Africa: Liberalisation May Boost Growth But Not Create Jobs

from All Africa

Inter Press Service (Johannesburg)

Stephanie Nieuwoudt
Nairobi

Even if trade openness boosts economic growth, such growth may not create jobs or alleviate poverty. Therefore the much-vaunted Aid for Trade concept should be redesigned so that "the major focus is shifted from simply creating more trade to the more important objectives of poverty reduction".

This is according to Mohammed Ali Rashid, economics professor at the School of Arts and Social Sciences at the North South University in Bangladesh. He argued at a conference last week (15-16 March) that there are many reasons to be sceptical about the existence of a "general, unambiguous relationship between trade openness and growth".

The conference was entitled "Linkages between Trade, Development and Poverty Reduction" and was organised by the India-based non-governmental research organisation Consumer Unity and Trust Society (CUTS) in the Kenyan capital Nairobi.

Rashid agreed that "very few countries have grown over long periods of time without experiencing an increase in the share of foreign trade in their national product". But trade liberalisation should not be seen in isolation, he contended.

If trade liberalisation boosts the demand for domestic labour-intensive products, the demand for labour will increase and either wages or employment or both will increase. "However, if the poor are mostly unskilled and the demand for semi-skilled labour is increased, poverty will be unaffectedûor may be worsened," said Rashid. An example in this regard would be South Africa.

"Additional policies may be needed to lessen the effects that exacerbate poverty. In particular, there is an important role for complementary policies to accompany trade reform, both to bolster social protection for the losers in trade liberalisation and to enhance the ability of poorer households to exploit potentially beneficial changes," Rashid emphasised.

He insisted that governments have to engage in pro-poor growth strategies to alleviate the plight of the poor. This means that governments have to develop national policies which ensure that the benefits of export-led growth reach the poor.

Rashid was also critical of Aid for Trade. Aid for Trade is an instrument with which richer countries propose to help poorer, developing countries to access world markets. Aid for Trade was given impetus at the World Trade Organisation's ministerial meeting in Hong Kong in 2005 where it featured in the ministerial declaration.

It has been acknowledged by both developing and developed countries that internal constraints frequently prevent poor countries from fully engaging with market opportunities. With Aid for Trade, rich states promise to help developing and least developed countries to diversify and expand their goods and services.

This includes assistance to enhance competitiveness and to build poor states' capacity to participate in international trade negotiations, according to a booklet published by CUTS.

Rashid said that "the focus of the Aid for Trade initiative needs to be shifted from one of simply trade creation to that of overall development and poverty reduction.

"The trade negotiating capacity of developing and least developed countries needs to be strengthened so that agreements reached at the World Trade Organisation's multilateral trade negotiations meaningfully reflect the interests of the poor in these countries," Rashid argued.

"And, more importantly, developed country trade partners need to be convinced about the urgent need to redesign the Aid for Trade package so that it can become an effective instrument for poverty reduction," he said.

The liberalisation of markets and the scrapping of import and export tariffs will lead to revenue losses for governments of poor countries, Christine Menca, CUTS programme officer for international trade, economics and environment, told the conference. Such tariffs frequently present a substantial revenue source for poor states.

"Many developing countries get up to 50 percent of their revenue from international trade taxes. If the markets are liberalised, they will lose this income. Some analysts say that these losses have to be compensated for with alternative revenue systems like value added tax," Menca said.

But value added tax has been criticised as an anti-poor measure because of its indiscriminate and catch-all application. Another way to make up for the revenue loss is for governments to hike food, fuel and other commodities' prices, a step which is also detrimental to the poor, Rashid pointed out.

According to Brendan Vickers, senior researcher at a South African international relations think tank, the Institute for Global Dialogue, "no country has ever become industrialised by initiating free trade before it first ensured that its own interests were protected.

"Countries with strong economies like the UK and the US only started opening their markets when their economies were rock solid. However, the WTO does not condone these protective measures.

"It is what the Cambridge-based economist Ha-Joon Chang calls 'kicking away the ladder'. Developed countries became successful by climbing the ladder. But the ladder is no longer accessible to developing countries."

Civil society organisations (CSOs) are concerned about Aid for Trade, according to Vickers. CSOs have raised questions about rich countries' willingness to compete with poor countries in world markets. Many fear that Aid for Trade may not involve new resources but the repackaging of existing social development aid initiatives.

CSOs have also criticised Aid for Trade's exclusive focus on technical assistance and capacity building.

Many speakers at the conference emphasised the need for CSOs to be involved in the policy-making efforts of their governments. Rashid said advocacy has to be encouraged and implemented based on sound research findings.