Speeches & Transcripts

Remarks at the Trade, Poverty, and Shared Prosperity Conference

December 11, 2014

Anabel Gonzalez, Sr. Director, Trade and Competitiveness Global Practice Washington, DC

As Prepared for Delivery

·         Thank you all for inviting me to conclude this important two-day conference. The presentations have covered a fascinating range of topics touching on the linkages between trade and the Twin Goals of eliminating extreme poverty and boosting shared prosperity. The wide-ranging subject matter—from issues of transport and famine in India to the impact of trade on American workers—demonstrates the scope and importance of this agenda.

·         Trade is a very powerful driver of growth and poverty reduction, that much is clear. But we must not deceive ourselves into thinking in terms of simple formulas, where more trade or more free trade automatically bring us to our Twin Goals.

·         Our job as development professionals is to ensure that trade not only benefits more countries, but also benefits the most people. We have seen trade barriers fall in recent decades. Yet barriers remain that prevent the benefits of trade from reaching all sectors of society: the extreme poor; people living in remote, rural regions; and women, to name three groups.

·         I would like to share with you my perspectives on the most useful research contributions we can make in maximizing the benefits of trade. Specifically, I would like to speak about trade and poverty in the context of four key challenges or conditions that we must address if we are to succeed.

o   First, much poverty is concentrated in rural areas, creating a disconnect between the people in these regions and the benefits of trade.

o   Second, many of the poor work in the informal sector, making it difficult for us to design programs or even to gather reliable data on the impact of trade and trade-related projects.

o   Third, being in a fragile state increases the propensity to be poor. Struggles for control of mineral wealth can increase tensions in and among poor countries. And poor communities are more vulnerable to the shocks created by conflict.

o   Fourth, women have a higher propensity to be poor, and we are only now beginning to see data showing the economic and security challenges faced by women traders in remote border regions.

·         Each of these challenges points to the need to do more than simply lower trade barriers. Let me provide a little context before exploring these four challenges in greater detail.

·         The ability of trade to reduce poverty has grown. Because of the advent of Global Value Chains, in which business sectors in multiple countries add value to a single product or service, low-income countries no longer need to develop capacities in whole industries. They can participate in Global Value Chains by leveraging comparative advantages in particular sectors where they excel.

·         We know that even where tariffs have come down, many poor countries face regulatory barriers and high transportation costs that prevent them from fully realizing their comparative advantages. These cost issues also prevent poor countries from realizing their potential to expand into new sectors, particularly services.

·         We have few studies that look at how trade in services impacts poverty. We need a more systematic approach that expands our traditional focus on trade in goods. We are seeing the increasing importance of access to a wider variety of lower priced services through imports, and increasing opportunities to export services. We need to ensure that these opportunities reach the poor. To make that happen, we need to look at trade reforms through a ‘poverty lens.’

·         Trade can provide higher income for the poor as producers and lower prices for them as consumers of goods and services.  To effectively support that process, we must to link our interventions to an understanding of who the poor are, where they are, and what they do. In this way, we can better identify the challenges faced by the poor in connecting to international markets and tailor our interventions more precisely to target the poor.

·         This brings me to the first of the four points I raised initially—about the concentration of poor people in rural areas.

·         Currently 80 percent of the extreme poor reside in two regions: South Asia and Sub-Saharan Africa. Projections in the latest World Bank Group/IMF Global Monitoring Report suggest that in 15 years, the challenge of ending extreme poverty will essentially be a Sub-Saharan African issue (where 80 percent of the extreme poor will live by that time). This rests on assumptions of relatively robust global growth, to which trade will be an important contributor.

·         Extreme poverty in many African countries is predominantly a rural phenomenon, making issues of connectivity paramount. Widely dispersed poor people have a much harder time taking advantage of the economic benefits of scale. We need to know more about the conditions in which these people trade, the challenges they face, and the priority for reforms in terms of poverty reduction.

·         As an example, we are currently studying the animal husbandry sector in the Sahel region of Burkina Faso, a sector of particular importance to the poor in that region, and more particularly, how the value chain can be enhanced in terms of regional trade in the Sahel.

·         We see increasing evidence that the pass-through from trade to rural markets is much lower in developing countries. The more remote the location, the higher the share taken by intermediaries.

·         A better understanding of the challenges of rural poverty helps drive home the point that reforms linking firms and individuals to global value chains do not, by themselves, lift people out of poverty.

·         Take harmonization of standards for example. This approach is commonly prescribed as a way to eliminate non-tariff barriers arising from differences in standards across countries. Lack of standards is bad for trade, but wrong standards, and poor standardization policies, may be even worse. Inappropriate standards established in the name of harmonization may have the unintended effect of disconnecting poor farmers from poor consumers. Harmonized standards can lead to additional trade costs when other cheaper and less disruptive ways are available to avoid health and safety risks.

·         Another example is the work the Bank and other donors have been doing to improve international gateways. Historically, we have often shied away from extending this to borders between poor countries—yet it is these borders that can be nearest to the majority of the poor. 

·         And in the making of trade policy itself, the poor in rural areas tend not to be well represented. We can help change this by doing more analytical work that identifies the challenges they face and the opportunities for poverty reduction that trade can bring.

·         Of course, in discussing the great challenge we have ahead of us in overcoming the challenges of remoteness for the poor, we should not pretend that this is the whole story of poverty and trade. Talking about the challenge in connecting the rural poor to markets is not to neglect the challenges faced by the urban poor, and the different character of poverty across the world. We need a stronger and up-to-date understanding of the nature of poverty in each region and country, to address the different challenges in connecting the poor to trade and maximizing the positive impact of this.

