Why trade is important to development

Why trade is important to development

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Amani ya Juu, peace from above, is a self-sustaining sewing and reconciliation project for marginalized women based in East Africa. Photo credit: Morgana Wingard.

Amani ya Juu, peace from above, is a self-sustaining sewing and reconciliation project for marginalized women based in East Africa. Photo credit: Morgana Wingard.

There is a lot of talk around Washington these days about trade. Congress is considering several bills on trade; much of it is highly technical and difficult for non-trade experts to understand, and it’s not always clear why trade is important to development. ONE strongly supports the quick reauthorization of the African Growth and Opportunity Act (AGOA), but does not have a position on the other bills up for consideration.

Here is a little bit about ONE believes that trade is an important aspect to supporting development and poverty reduction:

Giving African countries the opportunity to participate in the global economy through trade helps grow their economies, creates jobs, and reduces poverty. South Korea was one of the poorest countries in the world with an annual per capita income of only $64 just after the Korean War. Over the last 50 years, South Korea has achieved an average growth rate of seven percent and today per capita income is over $23,000, making it richer than both Spain and New Zealand. In just 50 years South Korea moved from one of the poorest countries in the world to a country that has its own foreign aid program and is providing assistance to developing countries. Trade and export-oriented growth were two key elements in South Korea’s remarkable transformation.

We believe that this type of transformative economic development is possible throughout the developing world. In 2015, sub-Saharan Africa’s GDP is expected to grow at 4.5 percent, making it the fastest growing economic zone in the world, outpacing even Asia.

The United States trade relationship with Africa is an important factor in its economic growth. Through the Africa Growth and Opportunity Act, the United States has been providing duty-free quota-free access to U.S. markets for eligible African countries since 2000. Under AGOA, U.S. imports from sub-Saharan Africa have increased more than three times, and reached $26.7 billion in 2014. With AGOA set to expire in September, Congress has recently begun consideration of legislation that, when passed, will reauthorize AGOA through 2025. The quick passage of AGOA is essential, and we hope that Congress will move quickly to do so.

While we strongly support AGOA, we think that more needs to be done in order to fully capitalize on the opportunities for economic growth.

  1. Trade capacity building includes a wide variety of activities, but essentially involves developed countries sharing technical knowledge on policy development, building functioning and efficient institutions, harmonizing standards, reducing barriers to entry, and creating an attractive investment climate to attract businesses.
  2. Regional Integration is essential for growing economies in Africa. African’s are their own best trading partners, but currently they are not able to fully take advantage of regional markets because of tariff and non-tariff barriers.
  3. Infrastructure remains a significant hurdle to trade in Africa. Without adequate roads and ports, producers cannot get their goods to market. Without adequate access to electricity, many African businesses and farmers struggle to keep their operations functioning.
Tom Hart testifying in Congress. Photo credit: David Kortava

Tom Hart testifying before Senate Foreign Relations Subcommittee Photo credit: David Kortava

Tom Hart, the U.S. Executive Director at ONE had the opportunity to testify before the Senate Foreign Relations Subcommittee on Africa and Health Policy last month on the reauthorization of AGOA. His concluding statement is the perfect summation of why we believe that trade plays an important role in development:

Of course, at ONE, we continue to believe our foreign assistance programs remain critical. The United States supports heroic work to combat HIV-AIDS, malaria, hunger and poverty around the world, and this assistance will remain necessary for some time. But that time will be shorter when trade, not aid, defines our relationship with Africa. Now is the time for us to strengthen our resolve and redouble our efforts to boost economic growth in Africa”

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