of trade, whereas for SIDS, the increase was 28 per cent. The relative price of exports to imports varied considerably between the SIDS. Caribbean SIDS recorded a 23 per cent increase, Pacific SIDS 8 per cent, and Atlantic and Indian Ocean SIDS just 3 per cent.

In 2002, developing economies and world terms of trade indices were respectively 88 and 98 per cent, and as low as 74 per cent in the SIDS. After the 2008-2009 financial crisis, terms of trade volatility reduced drastically in Atlantic and Indian ocean SIDS. It remained much lower than in other groups as shown in figure 12.

Figure 12. Terms of trade, by development status and in SIDS regions

(Index 2015=100)

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SIDS's terms of trade are driven by few countries, Trinidad and Tobago in the Caribbean and Mauritius in the Atlantic and Indian Ocean. The terms of trade for Antigua and Barbuda decreased more or less throughout the whole period from 2000 to 2019, recording the worst performance of the region, -48 per cent. Among the Pacific SIDS, the highest increase during the last two decades was recorded in Nauru and the lowest in the Solomon Islands. The increase even reached 36 per cent for Nauru during the period from 2000 to 2010, followed by a drastic decrease of 14 per cent from 2010 to 2019 (figure 13).

The Atlantic and Indian Ocean SIDS had the lowest increase in their terms of trade of any of the SIDS groups during the period from 2000 to 2019. Over the period from 2016 to 2019, their terms of trade decreased by 6 per cent, with the Comoros experiencing the largest decline (-46 per cent).

In 2019, Dominica and Mauritius had the highest annual growth (4 per cent), followed by the Federated States of Micronesia (3 per cent). However, Saint Vincent and the Grenadines saw the deepest decline (-16 per cent) followed by Trinidad and Tobago and the Solomon Islands with -11 and –8 per cent, respectively. Overall, the annual growth rate of the SIDS' terms of trade fell by 6 per cent.

Figure 13. SIDS terms of trade, by country

(Index 2015=100)

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Remoteness adds to SIDS' vulnerability

As islands, SIDS tend to be remote in multiple senses of the word. Figure 14 illustrates remoteness according to five different dimensions; distance to markets, distance to trading partners, maritime connectivity, air connectivity and digital connectivity.

Figure 14. SIDS remoteness indicators, 2019

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—-, ICAO, ITUInternational Telecommunication Union (ITU), and R package cshapes.
Notes: Scale has been inverted if necessary so that values to the right indicate a higher relative remoteness. Lighter colours also indicate a higher relative remoteness. Country groups are calculated as averages using total population as weights. Here SIDS refers to UN members -—
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—-. All data for 2019, except for digitial connectivity, which is calculated from the latest data available for each country (96% of countries corresponding to 2017 or more recent). The variables are defined as follows: (1) distance to markets: average minimum distance to all countries, weighted by GDP (in km), (2) distance to trading partners: average minimum distance to all countries, weighted by trade (in km), (3) maritime connectivity: linear shipping connectivity index (maximum 2006=100, inverted scale), (4) air connectivity: international flight departures (Yearly departures per 1000 population, inverted scale) and (5) digital connectivity: share of individuals with internet access (percentage, inverted scale).

In terms of distance to markets, SIDS are on average the farthest away of the six development groups (developed economies, developing economies, transition economies, LDCs, LLDCs and SIDS). Within SIDS, Pacific SIDS tend to be located the farthest from markets, with the six farthest SIDS all hailing from the Pacific region. Caribbean SIDS tend to be located closer to markets, owing to their proximity to large North and South American markets. The same story plays out regarding distance to trading partners, though the gap between SIDS and developing economies is somewhat reduced.

In terms of maritime connectivity, SIDS once again are the least connected among the development groups, excluding LLDCs. However, on this dimension, Caribbean SIDS do not sweep the top of the rankings, as Mauritius and Fiji, from the Indian and Pacific Oceans, respectively, also make it into the most connected SIDS. Air connectivity to SIDS is actually the highest among development groups. This is most likely due to the fact that, lacking an overland route, many trips must be taken by plane to SIDS.

Finally, digital connectivity is quite high in SIDS, ranking behind only developed and transition economies. Unlike the other dimensions of remoteness, digital connectivity is not constrained by geography and more a factor of development levels than physical proximity. This is a significant reason why many SIDS focus on services, many of which can be rendered remotely, rather than manufacturing in terms of their economic development. For further analysis of SIDS' remoteness, see -—
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Transport costs

The main factors of transport costs are economies of scale, trade imbalances, the type and value of goods traded, the level of competition among transport service providers, and the characteristics of the sea- and airports as regards their infrastructure, operation and management. These different determinants are interlinked. For SIDS, one of the major determinants of international transport costs remains remoteness. In fact, market structures, connectivity to transport networks and infrastructure availability and quality all play an important role -—
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—-. Commodity price fluctuations, like fuel for example, will have stronger impact on freight costs for longer distances. Often, SIDS, LLDCs, and LDCs spend more than average for international transport and insurance of their merchandise imports.

