Evian-Garnet Capacity Building WorkshopTrade and Governance in Developing countries

Presentation by Dr Manzoor Ahmad

9 July 2919

I would first like to discuss the role of good governance and open trade in

achieving economic growth, and then suggest the way forward for

developing countries.

Whether we look at the last ten years or twenty or fifty, one fact comes

out clearly. Counties which had good governance and open trade policies

have in general been successful in reducing their poverty levels and in

bringing peace for their people. Other factors such as abundance of

natural resources or having preferential access to overseas markets are

of secondary importance. Many resource-rich countries have performed

poorly either because of poor governance or due to their closed economy.

For example, in Africa, countries such as Libya, Nigeria, Gabon, Angola,

Equatorial Guinea, Mauritania, and Chad are all oil-rich but still have not

done as well as their neighbours who were resource-poor. In Asia, oil-rich

countries such as Iran and Iraq whose economies are ranked as “not free”

have done much poorly compared to other oil-rich countries whose

economies were relatively open or even compared to many others who

did not have any natural resources.

It is common practice in many countries to blame others for their poor

economic performance. Undoubtedly, some countries are treated rather

unfairly and their exports face much higher tariffs as compared to others

or even compared to developed countries. But this should not stop them

from doing what they could do to improve their economic welfare. What

has to be realized is that having duty-free or preferential market access

to overseas markets may help countries but it will not be the determining

factor for their economic growth or reduction of poverty. Already most

poor countries have full market access but because of their own

restrictive trade policies or poor governance they have not done as well

as others who did not have such access. In fact when I look at my country

(Pakistan) which has had alternating periods of good governance and

open trade regime versus long periods of bad governance and restricted

import policy, I find a direct correlation between higher economic growth

on the one hand and good governance and open trade on the other.

My second point, which is very much linked to the first one, is that for

many developing countries trade policies are formulated in such a way as

to create rent-seeking opportunities for influential politicians, traders and

bureaucrats. Let me give you an example of rent-seeking from my own

country. In Pakistan sugar mills are mostly owned by influential

politicians as it is a restricted industry. Very often trade policy is

manipulated so as to provide big gains for the owners of that industry.

This is either done through restricting imports or through giving

subsidies to the sugar industry. As a result consumers as well as the

exchequer suffers. If there was transparency, accountability and

inclusiveness this would not happen repeatedly. Many developing

countries, where there is no transparency, follow such practices and as a

result a few people become very wealthy at the expense of the general

populace.

What is the way forward to put in place a transparent and open

trade policy?

First, greater transparency, accountability and inclusiveness have to be

made a part of trade policy. This would reduce corruption and

misallocation of resources.

Second, independent forums should be established to bench-mark

economic policies and openness against neighbouring countries that are

doing relatively well and try to match them.

Third, examine various international conventions and recommendations

and try to adopt them. For example, there is a WTO agreement on

Information Technology. Those countries that are signatory to this

agreement have seen their IT sector make big progress. There is another

WTO agreement on government procurement. Following the good

practices prescribed by this agreement could cut corruption substantially.

To sum up, if a country is able to have good governance and open trade

policy regime, it can flourish without depending on foreign aid or any

other external factors.