Why economic empowerment is crucial to climbing the development ladder

International Trade Center Executive Director Arancha González believes in lifting people out of poverty through trade-led growth. Photo by: International Trade Centre

It is now clear that many least developing countries will miss most of their Millennium Development Goal targets. Still, poverty on the ground has receded in virtually all of them. But despite success in mobilizing public and political support for development, questions remain about whether the impact on the poorest and the most vulnerable could have been even more impactful.

The MDGs have been criticized for being too donor-led and for missing out on crucial elements of development. Criticism is a healthy thing if it means making progress. Almost 15 years later, we have the benefit of evidence and experience.

The world of today is different than when the MDGs were agreed to. The geopolitical atmosphere has changed; technology is able to help us accomplish previously unimaginable feats, and the nature of how countries trade has changed.

As we look ahead to develop and finalize a post-2015 development agenda, we collectively have to learn the lessons of the MDG experience to craft a powerful ‘economic empowerment’ post-2015 development agenda.

One critique of the MDGs was that they did not provide developing countries — and in particular LDCs and fragile and post conflict states — with the means to achieve their human development objectives. While there is a reference in the MDGs to employment (with the target to achieve full and productive employment and decent work for all, including women and young people) and trade (with the target of developing further an open, rule-based, predictable, nondiscriminatory trading and financial system), economic empowerment and trade have not been central to the MDGs. And yet, today we have powerful global examples of how trade has made development work for developing countries and LDCs.

The WTO-led aid-for-trade agenda, for example, has achieved considerable success in mobilizing funding to build trade capacity in developing countries and LDCs. For ITC’s clients, especially small and medium-sized enterprises and trade and investment promotion organizations, building productive capacity is essential to trade-led growth and development. Entrepreneurship, trade and economic growth must therefore be at the heart of the post-2015 development agenda.

Many LDCs have registered increased economic growth in recent years, more foreign direct investment has been flowing in their direction and their main cities are being urbanized. Yet an unacceptable high number of citizens in these countries continue to suffer from extreme poverty. Even when growth appears impressive, it starts from a low base, suggesting that constraints remain before they can graduate to the next level of development.

Climbing the development ladder is not impossible. Three countries have graduated from LDC status in the past two decades: Botswana (1994), Cape Verde (2007) and the Maldives (2011).

While these countries have received and continue to receive development assistance, their graduation is fundamentally down to policy decisions taken at home. They identified their own needs and they developed their own strategies. And, despite their different approaches, they share one common feature: Economic empowerment and trade were key in their growth strategy.

Although Botswana had its extractive industries, it managed — like Cape Verde and the Maldives — to leapfrog out of the LDC category by focusing efforts on the services industry. Today Botswana, a landlocked country, has one of the most advanced banking systems in Africa.

The Maldives has developed an enviable tourism industry. Tourism is also what helped Cape Verde graduate from LDC status, though it did so in parallel with developing its cultural exports. Having cultural ambassadors such as the late Cesaria Evora should be the envy of developing and developed countries alike

Equally important: Success in the services industries has allowed these three countries to improve infrastructure, which has had positive effect on other sectors such as agriculture.

Clearly, the services sector alone will not be able to unlock growth for all LDCs. Still, the experiences of these three countries suggest how things can be done and what can be achieved. Each country or economy has different prospects and potential, but a trait they do share is that future growth and job creation will be driven by SMEs and their ability to insert their goods and services in local, regional and global value chains.

By providing a supportive environment for their SMEs, including removing barriers to trade, LDCs will be able to increase the number and the nature of their exports. It is through entrepreneurship and increased trade, which in turn generate employment, that LDCs can achieve long-term sustainable living standards for their populations.

At the same time, it is clear that LDCs in particular will need technical assistance and capacity building support to turn their potential into tangible results. It is also clear that a large part of the solution can come from the private sector itself. Bigger, richer business can certainly help smaller and needier business. While ITC stands ready to support all developing countries, there is a need for a collective commitment from the wider international community, be it in the North or in the South.

One major step toward addressing the needs of LDCs would be to ensure that trade and economic growth is firmly embedded into the post-2015 development agenda as a means of lifting people out of poverty through trade-led growth. SMEs are a fundamental part of this story and there are great rewards to be had if we begin to see them for what they are: the incubators of growth, innovation and stability beyond 2015.

Arancha González is a confirmed speaker at European Development Days 2013 to be held Nov. 26-27 in Brussels. Live web-streaming of 20 high-level sessions will be available on the EDD13 website, during the two days of the forum. For in-depth analysis and exclusive interviews with decision makers and thought leaders, stay tuned to Devex, an official EDD13 media partner. 

About the author

  • Arancha González

    Arancha González is the executive director of the International Trade Centre. An expert in international trade and development, González has previously held leading positions at the World Trade Organization and the European Commission.