Aid used for trade is helping developing countries diversify

This article is brought to you in association with OECD.

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Using development aid to build trade capacity in poor countries is helping to improve economic diversification and to economically empower marginalised groups, yet progress remains geographically uneven, according to the latest OECD-WTO report on Aid for Trade. Aid for Trade at a Glance 2019: Economic Diversification and Empowerment says that 47 developing countries (mostly in Africa), out of the 88 surveyed, report progress in diversifying their economies since the OECD-WTO Aid for Trade Initiative was launched in 2006, a picture backed up by trade statistics. Most progress has been seen in agricultural sectors followed by services and industry. Countries still struggling to use international commerce to diversify their economies are the least-developed countries or those that are small islands, landlocked, resource-dependent or ravaged by conflict. “Aid for Trade is working. It is having a real impact where it is most needed,” said OECD Secretary-General Angel Gurría, launching the report at the WTO’s 2019 Global Review of Aid for Trade in Geneva. “That said, the path towards economic diversification is complicated by subdued trade growth and a decline in FDI. Rising trade tensions and protectionism are hurting growth prospects and any shift away from rules-based trade hits the most vulnerable countries and people hardest.” Past reports have consistently found Aid for Trade to be an effective way of driving economic development at both the micro and macro levels by creating the conditions for trade to drive investment and create jobs. The 2019 report notes that the specific – and mutually reinforcing – goals of diversification and empowering small business, youths and women to participate in and benefit from trade will be key for achieving the Sustainable Development Goals. The 2019 report says USD 409 billion in official development assistance (ODA) and USD 346 billion in concessional loans has been used since 2006 to boost trade in developing countries by investing it in areas like infrastructure, regulation or providing access to technical assistance. Another USD 100 billion in ODA and loans from donor countries was committed in 2017, and assistance between developing countries provided another USD 9 billion. Every US dollar invested in aid for trade has been found to generate USD 8 worth of exports in developing countries and nearly USD 20 of exports in least-developed countries, depending on the country and the type of investment. Open, rules-based trading contributes to global welfare by helping to diffuse goods, services, technology and knowledge, though many developing countries still face numerous supply-side constraints. In the past 30 years, five countries have shed their least-developed country status. Two more – Vanuatu and Angola – are on track to do so in 2020-21 and 10 others are moving in the right direction at a good pace. Another 35 least-developed countries show little progress.