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Development of trade can cut degree of poverty
2007-04-13 08:42:07
By Ileti Ngaluma
The Economic and Social Research Foundation (ESRF) in collaboration with the Consumer Unit Trust Society (CUTS) last launched a publication on Trade, Development and Poverty in Tanzania.
It examined when does trade reduce poverty and when it doesn`t and why.
It carried key messages on trade ad policy linkages in Tanzania and it was one of the first attempts at examining how trade could contribute to poverty reduction.
It reveals that international community has undertaken initiatives such as the Integrated Framework (IT) and preparation of the Diagnostic Trade Integration Study.
It mentions about various commissions formed to address global trade and poverty related issues.
The commissions include the International Labour Organisation`s (ILO) World Commission in Social Dimensions of Globalisation, Blair Africa Commission, United Nations Development Programme (UNDP Millennium Development Goals (MDGs) and USAID’s Millennium Challenges Account (MCC) among others.
The messages from the ESRF and CUTS study on trade and poverty covers four broad areas.
These include macro-economic rural trade policy environment conducive for poverty reduction.
Also examined is the current status of poverty reduction and how trade policy can contribute to address the problem.
The study also covers the conditions for effective linkage and where it works as well as when it doesn’t and why.
In the final analysis it dwells on case studies of fishery and textile sectors.
The study reveals that it is not clear whether the low level of poverty reduction is due to lack of trickle down in appropriate growth, or irresponsiveness of the poor or some combination of those factors.
On export performance and competitiveness the study shows that Tanzania exports recorded significant growth in 1990s but when compared to regional and global standards the growth rate is still low.
It is revealed that the limited export performance is largely due to low level of entrepreneurship, productivity and competitiveness.
The study indicates that Tanzania export composition includes mainly traditional cash crops, but the trend has drastically shifted to non-traditional products such as mining.
The trade and development study also indicates that poverty in Tanzania is overwhelmingly rural with more than 11 million people who live below the poverty line.
Therefore, addressing poverty can only be effective by addressing conditions in the rural areas.
Trade can contribute to poverty reduction in Tanzania and can serve as an essential tool in poverty reduction if we can identify the link and conditions through which such impact can occur or become more effective.
The Trade and Development Project (TDP) identified three important channels through which trade can reduce poverty.
It is noted that trade can impact on poverty reduction through enterprise performance.
That is by enterprises earning profits hence income to owners of capital, wages or incomes to owners of labour and increasing employment which is reducing the number of the unemployed.
The other way to reduce poverty is through distribution efficiency.
This happens when transportation and communication infrastructure are improved to allow faster and wider transaction of goods and services with several benefits.
Improved distribution channels will help to increase market access and enable people to earn more incomes. Reduced prices of consumer goods would increase the purchasing power to the poor and thus improve living standards.
Increasing range of consumer goods will improve people`s welfare and adding opportunities to retail trade (self employment).
These effects are likely to benefit more rural areas where the majority of the poor live.
If there is increased government revenue from trade, pro-poor expenditures may increase and hence influence poverty.
TDP shows that an important issue is the effects of trade in poverty for developing countries such as Tanzania is not only about the impact of trade on poverty but the link and conditions through which this impact can occur.
TDP shows that the first incentives is that pro-poor policies should be embraced and one of the major problems facing agriculture exports is low and unstable prices in international markets hence unstable and declining income to farmers.
One of the solutions is to increase value addition in these exports.
Big obstacles revealed is the high protection of developed countries’ markets in form of technical barriers to trade as well as high subsidy offered to European farmers.
Other conditions for trade to contribute to poverty reduction is to protect labour intensive industries which are hurt by liberalization.
The main issue is to explore opportunities to review some of the sectors by directly linking measure to attract foreign direct investment (FDI) to existing export market opportunities.
Substantial FDI has gone to the mining sector which has less impact on poverty reduction compared to agriculture or manufacturing sector.
Public-private partnership is also important in poverty reduction through trade.
This is vital for effective implementation of trade and other policies increasing productivity and attaining growth for poverty reduction.
TDP picked Public Private Sector Partnership (PPP) in the fisheries as a success storyof trade liberalisation.
The government worked hand in hand with the private sector to make sure that the European Union (EU) quality certification for Nile Perch exports to EU markets was reinstated and maintained.
It is evident what makes PPP work for Nile Perch quality reassurance for export to EU markets can work in other sectors.
The labour market should serve the poor out of poverty.
International trade presents ample opportunities for employment in expanding sectors but often the poor are ill equipped to tap them.
Improved bargaining power and skills for the poor is key for trade to reduce poverty.
TD study also mentions the conditions to promote value addition in the productive activities because adding value to exportable goods moves the poor from poverty by connecting the poor closer to the world market.
Fiscal policy should be a missile for poverty reduction.
TD notes that use of resources from trade on poverty reduction demonstrates that increase of trade performance is good for poverty reduction.
TD also mentions the need to develop road and other infrastructures.
Transport services should be efficient and affordable.
The effectiveness of trade policy in reducing poverty will depend on the extent to which internal barriers to production and exchange are addressed.
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