I’d like to thank the Trade Out of Poverty group and the Parliamentary Friends of CAFOD for inviting me to speak here today.
I’m very pleased to be part of this discussion on the role of the private sector and trade in promoting development. These issues are top priorities for my Department and we have committed to do more.
Last month, the Secretary of State for International Development set out how DFID’s ambitious new approach to Economic Development will transform the way we work. I’d like to say a few words today about this new approach.
First I’ll explain why we’re focussing on economic development and then talk about how. I’ll emphasise two important priorities on this agenda – private sector development and trade; two critical ingredients for promoting the rapid economic growth required to help end poverty for good.
First, why the focus on economic development?
In the last 20 years, the number of people living in extreme poverty fell by 50%. And the driving force behind this was economic growth. The facts are clear: where long-term per capita growth is higher than 3%, the incidence of poverty falls significantly.
Focusing on growth is quite simply a smarter approach to aid. Growth creates jobs, it increases incomes and it also raises tax revenues for governments.
DFID is now building the most coherent and ambitious approach to economic development that we’ve ever had. The Secretary of State showed our commitment to this when she announced in January that by 2015/6, we plan to target £1.8billion of our budget on economic development. This more than doubles the amount spent in 2012/13.
Two areas will be essential for achieving our ambitions: private sector development and trade.
First, private sector development.
Countries need a vibrant private sector to grow. It’s the private sector that creates the most jobs in any economy. It takes risks, innovates, and creates wealth.
But too often, poor infrastructure, complex regulation, information gaps and limited access to finance hold back business, especially small business. Our focus on economic development means that we will do more to tackle all these obstacles.
For example, in Nigeria, we have helped to improve the taxation system, resulting in reforms that benefit around 500,000 micro-enterprises.
And in Nepal, reforms supported by DFID have streamlined and simplified the time and paperwork required to register a firm and pay taxes, saving Nepalese firms an estimated $12m: These are resources they can instead invest in running and expanding their businesses.
We are also focusing on helping women, who often face additional barriers. No country can reach its full potential if it leaves half its population behind. That is why we have put women at the heart of our economic development agenda, and will continue to do more.
Our support is already making a real difference on the ground. For example, our collaboration with the International Trade Centre has helped women traders in Burundi get themselves organised and gain skills to sell their products to global buyers. They managed to sell $1 million worth of coffee to US companies. And by 2015 we will have helped more than 18 million women gain access to savings, credit and insurance.
And across all of our work with the private sector, including by supporting smaller businesses and disadvantaged groups like women, we are seeking to ensure the benefits of economic growth are shared with all sections of society – not just a select few.
The second essential area for our economic development agenda is trade.
For businesses in developing countries to be able to grow, create jobs and contribute to poverty reduction, they must be able to export to global markets or even just trade with a market nearby.
This means addressing the barriers to trade that businesses in the poorest countries face. I’d like to touch on two critical barriers that prevent the poorest countries from trading more – and what we’re doing to address them.
First of all, the barriers to getting goods quickly and efficiently across borders. It doesn’t matter if you have the greatest products in the world if the cost of getting them across the border prices them out of the market – or even worse the products have been ruined because they’ve been sitting in a truck for days at the border, before it has even got to market.
The historic WTO Trade Facilitation Agreement concluded in Bali at the end of last year is a huge step in addressing this.
That Agreement will streamline border procedures and make them faster and more transparent. This will result in reduced costs and time for goods to cross borders. Sub-Saharan Africa alone will gain $10 billion annually from the deal. The UK is committed to supporting the Least Developed Countries to implement this agreement. DFID already spends about £1 billion a year on trade programmes, and over the last two years we’ve spent £55 million annually on trade facilitation.
Our support for Trade and Markets East Africa has helped Uganda to roll out a modern customs management and clearance system. It electronically connects all those involved in clearing goods at the border including 631 customs officials, 23 government agencies, and 100 bonded warehouses. This system is now being used by 90% of all customs transactions and has reduced clearance times for goods from five days to just one – a big improvement for businesses in Uganda.
In Nepal, it takes companies 41 days to export a container load of goods at a cost of around £1500. We are working to reduce the time and cost of moving goods across 4 key border posts in the South Asia region. This will be especially beneficial to small businesses.
The second critical barrier to trade for the poorest countries is that they may not be integrated into the global value chains that are driving international trade. For instance, local garment manufacturers in Ethiopia can only supply to major global companies if they meet their quality and product requirements.
Support and advice to help them do this can really increase and accelerate the ability of companies in the developing world to win major contracts with international buyers – which in turn speeds up growth and job creation. For example Kenya’s fresh fruit, flowers and vegetables exports to UK and European supermarkets provide jobs for four and half million people. That’s over 10% of the population.
This is why DFID is helping developing country farmers and firms become more competitive.
For example, through the Food and Retail Industry Challenge Fund (FRICH) we have worked with leading UK and European businesses to help small scale farmers in Africa improve their quality and product standards to export to European countries. Thanks to FRICH you will find new varieties of flowers, fruits and vegetables on the shelves in your local supermarkets.
We are also committed to encouraging the private sector to improve working conditions for poor workers in their supply chains. In India and Bangladesh, our Responsible and Accountable Garments Sector programme has supported better working conditions and improved productivity in garment factories leading to increase in workers’ pay by up to 12%.
Through the Trade and Global Value Chain Initiative, we’re now working with some of the top UK high street retailers to improve the skills, health and working conditions of workers and smallholder farmers in their garment and horticulture value chains in Kenya, South Africa and Bangladesh.
So, in conclusion, DFID’s new approach to Economic Development is a smarter approach to aid. By helping private sector development and trade, focusing particularly on small and women-owned businesses, we are helping our developing country partners to create jobs, raise incomes and ultimately end poverty for good.