Sustainable Development » Trade, Aid and Debt Relief

Strategies to reduce uneven development

The lesson Why Development Is Uneven showed why the gap between countries exists. This lesson looks at the main strategies (action plans) used to narrow it: trade, international aid and debt relief. Investment by transnational corporations and tourism are also used, and are covered briefly at the end.

For every strategy, ask four questions. What are its strengths and weaknesses? Who benefits? How sustainable is it? What is your judgement?

Remember, microfinance and the SDGs were covered in Sustainable Development Strategies. Here we look at the bigger, international strategies.

Trade

Trade is buying and selling goods between countries. It can raise incomes, create jobs and bring in money for schools and hospitals. But the rules of trade are not equally fair to everyone.

Key terms:

• Free trade: trade between countries with no tariffs (taxes on imports) and no quotas (limits on amounts).
• Trade bloc: a group of countries that trade freely with each other and usually put tariffs on goods from outside the group.
• Fair trade: a system that pays producers in LICs a guaranteed minimum price and a bonus for community projects.
• Manufacturing: making raw materials into finished goods in factories.

Fair trade in full

1. Farmers form a co-operative and meet fair trade standards.
2. Buyers in HICs pay a guaranteed minimum price for the crop.
3. An extra premium is paid, which the community spends on schools, clean water or healthcare.
4. Shoppers pay a little more for the product.

Strengths: stable, higher income, community projects, and farmers are encouraged to protect soil and water. Weaknesses: only farmers who are certified benefit, it is a small share of world trade, and the crop is still a raw material.

From raw materials to manufacturing

Many LICs depend on exporting primary products such as coffee, copper or cotton. Their prices swing up and down, and most of the profit is made when the goods are processed. Cocoa beans are grown mostly in West Africa, but most chocolate is made in HICs.

Moving into manufacturing adds value. Clothing now makes up most of Bangladesh's exports, creating millions of jobs. The weaknesses are low wages, long hours and unsafe factories: in 2013 more than 1,000 workers died when the Rana Plaza clothing factory collapsed. Manufacturing can also cause pollution.

Judgement: trade helps most when countries add value to what they sell and get a fair price. It is fairly sustainable if jobs last and pollution is controlled.

International aid

Aid is help, such as money, goods, food or expertise, given by one country or organisation to another. Remember, an NGO is a non-governmental organisation, such as a charity.

Type	What it is
Bilateral aid	One government gives directly to another government.
Multilateral aid	Many governments pay into an organisation, such as the UN or World Bank, which then decides where to spend it.
NGO aid	Charities such as Oxfam or WaterAid raise money and run projects, often with local people.
Short-term (emergency) aid	Quick help after a disaster: food, tents, medicine.
Long-term (development) aid	Years of support for schools, wells, roads and healthcare.
Tied aid	Aid with strings attached: the receiving country must spend it on the donor's goods or companies.

Top-down and bottom-up

Strengths of aid: it saves lives in emergencies and builds schools and clinics LICs cannot afford. Weaknesses: tied aid mostly benefits the donor, money can be lost through corruption, and people can become dependent on it. Emergency aid is not sustainable on its own, but long-term bottom-up aid that trains local people usually is.

Debt relief

Many LICs borrowed money and now spend more on repayments and interest than on health or education. Debt relief means cancelling or reducing the debt that a country owes.

The best-known scheme is the Heavily Indebted Poor Countries (HIPC) initiative, started in 1996 by the IMF and World Bank. More than 30 countries, most in sub-Saharan Africa, have had debts reduced if they promised to spend the savings on poverty reduction, such as schools and clinics.

Strengths: money is freed for health and education, and the country is no longer crushed by repayments. Weaknesses: countries have to meet conditions and relief can take years. Some countries borrowed heavily again. Who benefits: the poorest people, if governments spend the savings well. Debt relief is sustainable only if the country does not fall back into debt.

Investment by TNCs and tourism (briefly)

• TNC investment: factories and shops create jobs and bring skills. But profits often go abroad, and jobs may leave if the company moves.
• Tourism: creates jobs and income. But much of the money can leave the country, and too many visitors damage the environment.

Reaching a judgement

Strategy	Main benefit	Main weakness	Sustainable?
Free trade and trade blocs	Bigger markets for members	Outsiders and small LIC farmers lose out	If outsiders are not shut out
Fair trade	Stable income for farmers	Small scale	Fairly
Manufacturing	Many jobs, more value	Low pay, pollution	If controlled
Emergency aid	Saves lives quickly	No lasting change	No
Development aid	Builds schools and clinics	Tied or lost to corruption	If local
Debt relief	Frees money for services	Conditions, new debt	If debt stays low

No single strategy works alone. A good judgement says which is best for a named country and why, then explains the limits.

Exam-style question

Fig. 1.1 describes Country Q, a made-up LIC. It exports mostly raw coffee beans and spends a large share of government income on debt repayments. It received three projects: Project A, a HIC government paid for a motorway but a company from the donor country had to build it; Project B, a charity helped villagers dig 20 wells; Project C, part of the debt was cancelled if the savings were spent on schools.

(a) Identify the project in Fig. 1.1 that is an example of tied aid. [1 mark]

(b) Explain how moving from exporting raw coffee beans to roasting and packing them could help Country Q. [3 marks]

(c) Evaluate the use of international aid as a strategy to reduce uneven development. [6 marks]