Why we should make trade work for developing countries

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BY BENARD AYIEKO

The role of trade in the economies of developing and Least Developed Countries (LDCs) continues to attract significant attention by virtue of the effect it has on the economic growth and development agenda of these nations.

Two years ago, Kenya became the first African country to host the World Trade Organization (WTO) Ministerial Conference which culminated in the adoption of the “Nairobi Package” – a series of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries. WTO is a 164-membership organization whose primary purpose is to open trade for the benefit of all. It provides a perfect forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development.

It should be noted that LDCs have a very high trade-to-GDP ratios, which means that they are heavily dependent on trade. Such countries need to focus on trade reforms that spur economic growth and development. In the past decades, LDCs have recorded relatively high economic growth but the levels of unemployment, poverty and inequality continue to be a major development headache for these nations. According to the United Nations Conference on Trade and Development (UNCTAD), least developed countries account for nearly 12% of the world’s population but collectively account for less than 2% of world trade which shows that these countries have not fully reaped the potential benefits of trade for development.

The argument being advanced, as the main cause for this trade lag, is that these countries have very low productive capacity and as a result they have not effectively integrated trade into their national development strategies and plans.

As a response to these concerns and to ensure that LDCs reap the maximum benefits that come with trade, there is need to integrate trade into the national and sectoral development planning, policy making, implementation and carry out constant reviews in a coherent and strategic manner.

Some of the benefits of trade for developing countries are; trade helps to boost development and reduce poverty by generating growth through increased commercial opportunities and investment by broadening the productive base through private sector development, it enhances competitiveness by helping LDCs to reduce the cost of inputs, acquire finance through investments and increase the value added of their products and move up the global value chain. Trade also facilitates export diversification by allowing LDCs to access new markets and new materials, which open up new production possibilities and encourages innovation by facilitating exchange of know-how, technology and investment in research and development. Trade expands choices and lowers prices for consumers by broadening supply sources of goods and services by strengthening competition and ties between nations by bringing people together in a peaceful and mutually beneficial exchanges contributing significantly to peace and stability within the trading blocs.

LDCs continue to register high rates of unemployment, which to a large extent can be cured by trade through creation of employment opportunities by boosting sectors such as manufacturing that are known to be reliable sources of jobs and livelihoods for the citizens.
International trade provides nearly 25% of the monetary Gross National Product of LDCs.

For trade to work for LDCs there is need for mainstreaming trade into their national development strategies because trade policies are affected by policies in other sectors of the economy. Since trade is not an open-ended panacea to the economic challenges of LDCs, national policies that support poverty reduction should be based on both the trade strategy and the national development strategies to guarantee sustainable economic growth and development.

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