Economic Growth
Accelerating economic growth is essential for countries to reduce poverty and develop the means to offer quality services to their citizens. Trade, investment, private sector development, a favorable policy environment, and good governance are keys to economic growth.
In FY 2005, the Agency spent $1.9 billion to promote economic growth (all accounts). This represents 23 percent of funds programmed by USAID in FY 2005. In FY 2006, USAID has budgeted $1.3 million for economic growth (all accounts).
Trade capacity building, an integral part of USAID's economic growth program and an issue of special interest, is described below.
Special Interest: Trade Capacity Building
USAID has helped Jordan dramatically increase the number of copyright infringement cases prosecuted by its courts, with 80% of those cases resulting in corrective actions. The Agency has helped Kenya and Uganda reduce the time needed to move a container across their border from three to five days to less than three hours. In Central America, USAID has helped double the price paid to small coffee growers, and expand acreage farmed in an environmentally sustainable way.
USAID's trade capacity building (TCB) programs are helping more than 80 developing countries take advantage of trade opportunities to expand their economies, create more and better jobs, and reduce poverty. The Agency's TCB investments enable countries to participate more effectively in global and U.S. free trade agreements, comply with trade commitments, implement related economic reforms, and strengthen the public and private sector institutions they need to respond effectively to trade opportunities and challenges.
Trade capacity building is found throughout USAID's economic growth program. Fiscal reform projects help governments diversify revenue sources and reduce fiscal dependence on tariff revenues, paving the way for deeper trade reforms. Enterprise development and poverty reduction projects help small- and medium-sized firms establish business linkages and integrate into lucrative international production and distribution systems.
Trade capacity building assistance is integrated into other sectors, as well. For example, agriculture projects help farmers meet rigorous plant, animal and human health standards, increasing the value of farm products and opening up new international market opportunities.
Trade capacity building assistance also creates new economic opportunities for Americans, and promotes a more stable and secure international environment.
Meeting developing countries' TCB needs is a high priority for USAID. In FY 2005, worldwide funding for USAID TCB projects reached $693 million, an increase of 64 percent over the five year period between FY 2002 and FY 2005.
Program Emphasis
The program emphasis of each USAID TCB activity reflects each country's unique trade opportunities and challenges. For example, USAID takes advantage of different countries' engagement in a wide range of international trade initiatives -- such as U.S. Free Trade Area (FTA) talks, World Trade Organization (WTO) negotiations, and the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries (IF). Carefully coordinated combinations of trade reform and institutional capacity building provided by these initiatives can produce stronger development results than either the trade reforms or the capacity building assistance alone.
TCB programs also are tailored to the strengths and weaknesses of each country's economic institutions. Where economic governance and institutional capacity are weak, USAID works with both the public and the private sector to improve trade policy dialogue between government, the private sector and civil society; reduce customs, transportation and other trade transactions costs; promote well-regulated international and domestic competition; expand access to trade finance and other commercial credit; meet international labor and environment standards; and diversify export markets and related job opportunities.
Within this broad category of reform and institutional capacity building, USAID trade facilitation activities have grown particularly rapidly in recent years - rising from 22% of total USAID TCB funding in FY 2001 to 45% in FY 2005. Trade facilitation includes customs reform, simplification of other trade-related regulatory and administrative procedures, improving efficiency of transportation services and infrastructure, and expanding access to and use of e-commerce tools.
To be successful, such long-term TCB programs require sustained, multi-year USAID support, including continuous technical and management oversight by experienced USAID field personnel.
Because generating immediate trade benefits can help build and sustain support for long-term trade reforms, USAID also provides a range of more short-term TCB training and assistance. Such programs include helping firms and workers to better understand international market requirements, adopt e-commerce and other modern business skills and technologies, comply with international process and product standards, and establish strong and sustainable business linkages with U.S. and other international partners. Targeted, short-term TCB assistance is also effective in countries that have already achieved relatively good economic governance.
Program Successes
International donors and recipients recognize USAID's technical leadership and demonstrated success in designing and implementing cutting-edge TCB assistance programs. Successes relating to the program priorities described above include:
WTO Compliance: USAID -- with technical support from the U.S. Patent and Trademark Office - worked closely with public and private institutions in Jordan for more than five years to improve compliance with the WTO Agreement on Trade-Related Intellectual Property Rights. The number of copyright infringement cases referred to the courts has sharply increased, with about 80% of those cases resulting in corrective actions.
Cutting Trade Transactions Costs at Borders: USAID has helped Kenya and Uganda establish a joint, one-stop border crossing that streamlines two-way trade and significantly reduces the time and cost of moving goods between landlocked Uganda and Kenya's seaport of Mombassa. The time needed to complete customs and other clearance procedures has been reduced from three to five days to less than three hours, resulting in an average cost savings of $350 per day per container.
Higher Value, Ecologically Sustainable Coffee Exports: USAID, in an alliance with Starbucks Coffee Company and Conservation International, is working with coffee growers in Chiapas, Mexico to improve farmers' incomes and conserve diverse coffee-growing ecosystems. Starbucks' purchases from participating farmer cooperatives increased from 75,000 pounds in 1999 to over 1.5 million pounds per year in 2002, 2003 and 2004. Under its "Coffee and Farmer Equity" initiative, Starbucks paid an average price of $1.20 per pound for green coffee, 70% more than the average price paid on the New York "C" Market.
Challenges Ahead
Many developing countries' ability to take advantage of international trade opportunities is undermined by weak economic governance, compounded by the limited technical and administrative capacities of both public and private sector trade institutions. Strong local leadership and sustained political commitment are needed to overcome these weaknesses, and failures in local commitment and leadership can have a significant impact on the outcomes of USAID TCB programs. This is a major challenge for USAID in many Least Developed Countries (LDCs) and fragile states.
Even with strong local leadership, strengthening economic governance and building institutional capacity for trade is a long and complex process. In some countries, entrepreneurs' ability to integrate into potentially lucrative global supply and distribution networks is severely constrained by excessive administrative burdens on trade transactions - such as requiring 30 or more official signatures on each incoming or outgoing trade shipment. Such procedures may be embedded in dozens of outmoded laws, regulations and institutions. Similarly, national laws may not recognize inventory, receivables and other movable property as legal collateral, making it difficult for local businesses to obtain credit on terms that are favorable enough to sustain profitable import and export trade. Landlocked countries often must overcome extremely high transportation costs, the result of both degraded physical infrastructure and the inefficient operations of state-owned or poorly regulated private sector monopolies.
For TCB programs to address these constraints successfully, USAID must be able to sustain project assistance in multi-year time frames. The ability to do so, however, may be affected by shorter-term political and economic expectations and time horizons.
Allocation of TCB Resources
USAID's allocation of TCB resources seeks to take advantage of strong local commitments to reform trade policies and take other concrete steps to integrate into the global economy.
For example, USAID has increased TCB funding to countries that have initiated or completed bilateral Free Trade Area (FTA) negotiations with the United States. Between FY 2001 and FY 2005, TCB funds allocated to Morocco increased by 350%. In the same period, TCB funds allocated to the six developing country participants in the U.S.-Dominican Republic-Central America FTA, and to the four Andean countries that have initiated FTA talks with the United States, increased by 150% and 900%, respectively.
And in the last five years, USAID TCB has increased by 70% its assistance to the 26 countries that have committed to mainstream trade in their national poverty reduction strategies through the multilateral "Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries."
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