Opinion: Aid for trade must focus on the poorest, most fragile countries

Products from Vietnam arrive at the Phnom Penh Autonomous port in Kandal province. Photo by: Chhor Sokunthea / World Bank / CC BY-NC-ND

In the last two decades, the international community has banded together many times to strategize a way forward that will bring peace, prosperity, and sustainable development for all.

Through efforts such as the Millennium Development Goals, the Sustainable Development Goals, the Istanbul Programme of Action for the Least Developed Countries and others, the world has come a long way in lifting people out of poverty.

Underlying these efforts is the recognition that addressing the development needs of the world’s poorest countries has enormous potential for economic growth, for welfare, and for prosperity the world over.

However, we are still a long way from achieving the vision that we have set for ourselves.

There are 47 LDCs. Thirty-five of them still have low per capita gross national income, nutrition, health, and literacy levels, as well as economies that are vulnerable to external shocks. Eighteen are particularly struggling — self-identifying as “fragile,” which means they are suffering from weak state capacity and are particularly exposed to violence and environmental shocks.

Many fragile countries depend on trade. And 70% of the exports of fragile countries are primary commodities such as raw materials and agricultural products. A shock in trade flows, such as volatile commodity prices or exports drying up, combined with weakened state capacity, can have a devastating effect.

Take Chad, for example, where crude petroleum represents 92% of total exports. When the global oil price dropped in 2014, the country lost $994 million in export revenue and went into deep recession, with poverty levels rising to nearly 40%.

One way that the global community has been helping LDCs and other economies broaden the scope of their markets and reduce the reliance on single products is through the Aid for Trade Initiative.

Through official development assistance, grants and concessional loans are provided to low- and middle-income countries to strengthen trade-related programs and projects. The grants predominantly come from high-income nations and development banks, but these days also from China, India, and countries in the Middle East.

So far, over $400 billion in aid for trade has been disbursed by 60 donors.

As part of the World Trade Organization’s Aid for Trade Global Review 2019, the United Nations Development Programme and the Enhanced Integrated Framework have examined the role that aid for trade has played in such challenging contexts as those of fragile countries.

New commitments

Commitments for trade growth in least developed countries have been announced at the Aid for Trade Global Review 2019, with $13 million announced with the Enhanced Integrated Framework.

Looking at the 18 countries that self-identify as fragile, the analysis found that aid for trade is concentrated among very few recipients; in fact, over half of aid for trade funds are given to only four countries. This high level of concentration raises questions regarding the degree of adequate support directed at the remaining fragile LDCs.

Moreover, 80% of aid for trade funds are used for transport and storage, agriculture, and energy, with initiatives to strengthen institutions and provide technical assistance for trade policy formulation and implementation receiving only 3% of funding.

If we are to achieve the SDGs, we need a coherent international response to ensure that the poorest, most fragile countries receive the support they need. This means helping governments to diversify their economies and create new employment opportunities. Only this will contribute to stability and growth, and reduce the impacts of external shocks.

But this will require significant investments, both public and private, in strengthening institutions, investing in human capital, reforming the business environment, and ensuring more targeted policy implementation to support the development of productive capacity.

It can. And it is already being done.

In Chad, the Enhanced Integrated Framework has been empowering populations eking out subsistence livings by giving them the tools, training, and connections they need to increase their influence over the gum arabic market. Over 2,200 collectors now have harvesting kits and the knowledge to increase their yields, garner better prices, and protect the gum arabic-producing trees for years to come.

On the institutional side, there are now 10 unions, two cooperatives, three regional associations, and one national group — all united and striving to secure incomes and a sector they depend on.

These investments in the gum arabic value chain not only have local economic, social, and environmental benefits, these have also enabled Chad to become the world's third largest exporter of the commodity. While small in scale, these efforts are slowly reducing the country’s dependence on crude petroleum exports, making Chad and its people more resilient to trade shocks.

While the path to economic diversification is country-specific, investing in strong institutions, conducive business environments, targeted policies to support productive capacity and infrastructure in the world’s most fragile countries is essential to ensure we achieve prosperity for all.

About the authors

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    Ahmat Mahamat Bachir

    Ahmat Mahamat Bachir has been Chad's minister of mining, industrial and commercial development and private sector promotion since November 2018. He studied at the Faculty of Political Science and International Relations at the University of Algiers and, in 1987, was awarded a master's degree in political science, majoring in international relations.
  • Ratnakar hi%2520%25287%2529

    Ratnakar Adhikari

    Ratnakar Adhikari has been serving the executive secretariat for the Enhanced Integrated Framework at the World Trade Organization as its executive director since October 2013. Prior to this assignment, he was the chief executive director of South Asia Watch on Trade, Economics and Environment, a Kathmandu-based regional think tank.