·         In short, we still have a large agenda for analysis and advocacy within the Bank, with donors and with our clients in this area.

·         My second point was about the many poor working in the informal sector and the challenge this presents us in terms of data and analysis.

·         In Cameroon, for example, only 10 percent of jobs are in the formal sector, placing the vast majority of the economy outside of normal measurement.

·         Similarly, a large portion of trade in poor countries is informal. This, by the way, is not to say it is illegal but simply small in scale and unrecorded. As a result, official trade statistics give an incomplete picture, especially for areas and activities in which the poor dominate—precisely the areas we need to know more about in order to achieve our goals.

·         Both Uganda and Rwanda have devoted resources to measuring informal trade at borders and found that informal trade can reach volumes equivalent to 60 percent of formal trade. As a result, Rwanda has developed a cross-border trade strategy that focuses on small informal traders and the challenges they face.

·         We need to be thinking of how effective trade interventions can be designed when a large number of the potential beneficiaries are in the informal sector, and how trade can support efforts to bring larger numbers of poor people into formal activities.

·         Informal trade in services is often a key element of trade across borders between poor countries. Hence, facilitating the movement of persons across borders is a key element of the trade agenda. We know very little about informal trade in services and we need to think more carefully about obtaining data that will better inform our work. Just think of the enormous benefits that could arise from leveraging trade to improve access to health and education services in poor remote regions.

·         Border regions between poor countries are often strategic locations relating to my third point about fragile states increasing the propensity to be poor.

·         Trade increases social cohesion and solidarity between communities across borders at the grassroots level, even if they belong to supposedly ‘conflicting’ groups. Trade can lead to dialogue around regional ‘peace markets,’ and traders can play an important role in dispelling ethnic and other stereotypes, decreasing the possibilities for political or armed mobilization.

·         We are all too familiar with cases in which high-value commodity exports such as minerals can contribute to conflict. So we need to better understand, and emphasize the ways in which trade can play a key role in promoting peace and stability.

·         Better jobs and increased real income—enhanced by interventions that ease the flow of agricultural products—should have the effect of giving people more to lose, hence raising the opportunity cost of conflict. Higher incomes in the agricultural sector may persuade young men to stay in their communities rather than opting for the easy money offered by armed groups.

·         By strengthening border-crossing mechanisms, states will be better able to filter out and intercept conflict goods, depriving armed groups and political interests of a source of weapons and income.

·         The impact of conflict on countries is partly a function of the vulnerability of communities to shocks. Improving access to critical inputs to production, particularly seeds and fertilizers, may allow communities to increase productivity and move away from short-term cropping which leaves them vulnerable to outside shocks.

·         Similarly, decreased border crossing times should mean more time for trading activities and thus greater returns. As most of the traders are women, these benefits are most likely to be directly invested in the household, thereby decreasing vulnerability of communities to shocks.

·         We need to build on these broad insights and identify specific interventions that will enhance the ability of trade to advance stability and peace in conflict-ridden communities.

·         This brings me to my final point about women having a higher propensity to be poor.

·         Women are among the most vulnerable, especially in fragile states, and trade can play a key role in supporting and enhancing the livelihoods that provide women with income and new economic opportunities.

·         Weak governance often brings with it a lack of transparency and weak controls for monitoring and preventing abuse and corruption in the management of borders. This often results in women traders, especially, being subjected to extortion and physical harassment, including sexual assault.

·         Poor women traders often find it difficult to access traditional male-dominated distribution networks. As a result they tend to get lower prices for their products. Poor women farmers usually have to work with lower yielding seeds, and use less fertilizer than men. Trade facilitation needs to address the gender-specific challenges faced by poor women so that the benefits reach the poorest.

·         In the Great Lakes Region of Africa we are preparing a project to facilitate trade involving fragile states with border areas that are a long way from global markets and trade activity that is largely informal and often carried out by poor women.

·         Traders in these countries play a vital role in linking farmers and other producers with consumers across borders. The costs and physical risks associated with these crossings are high. Most traders use formal border posts.

·         Between Goma, in the Democratic Republic of Congo, and Gisenyi, in Rwanda, 3,000 or more people typically cross the border every day. The majority are women and more than half, according to a recent survey, report physical harassment at the border. Incomes from these trading activities are crucial, and increasing the returns from trading can mean the difference between a child going to school or not.

·         The objective of the Great Lakes project is to facilitate cross-border trade by reducing costs, time, and harassment—especially of women—to improve the operating environment at the border for traders. Project beneficiaries would primarily be vulnerable families in borderland areas, cross-border traders, and especially poor women.

·         Good data is critical to the success of projects such as this and to ensuring that trade policymaking incorporates that poverty lens.  The Bank is helping countries in Africa improve the measurement of the downstream outcomes of deeper intra-regional trade. In the poor and remote regions we have been discussing, innovative approaches such as crowd-sourcing and crowd-seeding are generating new data from poor people previously beyond the reach of official surveys. Through these means we should be able to get more data that is gender-specific, extends to informal sectors and conflict-affected regions, and covers services as well as goods.

·         This will offer important avenues for analytical work to better inform the design of our operations and to monitor their impact.

·         Let me conclude by noting how wide-ranging and important this agenda is – and how fitting it is for this discussion to have been held. We have a lot of work ahead of us, and I look forward to working with colleagues across the World Bank Group and the wider trade and development communities to ensure we are doing everything possible to maximize the positive impact of our work for the poor.

·         Thank you for your attention today and for your participation in this important discussion.