Figure 15. Transport costs of international trade

(Percentage of imports value)

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Note: Country-level estimates combining all modes of transport, all commodities, and all country pairs.

As shown in figure 15, SIDS pay approximately 7 per cent more for freight for the transport of their imports than the world average. This no doubt contributes to why SIDS have the highest value share (22 per cent) of imports, compared to the world average of 15 per cent. The relative figures for LDCs, LLDCs and developed economies are about 21 per cent, 19 per cent, and 10 per cent, respectively.

Importance of e-commerce and the digital economy growing in SIDS

Leveraging trade in ICT goodsICT goods are those goods that are either intended to fulfil the function of information processing and communication by electronic means, including transmission and display, which use electronic processing to detect, measure and/or record physical phenomena, or to control a physical process -—
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—-. and services for value creation may lead to significant employment opportunities, add value to GDP and generate foreign exchange earnings. However, few countries have been successful at exporting both ICTInformation and communications technology (ICT) goods and services or digitally delivered services -—
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Globally, exports of ICT goods are highly concentrated in a few economies, mainly from East and South-East Asia. The top-10 exporters accounted for almost 90 per cent of the total value of ICT goods exports in 2019 -—
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—-.⁵ Similar to most countries, exports of ICT goods by SIDS account for a relatively small share of their total merchandise exports. Between 2000 and 2019, this share has hovered between 0.5 and 3 per cent (figure 16). This was slightly higher than the LDC average, but much lower than the developing country average of around 20 per cent. The Atlantic and Indian Ocean SIDS showed a notable exception to the general trend, mainly driven by the exports by Mauritius. In 2019, exports of ICT goods accounted for 1.8 per cent on average, with only the Pacific SIDS registering a higher share at almost six per cent, mainly driven by exports from Fiji.⁶ Of all the SIDS, Saint Kitts registered by far the highest consistent share of ICT goods exports in recent years, averaging about 28 per cent between 2006 and 2017.⁷

Figure 16. Exports of ICT goods as a share of total merchandise exports

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In order to strengthen countries’ capacity to create and capture value in the digital economy, it is increasingly important to develop competitive domestic production of ICT servicesICT services are defined in the alternate aggregation of the ISIC Rev.4 as a component of the ICT sector and include software publishing, telecommunications, computer programming, consultancy and related activities, data processing, hosting and related activities, web portals, and repair of computers and communication equipment -—
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Figure 17. Exports of ICT goods as a share of total merchandise exports

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Note: No data available for SIDS from 2008–2010 and for Caribbean SIDS from 2005–2011.

Digitally deliverable services exports as a share of total services exports

With telecommunications and computer services becoming more easily available and affordable, services are increasingly tradable and possible to deliver remotely. This has given rise to an expansion of outsourcing and offshoring of a range of business services, lowering barriers and entry costs for businesses in developing countries to produce and export such services -—
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—-. Similar to ICT services exports, exports of digitally deliverable services by SIDS trail those of developing countries, and to lesser extent LDCs. Still, 8 out of 26 countries registered an average share of more than 20 per cent over the last decade and a half, and only four countries with less than 10 per cent. In the case of Pacific SIDS, the relatively low overall share in exports of digitally deliverable services is to a large extent due to the performance of Fiji, the biggest SIDS in the region for which data are available. In fact, most of Pacific SIDS registered average shares of between 10 and 20 per cent over this period, against 4 per cent by Fiji.

Figure 18. Full potential of digitally deliverable services not yet achieved

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UNCTAD B2C E-commerce Index highlights the need for support

The UNCTAD B2C E-commerce Index measures an economy’s preparedness to support online shopping by looking at Internet use, financial account ownership, availability of secure servers and the reliability of postal services -—
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—-. Unfortunately, data for SIDS in these areas is extremely limited and only 8 countries could be included in the 2020 edition of the index. Of the SIDS for which data are available, the Dominican Republic had the highest Index score (59.3), followed by Mauritius (58.4). Jamaica and Trinidad and Tobago also still scored above the average index value of 50. With an Index value of 12, the Comoros was the fourth lowest scoring country out of 152 countries in 2020. Limited data availability for SIDS and a relatively poor overall performance in the area of trade in the digital economy, underscore the urgent need for more technical assistance on e-commerce and financial inclusion, such as through the eTrade Readiness Assessments and other programmes that UNCTAD and its development partners provide (box 1).