APEC Bulletin 19 May 2024
Human Capital Investment: Key in Navigating the Shift from Informal to Formal Economy
By Ambassador Carlos Vasquez, APEC 2024 SOM Chair
Education and capacity building are key factors in reducing informality.
In order to ensure that all economic sectors may benefit from greater trade, inclusive trade works to reduce inequality, promote shared prosperity, and facilitate the transition to the formal economy.
In this sense, APEC can significantly contribute to the advancement of sustainable and inclusive trade and investment in the Asia-Pacific region by promoting trade policies and supporting technical cooperation and capacity building that value inclusivity, foster the transition to the formal economy, and remove trade barriers.
This is captured in the APEC Putrajaya Vision 2040 and the Aotearoa Plan of Action, which seek to foster quality growth that brings palpable benefits and greater health and wellbeing to all, including micro, small and medium enterprises (MSMEs), women, and others with untapped economic potential. Both establish that APEC economies should take collective action to “promote ecosystems that support MSMEs” and “promote MSMEs’ access to finance, global markets, and global value chains as well as assisting in building their capacity to effectively participate in the wider economy.”
In Peru, for example, foreign trade has become one of the main engines of economic growth, development and poverty reduction. Last year, we registered a new record in our exports, with more than USD 64 billion dollars. We had more than 9,300 exporting businesses, which exported goods to around 180 markets. This has been possible because Peru has maintained, for more than two decades, a trade policy based on openness and liberalization focused on promoting its participation into global markets and value chains.
However, we see that even though MSMEs represent 68 percent of the total exporting businesses, its participation in the total exported value was only 3.5 percent. Moreover, we see that only very few exporting MSMEs can sustain their exports for more than five consecutive years.
This shows that we need to keep working on strengthening the participation of MSMEs in global value chains, by reducing obstacles and increasing their capacities to engage in trade directly or indirectly. By doing so, we will also be promoting the transition to the formal economy.
Informality is the missing link of APEC’s inclusion agenda. The informal sector is one of the fundamental components of the social dimension of economic growth and development, which is the cornerstone of APEC year 2024, particularly in emerging economies.
According to the International Monetary Fund (IMF), about 2 billion people or 60 percent of the total employed population globally are in the informal sector. The IMF considers too that one third of the global economy is informal, affecting every economy in different ways and proportions.
The International Labor Organization states that 85 percent of informal workers are employed in small, informal enterprises characterized by lower productivity and slower physical and human capital accumulation.
Studies indicate that an improved access to quality education is probably the single most powerful way to lower informality. Informal workers are more low-skilled and, therefore, are paid less than formal workers.
The OECD points out that 45 percent of informal workers have at best a primary level of education, compared to 7 percent of those in formal employment, and 94 percent of workers with no education are informal and have very limited opportunities to upgrade their skills, perpetuating their informal condition.
Education and capacity building are key factors. We can improve our regulations in terms of tax system, labor and social protection, streamlined procedures to officially register companies and even enhance financial inclusion, but if the skills of the workers are not good enough, they won’t be able to be more productive.
The quality of human capital constitutes, in my view, one of the foundations to reduce informality and in this digital era, digital skills are fundamental. Enhancing human capital and capacity building, and harnessing innovation and digitalization as cross-cutting tools to promote the transition to the formal economy, are key elements that are instrumental to empowering our people.
The theme and priorities of 2024 are very rich and complex. Nonetheless, the cross-cutting concept is empowerment. If we don’t develop capacities and skills of the most vulnerable groups of our respective populations, it will be extremely difficult, not to say impossible, to include them in our formal and global markets and as a consequence we won’t be able to reach an equitable and sustainable growth.
Taking these into account, we proposed three priorities: Trade and investment for an inclusive and interconnected growth; digitalization and innovation for the transition to formal and global economy; and sustainable growth for resilient development. These three priorities are primarily focused on achieving practical results in terms of deliverables.
One, a new vision of FTAAP. Inclusive trade and digital economy are two of the possible approaches that are being discussed closely interlinked with informality. This will be a key component of the new vision of FTAAP that we will adopt. Similarly, the joint statement of women and trade will emphasize the empowerment of women by supporting digital literacy initiatives and capacity building programs for women-led SMEs, the majority of which are informal.
Two, the roadmap for facilitating the transition to a formal, global economy, which includes essential components that ought to be used in a comprehensive and cooperative manner. Among these are concerns about inclusive trade and investment.
Three, we aspire to adopt a set of principles to prevent and reduce food loss and waste. According to the FAO, one of the main causes of food insecurity in Peru is informality. To achieve the objectives of this deliverable, we need to promote capacity building and education among our farmers and the economic actors—many of whom are informal—involved in every step of logistic chain of food distribution.
