Reducing poverty, especially in the poorest nations, requires deliberate and astute steps by governments to ensure that the trade they carry out helps their economies to create jobs and expand the range and sophistication of goods produced, experts said this morning.
A panel discussion on “Trade and poverty reduction: the missing links” held on the second day of the UNCTAD XIII quadrennial conference focused on a dilemma that distressed economists and developing countries even before the recent global economic crisis made raising living standards in such nations still more difficult.
The problem: even when these countries had high rates of economic growth from 2001 through 2007, many had limited success in combating poverty.
Reducing barriers to trade and trusting to free-market forces is not enough, panelists explained, pointing out that the world’s 48 least developed countries (LDCs) had an average economic growth rate of 7.1 per cent between 2001 and 2008, yet saw little decline and sometimes even increases in extreme poverty. In 1990, for example, 18 per cent of the extreme poor were living in LDCs. By 2007, that share had doubled to 36 per cent.
Participants said that trade openness in some countries has resulted in a growing national dependence on a limited variety of exports, most of them commodities – that is, basic agricultural goods or raw natural resources. These products historically have been vulnerable to abrupt shifts in prices, have limited impact on job creation, and do not horizontally fertilize domestic economies into a broader, wealth-spreading production of goods. For some LDCs, the 2001-2007 boom years actually saw a decline industrial output even as commodity exports increased.
"A development success is by default and by design" said Dorcas Makgato-Malesu, Minister of Trade and Industry of Botswana, explaining how the country was capitalizing on trade to spur stable economic growth.
The discovery of diamond reserves and various other natural resources offered an opportunity, she said. But then the government had focused on designing policies that would use trade in these goods to spread benefits broadly through Botswana’s population.
Heidi Hautala, Minister for International Development of Finland, urged developing countries to engage the private sector in creating decent jobs with a view to liberating least developed countries from aid dependency. She also called on other development partners to enhance support for the Aid for Trade initiative aiming at building productive capacities and reducing income inequalities in LDCs.
Pan Sorasak, Secretary of State of Cambodia, told the meeting about Cambodia’s experience in institutionalizing trade as development strategy. Export diversification, skills upgrading, and the reduction of trade-related interdependence remain important challenges, he said.
Siti Kassim, Minister of Employment of the Comoros, stressed that to promote sustainable and equitable growth, her country must diversify its production and export base and improve the nation’s competitiveness so that intra-island, regional, and international trade grows in a way that creates jobs.
Nada Al-Nashif, Assistant Director-General and Regional Director for the Arab States of the International Labour Office, said reaping broad benefits from trade requires equitable social protection and job creation policies at the center of national development strategies.
And Ransford Smith, Deputy Secretary-General of the Commonwealth Secretariat, said the quality of trade integration is critical as a driver of trade development and of poverty reduction, especially for small island developing states.
Several speakers pointed out that developing countries that have made the most impressive and steady progress in reducing poverty in recent years, such as China and India, did not follow the approach of rapid trade liberalization. Instead, they opened their economies gradually to international markets and international competition – and they did so in ways designed to expand their productive capacities: that is, the abilities of their economies to produce goods of greater variety and sophistication. Shifts to higher levels of technology, and away from heavy dependence on agriculture, are necessary steps for LDCs and many other countries in Africa, panelists said. Such “structural transformation” requires improving farm productivity, too, to feed expanding populations and growing numbers of urban dwellers. Governments need to plan carefully and choose strategies astutely to ensure that trade delivers these economic payoffs and leads to more and better-paying jobs, they said.
The importance of multi-party democracy and good governance in the development process was highlighted by the panelists and discussants. It was agreed that there should be more sound research on different types of poverty and on different social groups so that LDC governments can better design trade development strategies.