The link between low trade and high poverty (1)

Nigeria is not just a place to set up a business. The country is a big and growing market. Investing in Nigeria is tantamount to connecting to a big market
The relationship between trade and poverty is inverted. Countries with higher proportions of global trade tend to have less of poverty. Conversely, countries which contribute the least to global trade have higher poverty rates. This shows the importance of good trade policies in reducing poverty rates and increasing prosperity. Also, this shows why there is intense competition for export markets even by countries that already control significant share of global trade. Little wonder trade facilitation has become an economic policy of great importance.

Development experts can’t agree more. Jim Yong Kim, the World Bank president, said in a recent statement that, “Trade is a critical component to ending poverty and boosting shared prosperity.” The foregoing therefore suggests that developing countries have to trade their way out of poverty. For African countries to reduce poverty, they must increase their share of global trade. But how to bring this about is anything but easy.
Sub Saharan Africa is reputed to be the least developed region of the world. The SSA region is also the least integrated into the global economy through trade. Since the 1960s, the share of sub Saharan Africa in international trade has become progressively smaller: less than 5% for all merchandise and 3% for agricultural products in 2010 (World Foundation for Agriculture and Rurality 2012). Trade within the SSA region is also dismal. Tariff and non-tariff barriers have been obstacles to intra-regional trade. Although the higher hurdles are non-tariff barriers, the ECOWAS goal of free movement of person and goods across member countries remains more of a wish than reality.
Exports from Africa are mainly mineral resources and agricultural produce. With very low industrial base, the commodities are exported to other regions of the world and returned later to the continent as costlier finished products. This trade pattern results in “jobless growth” in the exporting countries when the prices of the commodities are high in the international market. The jobs that are created and sustained during commodity boom are mainly in the countries that “refine” and turn the commodities to finished products through industrial activities.
But when prices of commodities are depressed, fiscal shocks are transmitted through the trade channel to the exporting countries, with severe human and economic implications. Apart from being pro-cyclical, trade in commodities is generally noted for volatility of current account positions and exertion of pressure on the exchange rate. The persistence of weak or negative growth in Europe and slower growth in China has dented economic growth in countries that depend very much on the export markets including Germany. But this does not build a case against active play in the export markets; it probably asserts the importance of domestic consumption as a cushion during a period of weaker exports
Having established the role of trade in reducing poverty on the one hand, and the deleterious effects of export of mainly primary products on the other, it therefore means that the way to reduce poverty in developing countries is through export diversification by boosting industrial activities. Gaining a mileage in export diversification does entail formalisation of informal trade. To achieve this, empowerment of small- and medium-scale enterprises (SMEs) is of utmost importance, both in itself and in gaining more share of global trade.
The key problem with informal trade is that it deprives policymakers of the major tool of policymaking, which is data. Informal trade usually takes place off the radar, making data gathering and processing virtually impossible. But policymakers need to know areas where it is important to scale up positive results in trade activities. Understanding the obstacles that confront informal sector operators will aid intervention and will eventually prepare the operators toward making due contribution to fiscal policy by coming under the tax net
Evidently, the administration of President Goodluck Jonathan has identified the SME sector as critical for boosting economic growth and job creation. On its part, the Nigerian Export – Import Bank (NEXIM Bank) is aware of the potentials of Nigerian SMEs. They can leverage domestic consumption, using access to over 170 million population to harness opportunities in foreign markets. Accordingly, our interventions are now geared towards such firms that we believe are relatively well-structured to be able to stabilize their operations and then foray into external markets.
Several programmes under this administration are incubating the SME segment for a major turnaround. In the traditional areas of providing infrastructure and electricity power, the country is seen to have made big leaps in policy formulation and execution, notwithstanding the milestones that are yet to be reached. Most recent perhaps is the launch of the N220 billion SME fund by the President in August, under the auspices of Central Bank of Nigeria. Specific programmes under the Agricultural Transformation Agenda, infrastructural development for ICT utilization, local content development in oil and gas, the programme of industrialization as encapsulated in the National Enterprise Development Programme (NEDEP) and the Nigerian Industrial Revolution Programme (NIRP) all speak of the resolve of President Jonathan to use the instrumentality of state policy to mediate market performance and SME growth. On-going implementation of the programmes is concomitant with job creation, which is vital for eradication of extreme poverty.
Poverty eradication has once again climbed to the top of global development policy agenda. The World Bank and the International Monetary Fund (IMF) have announced twin programmes of ending extreme poverty and boosting shared prosperity by 2030. Feelers from post-2015 policy debates suggest that global development goals will focus on eradication of extreme poverty, going forward from next year. In the meantime, reports from some global institutions are making some important prescriptions on poverty reduction.
A recent publication by United Nations Conference on Trade and Development (UNCTAD) – Trade Policies, Household Welfare and Poverty Alleviation: Case Studies from the Virtual Institute Academic Network – strongly associates trade and poverty, offering policymakers insights on what it called “pro-poor trade policies.” Another new literature which focuses on economic growth – a sine qua non for poverty reduction – reaffirms what we already know: that export diversification is the “gateway” to higher growth. To achieve export diversification however, Chris Papageorgiou, Lisa Kolovich and Sean Nolan, all of the IMF, identify manufacturing of high quality products as a necessity. They suggest therefore that the world has gone past the Chinese industrialization model of producing cheap and low quality products to unleash price competition in the export market