Benin: rehabilitating the port of Cotonou. Ghana: building
packing and storage facilities for export crops. Madagascar:
identifying international market opportunities for small
businesses.
Each of these foreign aid projects was conceived and planned by
the country itself to maximize economic development through trade.
Each was made possible through an innovative approach to assistance
now being pursued by the Millennium Challenge Corporation, or MCC,
an agency of the United States Government.
Set up three years ago to help poor countries that take
responsibility for their own development, the assistance is
selective. Sizeable, multi-year, untied grants are awarded to poor
countries that perform better than their peers on 16 indicators of
good governance, social sector investment and economic policy.
Developing countries take the lead, identifying their priorities
for "reducing poverty through growth" and developing a programme
for funding in consultation with business and civil society. The
focus is on results with mutually agreed objectives and benchmarks
recorded in a "compact". The country implements the compact with
MCC funds.
The early evidence is that countries are putting priority on
trade-related assistance. In the 11 country programmes that MCC has
agreed to finance, over half of the $3 billion of aid is for
projects that will improve the countries' ability to engage in
international trade.
Of the 25 countries worldwide currently eligible, 12 are in
Africa. Madagascar was the first to sign a compact in April 2005.
Since then, there have been ten more, including Benin, Cape Verde,
Ghana and Mali. Five-year compacts have ranged in size from $110
million in Cape Verde to $547 million in Ghana. In Africa, Burkina
Faso, Lesotho, Mozambique, Morocco, Namibia, Senegal and Tanzania
are developing proposals and investment programmes for
assistance.
Trade indicators
Among the 16 selection criteria are trade-friendly policies. One
trade indicator, developed by the Heritage Foundation, measures a
country's openness to international trade based on average tariff
rates and non-tariff barriers to trade. Other indicators, such as
the International Finance Corporation's "days and cost to start a
business" and the World Bank Institute's "regulatory quality", also
give countries an incentive to improve weak investment climates to
the benefit of domestic and foreign investors.
Another, smaller programme helps countries that come close to
eligibility but fall short on one or two indicators with "threshold
assistance" to address specific areas of policy weakness. To date,
MCC has approved 13 such programmes, including six in Africa
(Burkina Faso, Kenya, Malawi, Tanzania, Uganda and Zambia). Several
of these address customs and border management policies. Zambia is
using assistance to strengthen sanitary and phytosanitary services,
build capacity in modern customs techniques and improve monitoring,
standardization and certification of import and export quality.
Finally, many programmes focus on fighting corruption, which is a
key impediment to business and trade.
Eligible countries have requested grants for a range of
trade-related projects. For instance, Benin will receive $169
million to improve operations and infrastructure at the port of
Cotonou, resulting in fewer delays, lower operational costs and a
50% increase in the volume of merchandise traffic through the
port.
The Government of Ghana identified post-harvest handling
facilities for fruit and vegetables as a priority for funding.
Cape Verde will increase port capacity and remove obstacles to
global competitiveness in priority sectors. In Mali, better
irrigation and an industrial park within Bamako airport are
designed to boost agricultural exports.
Links between trade, aid and strategies to help the economy grow
and thus reduce poverty are best illustrated by those who benefit
directly from these programmes. In Madagascar, a programme
identified geraniums as a high value-added market, formed a
cooperative, doubled production capacity by training farmers,
assisted the cooperative in accessing credit and negotiated a
contract with a buyer, who is using the geraniums to produce
essential oils for sale to the European market. When asked if the
farmers enjoyed the smell of geraniums, the head of the cooperative
replied, "We like the smell of money better." The farmers' income
had increased by two-thirds thanks to MCC assistance.
If experience is any guide, developing countries will continue
to put a high priority on trade as a way to reduce poverty and
increase economic growth. For the moment, most trade-related
projects concentrate on infrastructure - the need for which is
clear. Unless they also invest in export-quality goods and
services, however, the new roads, ports and warehouses will not be
put to use properly. ITC, for one, serves as a partner in helping
countries balance out their "aid for trade" projects, so that they
address business skills as well as infrastructure.
MCC, working with other donors, the private sector and
governments themselves, can be a major partner in helping
developing countries participate effectively in global trade.
Maureen Harrington is Vice President for Policy and
International Relations at theMillennium
Challenge Corporation.
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