Finally, the “Arequipa Goals,” the first deliverable of APEC 2024, include recommendations for empowering people with disabilities for sustainable and inclusive growth. Ninety percent of disabilities are in the informal sector and 50 percent of them don’t receive basic education. Goals for capacity building and education are key elements of this already adopted 2024 deliverable.
Each of these deliverables communicates with the others and, with proper implementation, ought to foster synergies. Education and capacity building as a means of empowerment are among the intersecting concerns. And that, in my perspective, is the unifying thread that gives each of these deliverable’s coherence.
***
Ambassador Carlos Vasquez is the SOM Chair for APEC Peru 202
APEC Trade Ministers Issue Joint Statement
Issued by the APEC Ministers Responsible for Trade Meeting
Arequipa, Peru, 18 May 2024
APEC trade ministers from 21 member economies issued a joint statement upon conclusion of their meeting in Arequipa on 17-18 May.
The statement reflects the outcomes of the 2024 APEC Ministers Responsible for Trade Meeting chaired by Peru’s Minister of Foreign Trade and Tourism Elizabeth Galdo.
In the statement, APEC trade ministers recognized that trade has been facing strong headwinds in recent times, and reiterated their commitment to keeping markets open, removing unnecessary barriers to trade and strengthening trade and investment facilitation for all.
They reiterated the importance of continuing to advance the Free Trade Area of the Asia-Pacific (FTAAP) agenda as an important shared initiative in a manner that is market-driven and that contributes to high standard and comprehensive regional undertakings.
Ministers also encouraged the promotion of trade and investment in products that lead to positive environmental outcomes and reaffirmed their commitment to further promote trade policies and programs that reduce obstacles and improve their capacities to participate in global markets, including through global and regional value chains.
View the 2024 APEC Ministers Responsible for Trade Joint Statement
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org
APEC Trade Ministers Issue Joint Statement
Issued by the APEC Ministers Responsible for Trade Meeting
Trade Ministers Forge Stronger Ties, Propel Inclusive TradeIssued by the APEC Ministers Responsible for Trade Meeting
Arequipa, Peru, 18 May 2024
As global uncertainties pose risks to the region’s economic outlook, trade ministers met in Arequipa to forge stronger ties in their pursuit of trade liberalization, facilitation and inclusion, aiming to dampen these risks and fostering resilient economies.
“This meeting provides us the opportunity to reiterate our support for the World Trade Organization and its decisions, advance our efforts on the Free Trade Area of the Asia-Pacific (FTAAP) agenda, strengthen connectivity and resilient supply chains, and enhance micro, small and medium enterprises’ access to formal and global markets,” said Elizabeth Galdo, Peru’s Minister of Foreign Trade and Tourism.
The meeting, held on 17-18 May, called on ministers to intensify efforts to promote mutually supportive trade and investment policies, particularly in navigating the complex trade environment in the region shaped by a dynamic global economy, evolving regional partnerships and the lingering impacts of the pandemic.
With Peru as the host of APEC 2024 set to reinvigorate the FTAAP, Minister Galdo reiterated that this has been long-term endeavor and Peru is an active supporter of the FTAAP.
“Eight years later, since APEC leaders last adopted the Lima Declaration on FTAAP in 2016, we aim to instil the FTAAP agenda with additional guiding post, to make it more in tune with the changes in the international and domestic realms, especial the ones in the trading system,” Minister Galdo said in her remarks at the meeting.
“Our work in advancing the new look of FTAAP is crucial to ensure that APEC keeps delivering in a global context of permanent changes and opportunities,” said Ambassador Carlos Vasquez, 2024 Chair of APEC Senior Officials’ Meeting.
“FTAAP is a converging process in which we need to address challenges and opportunities that need to be considered as part of future trade agreements and undertakings. It is also an opportunity for building more inclusive trade as this is one of the best ways to achieve sustainable development,” Ambassador Vasquez added.
Carlos Kuriyama, the director of the APEC Policy Support Unit, reported to trade ministers that while there has been a significant progress of reducing average tariffs in APEC, more work needs to be done to close the sizeable gap between tariffs on agricultural and non-agricultural goods. Kuriyama also reported that non-tariff measures affecting trade are growing, and account for 75 percent of the total of trade-restrictive measures.
“Amid the economic uncertainty and new trade challenges, APEC economies need to strengthen economic integration in the region to keep trade open, ensure stability and address new challenges. In this context, new and upgraded trade agreements could address new trade challenges.” Kuriyama added.
Setting the scene for the deliberation trade facilitation and trade and inclusion, APEC Secretariat Executive Director Dr Rebecca Sta Maria emphasized the integral role of this work, as member economies focus on moving business from the informal sector to the formal and global economy.
“We must ensure that our formal sector itself is business-friendly, that our processes and procedures are not onerous. In this context, the work we are doing through the Enhanced APEC Agenda for Structural Reform is necessary to ensure that our trade rules and regulations are fit-for-purpose and relevant and provide the incentive for those in the informal sector to transition to the formal economy,” Dr Sta Maria added.
