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Economic Diversification Boosts Commerce in Low-Cost Sourcing Countries, OECD Report Shows

A new progress report on the Aid for Trade program–credited with helping to grow apparel manufacturing in developing countries from Haiti to East Africa–said it has been mostly successful in building trade capacity in poor countries, but progress remains geographically uneven.

The report, “Aid for Trade at a Glance 2019: Economic Diversification and Empowerment,” said 47 developing countries, mainly 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. Most progress has been seen in agricultural sectors, followed by services and industry, according to the report. In the apparel sector, poorer countries, like Ethiopia and Haiti, have been able to improve infrastructure and other capabilities to advance their trade status.

However, 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, the report noted.

“Aid for Trade…is having a real impact where it is most needed,” Angela Gurria, secretary general of the Organization for Economic Cooperation & Development (OECD), said. “That said, the path toward economic diversification is complicated by subdued trade growth and a decline in FDI (foreign direct investment). 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.”

Diversification and empowering small business, youth and women to participate in and benefit from trade will be key for achieving the United Nations Sustainable Development Goals, the report noted.

A total of $409 billion in official development assistance (ODA) and $346 billion in concessional loans have been used since 2006 to boost trade in developing countries by investing it in infrastructure, regulation or providing access to technical assistance. Another $100 billion in ODA and loans from donor countries was committed in 2017, and assistance between developing countries provided another $9 billion.

Every dollar invested in Aid for Trade has been found to generate $8 worth of exports in developing countries and nearly $20 of exports in least-developed countries, according to the report. Open, rules-based trading contributes to global welfare by helping to disseminate goods, services, technology and knowledge, although many developing countries still face numerous supply-side constraints, according to the report.