Evian-Garnet Capacity Building Workshop

Trade 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.