COMMENTARY

Spring 2010

by Moses Ikiara

RELATED ARTICLES:

---

Peter Lilley is right about the problems faced by low-income countries, but he doesn’t put his finger on the entire solution. He argues correctly that without a fair deal on trade, low-income countries will never be able to create their own wealth. They need help to expand their export capacity, and the measures Lilley proposes for cushioning these countries against the recession are appropriate enough. But although they match the growing consensus on what needs to be done, the key question is how do we make sure that commitments made by richer countries to poorer countries are honoured? Lilley doesn’t address that at all.

When the G8 met in Italy last July at L’Aquila it pledged $20bn to improve food security, confirmed its members’ aid commitments, moved to re-launch the World Trade Organisation’s Doha round of trade talks and approved an initiative to halve the average transaction costs for migrants’ remittances. All of these pledges are commendable, but will the G8 leaders stick to them? What we need now are the instruments to make sure that these commitments are honoured.

Lilley also fails to set out all of the conditions that would lessen the dependence of poorer countries on development assistance. Market access is fine, but will have little real impact unless poorer countries are given favourable terms of trade. Wealthy and more powerful countries’ should remove their own export subsidies, abolish tariffs and help poorer countries' exporters to switch to value added goods that get better trading terms.

Strict immigration rules also need to be softened so that people from low-income countries can travel abroad to learn the secrets of economic success. Barriers should be lifted so that companies from poorer countries can establish a presence in major commercial centres and gain access to global supply chains. Remittances from migrant workers already make a major contribution to the GDPs of low-income countries, and if foreign transaction costs were lowered their impact could be greater still.

Multinational corporations can also be encouraged to do their bit; they should be given incentives to transfer technology to firms in the low-income countries they operate in. Sourcing a greater share of their raw materials from those countries, and reinvesting their profits there would also help.

This brings us to development assistance. Aid should be targeted so that poorer countries can harness it to improve their own economies. Assistance should pay for regional training centres of excellence, schools and universities, and it should aim to strengthen democratic institutions, encourage good governance and combat corruption. It should also support viable regional trade blocs, small and medium-sized enterprises and farmers.

Aid will only work well if appropriate conditions are attached; it has little purpose unless it contributes to structural growth in low-income economies. To achieve this, paternalism and the pursuit of political interests must be avoided and the donor-receiver relationship between rich countries and low-income countries also needs to be revised. Instead of talking down to low-income countries, developed countries should treat them as their political equals. One only has to look at the way China and newly industrialised countries like Malaysia, Singapore and Korea are relating with Africa to see that this is possible.