Dr Sta Maria reiterated that APEC’s work on trade facilitation and regional economic cooperation, cannot be an end in themselves but the means to ensure economic benefits to all our people.
“The voices of small businesses, women entrepreneurs, Indigenous peoples and those with untapped economic potential, people with disabilities, and those in the informal sector must be heard as we work on trade facilitation and trade and inclusion,” Dr Sta Maria concluded.
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org
Arequipa, Peru, 18 May 2024
APEC trade ministers from 21 member economies issued a joint statement upon conclusion of their meeting in Arequipa on 17-18 May.
The statement reflects the outcomes of the 2024 APEC Ministers Responsible for Trade Meeting chaired by Peru’s Minister of Foreign Trade and Tourism Elizabeth Galdo.
In the statement, APEC trade ministers recognized that trade has been facing strong headwinds in recent times, and reiterated their commitment to keeping markets open, removing unnecessary barriers to trade and strengthening trade and investment facilitation for all.
They reiterated the importance of continuing to advance the Free Trade Area of the Asia-Pacific (FTAAP) agenda as an important shared initiative in a manner that is market-driven and that contributes to high standard and comprehensive regional undertakings.
Ministers also encouraged the promotion of trade and investment in products that lead to positive environmental outcomes and reaffirmed their commitment to further promote trade policies and programs that reduce obstacles and improve their capacities to participate in global markets, including through global and regional value chains.
View the 2024 APEC Ministers Responsible for Trade Joint Statement and the accompanying Chair's Statement.
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org
APEC Builds Resilience to Reduce Vulnerability to Climate Change Impacts
Issued by the APEC Emergency Preparedness Working Group
Arequipa, Peru, 19 May 2024
Natural catastrophes, most of which hit APEC economies, increase the risk of economic loss in the region as well as threaten the livelihoods of the most vulnerable populations.
APEC members through the Emergency Preparedness Working Group are strengthening their cooperation to enhance disaster prevention and risk reduction. They are also collaborating on climate change adaptation initiatives in vulnerable communities through the use of tools such as early warning and risk alert systems, as well as developing infrastructure for climate resiliency.
“Climate change is not only a challenge, but it is also an opportunity to do some institutional arrangements with a new vision for our economy,” said Juan Castro, Peru’s Minister of Environment, as he presented on Peru’s climate adaptation plan to APEC officials in Arequipa last week.
Minister Castro highlighted that in Peru’s case, water resources are the most impacted by climate change due to its direct link to food insecurity.
“Economic growth that we need today needs to have a resilient infrastructure. It needs to have different economic models,” said Minister Castro, adding that Peru requires around USD 80 billion of sustainable investments between 2024 and 2025 to support climate change reduction efforts.
“The impact of climate change is clear,” Minister Castro said, adding that “the highest tropical mountain range in Peru located in Ancash, known as the Cordillera Blanca or the white mountain range, has lost almost 40 percent of its glacier’s mass.”
“Peru is moving towards a circular economy. We are leaving the linear economy model and moving towards a new economic model so we can have a more environmentally friendly transition,” Minister Castro added.
Victoria Salinas, Head of Resilience at the United States Federal Emergency Management Agency (FEMA), highlighted that in 2023, there were 114 disasters that required federal support in the United States, noting that that’s an average of one disaster every three days.
“Since disasters are becoming more frequent and intense, this unprecedented operational tempo may unfortunately become our new normal in 2024 and beyond, something we must tackle head on. The truth is, building resilience is critical to our survival,” said Salinas through her video remarks at the workshop.
Salinas added that disasters create economic instability and cascading impacts across regions, and it is imperative to continue to work together, exchange experiences, share ideas and resources that will strengthen capability and capacity at home and across APEC economies.
“We must keep relentlessly focused on operationalizing resilience, just like we have for disaster response and recovery,” added Salinas. “We can do this by sharing knowledge and best practices of frameworks, we can implement to protect our people and communities before, during and after disasters.”
Juan Narciso, an official with Peru’s Agency for Environmental Assessment and Enforcement, stressed that environmental monitoring plays an important role in identifying preventive actions that will contribute to the mitigation to the greenhouse gas emission. He added that members need to improve their capacity to identify and address the environmental risk associated with climate change and to promote innovative solutions that can protect our communities, especially the most vulnerable ones.
“It’s going to take strategic partnerships to build and sustain resilient communities for us and for future generations,” said Dr Kimberly D. Coleman, co-chair of the APEC Emergency Preparedness Working Group.
“We must consider partnerships with other APEC working groups as well as with private industry, as this can strengthen economy-to-economy collaboration to meet our shared goals,” Coleman concluded.
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org