New commitments to support trade for growth in lowest-income countries

CANBERRA — New commitments to support trade opportunities for least developed countries have been announced at the Aid for Trade Global Review 2019 by six countries.

As part of the biennial review that is taking place in Geneva, Switzerland, from July 3-5, Australia, Denmark, Finland, Germany, Japan and Sweden announced plans to commit nearly $13 million through newly announced commitments to the Enhanced Integrated Framework.

EIF is a multilateral partnership within the World Trade Organization dedicated to assisting LDCs in their use of trade as an engine for growth, sustainable development, and poverty reduction by working directly with governments to improve systems, capacities, and infrastructure that can advance markets and trade opportunities.

Australia’s commitment to the second phase of EIF, covering the period from 2017-2022, will increase from $2.31 million to $3.97 million. Germany has announced an increase from $4.5 million to $6 million. Finland has announced an increase of $1.1 million. And the Swedish International Development Agency announced a new contribution of $5.4 million, bringing the total amount of Swedish support to $16 million for the second EIF phase.

The new announcement of funding comes with the release of the “2019 Aid for Trade at a Glance” report that shows LDCs are facing new hurdles in accessing global markets.

Aid for trade insights

The “2019 Aid For Trade at a Glance” report provides results 2019 joint Organisation for Economic Co-operation and Development and WTO aid-for-trade monitoring and evaluation analysis, as well as research findings on aid for trade with chapters by  EIF, OECD, U.N. Conference on Trade and Development, U.N. Development Programme,  U.N. Industrial Development Organization, International Trade Centre, World Bank Group and WTO.

It also shows continuing challenges for LDCs. In 2015, LDCs had a very small share of the manufactured goods in global export markets, but it was increasing at 0.43%. By 2017, this has dropped to 0.09% reaching lows not seen since 1999.

The challenges in other lower-income economies were similar, with their share dropping from 2.74% in 2016 to 1.3% in 2017 — again the lowest since 1999. These drops coincided with industrialized economies showing an increasing share of the export markets for manufactured goods for the first time since 1988.

Deanna Ramsay, the managing editor of EIF’s Trade for Development News, told Devex a 2019 study by the McKinsey Global Institute may provide insight into these trends, which showed countries were reallocating production closer to market due to advances in technologies as well as high trade and transportation costs outweighing cheaper labor.

Combined with the share of all global trade for LDCs being less than 1%, the data reinforcing the calls from EIF to support LDCs in diversifying their market to improve opportunities but also reduce reliance.

“LDCs combined have a share of 0.95% of global trade,” Ratnakar Adhikari, executive director of the EIF Secretariat, told Devex in March. “That is very limited. There was a marginal increase in 2017 after a decline of a three-year period. The major culprit here is the export concentration. There are a number of LDCs who have an export concentration level which is almost close to 97%.”

Angola, for example, sees almost 97% of exports concentrated into oil and petroleum.

In the report, the World Bank Group warns that no formula exists to help countries achieve economic diversity, and that in assisting countries policies and programs need to be specific to regional circumstances — including the differences in geographies, endowments, institutions, governance and implementation capacities.

“The success of diversification efforts ultimately depends on the mix, sequencing, and timing of investments, policy reforms, and institution building, and on their consistency with the underlying assets and related comparative advantages of any given country,” the findings read.

But investments in skills, infrastructure, institutions, and improved governance is said to help increase the likelihood of success for diversification.

Putting the new investment to work

With a total pool of funds of worth approximately $127 million with the newly announced contributions to support EIF until 2022, they are now looking at putting it to work to achieve their core objective.

“To create trade environments that are conducive to inclusive and sustainable growth, and that contribute to increased exports and access to new international markets for LDCs,” Ramsay told Devex.

And that includes a new initiative called “Empower Women, Power Trade.” The program aims to get more women in LDCs into trade through the supporting micro, small- and medium-sized enterprises, providing access to finance, as well as improved gender-sensitive policies. EIF is directing $10 million toward this effort.

While the new funding for EIF reinforces the importance of their work with LDCs, Adhikari said more can always be done.

"These planned commitments from our donors will do so much to help LDCs as they work within a challenging and shifting global trade environment,” he said following the funding announcement.

“For 10 years, EIF has been working with LDC governments, and we have seen success from Chad to Bhutan to the Solomon Islands. But more effort is needed, and we hope others will join us in putting LDCs in the driver’s seat of inclusive development.”