Commonwealth Report demonstrates Trade costs 19% lower between member countries

May 22, 2015

At the CWEIC’s Marlborough House Conversation on 22 May 2015 Dr Mohammad Razzaque, Acting Director of the Commonwealth Secretariat’s Trade Policy Division, presented his team’s initial findings from the most comprehensive analysis of Commonwealth trade and investment ever undertaken. You can find the paper here and the full report will be completed in time for the Commonwealth Heads of Government Meeting.

The paper titled “A Rising Commonwealth Tide: Emerging Dynamics of Intra-Commonwealth Trade and Investment” shows that total Commonwealth exports in goods and services stands at US$3.4 trillion, 15% of world trade, and intra-Commonwealth trade is worth US$687 billion. Intra-Commonwealth FDI flows reached US$80 billion in 2008 and the stock of intra-Commonwealth FDI is estimated at US$716 billion.

Dr Razzaque’s findings show that member countries on average demonstrate a higher level of intra-Commonwealth trade and investment, with around 25% more goods and services trade and 10% higher FDI flows to Commonwealth partners. This is despite the fact that the Commonwealth is not a formal trading bloc and its members are part of separate trading arrangements.

Even more significantly, the research demonstrates that trade costs are 19% lower when both trading partners are from the Commonwealth. Dr Razzaque attributed these findings to the fact that Commonwealth member countries share a common language and similar institutions and legal systems, which greatly facilitates a strong trading relationship. This provides further empirical evidence for the so called Commonwealth Factor.

The paper also focused on the strength of intra-Commonwealth remittances which currently stands at US$45 billion, nearly one third of the US$147billion received in total by Commonwealth countries.  India (US$16.3 billion), Nigeria (US$7.8 billion), Bangladesh (US$5.6 billion), Pakistan (US$4.3 billion) and Sri Lanka (US$2.0 billion) are the largest recipients of intra-Commonwealth remittances.

The findings also demonstrate that there are enormous opportunities for increasing trade within the Commonwealth. The Trade Policy Team predict that intra-Commonwealth trade in goods and services will surpass $1 trillion by 2020. They propose certain mechanisms to strengthen and build on this. South Africa was used as a model of ‘Trade Facilitation’ efficiency. If Commonwealth countries individually can achieve at least this level then Commonwealth GDP will increase by $177 billion, generating 24 million additional jobs. If all countries achieved the trade facilitation standards of Singapore, GDP gains would be US$502 billion.

Lord Jonathan Marland, who chaired the session, pointed out that the paper is an impressive “selling document” on the benefits of the Commonwealth network. The CWEIC looks forward to working with the trade team on future research to better understand the economies of the Commonwealth, the flows of intra-Commonwealth trade and investment and the value chains within the Commonwealth.

Both the CWEIC and the Commonwealth Secretariat would welcome feedback on the research and the areas where Governments and businesses would like to see more work done.