The Least Developed Countries' (LDCs) share of world trade is below 1% with 60% of this trade coming from low-value products or industries such as agriculture, fishing and mining. This lack of diversification increases a country’s vulnerability to external shocks and undermines long-term development prospects keeping communities in poverty and preventing inclusive trade.
To readjust this balance, and allow LDCs a better chance to trade competitively, the broader vision set out in the 2030 Agenda for Sustainable Development outlines a commitment to “significantly increase the exports of developing countries, in particular to doubling the least developed countries' share of global exports by 2020.” Although this latter target will not be met, trade remains an important instrument for the sustainable integration of LDCs into the world economy.
According to the World Bank, trade can benefit poor population groups in LDCs if these countries meet the requirements in the fields of financial infrastructure, education and good governance. As such, one of the organisations fighting to improve these areas is the World Trade Organisation through their Aid for Trade initiative.
Aid for Trade helps LDCs breach supply-side and trade-related infrastructure barriers which constrain their ability to engage in international trade. The initiative encourages developing country governments and donors to recognise the role that trade can play in development. In doing so, since 2005, over $400bn has been disbursed by benefactor countries to build the capacity to trade of the developing world, with one quarter of it going to the poorest countries facing the most challenging or fragile trade contexts. For example, much of the Aid for Trade programmes focus on supporting farmers and small traders and people with disabilities, as well as women and youth in LDCs due to its focus on enabling inclusive trade.
Supporting misrepresented groups enter trade systems is vital for lifting communities out of poverty and driving global prosperity. Take gender bias in trade for example, according to the World Vision report, ‘trade is not isolated from gender norms; gender norms are part of the unspoken rules within a trading system’. However, if women are supported to achieve their full economic potential, up to $28 trillion could be added to the global GDP in 2025. Inclusive trade initiatives such as those run by Aid for Trade therefore, recognise currently penalised groups such as women in LDCs as economic actors in their own right and support them to participate in the economy.
Empirical studies and programme evaluations find that this support is helping developing countries improve their competitiveness, expand and diversify their trade, attract foreign direct investment, and create employment.
However, implementing such ambitious programmes is expensive. Therefore, the World Bank calls upon developed countries to provide aid for the benefit of the global good. Since 2006, donors have provided $5.7bn to help developing countries elaborate trade development strategies, and negotiate and implement trade agreements. $91.6bn to improve energy supply, $125.4bn to build roads, ports, and telecommunications networks; $180bn to support the private sector; and, $230mn to help countries pay for the costs associated with trade liberalisation.
One of the countries making the most significant donations to this initiative is Germany. Since 2013, Germany has retained its position as the second largest bilateral donor of Aid for Trade, helping LDCs consider policy frameworks that enable quality infrastructure, facilitate trade, promote investment and competition and improve production capacity. For example, in December 2019, the government of Germany announced a commitment to provide EUR 1.3mn to the Enhanced Integrated Framework (EIF) to help spur trade growth across the world’s poorest countries during 2020, as part of Germany’s Aid for Trade strategy.
The EIF is a multilateral partnership dedicated to assisting LDCs use trade as an engine for growth, sustainable development and poverty reduction. Comprised of 51 countries, 24 donors and eight partner agencies, the EIF works closely with governments, such as Germany, development organisations and civil society to collectively tackle the trade constraints of the world's poorest countries. It has already helped 41 countries integrate trade into their national development plans while supporting over 1,300 micro-, small- and medium-sized enterprises and over 35,000 women entrepreneurs.
Germany’s donation will fund EIF-led projects in 47 LDCs and four recently graduated countries including Cabo Verde, Equatorial Guinea, Maldives and Samoa.
During the announcement of this donation, EIF Executive Director, Ratnakar Adhikari explained the importance of their partnership with Germany and the work they do, saying: “Considering the current trade climate and the outsized impact that slowing global growth is having on LDCs, we are pleased that Germany has committed new funding to the Enhanced Integrated Framework…We look forward to our continued partnership and laser focus on inclusive trade that ensures benefits for women and youth in the world’s poorest countries”.
According to a report by Australian Aid and World Vision, taking a market systems approach is a useful way to address the underlying causes of market dysfunction to expand trade opportunities for the poorest communities.
However, market-based interventions alone may not be sufficient to ensure that the marginalised households can access and benefit from trade opportunities. Complementing a systems-focused ‘pull’ programme such as Aid for Trade or EIFs approach of helping LDCs nurture trade relationships with push strategies, can extend the impacts of trade so that no-one is left behind.
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