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Is ‘trade aid’ the best way to help poor people?

Does aid investment in farming always help farmers?
Does aid investment in farming always help farmers?

The UK has recently announced a 20 million pound aid investment in Tanzanian business projects, but is this the best way to help the country’s poor?

Last week, the UK’s international development secretary revealed that Britain will be donating 20 million pounds towards four trade projects in Tanzania. The money is part of an increasing drive by Western governments to encourage business initiatives in developing countries, particularly in key sectors such as agriculture.

In Tanzania, nearly a third of smaller-sized businesses have no access to finance. Therefore, one of the schemes to receive financial support from the UK government is Equity for Africa, a UK-based organisation which provides finance to small agricultural businesses. The remaining money will go towards supporting a Tanzanian electricity company in the construction of a new hydropower plant, a public-private partnership to foster agribusinesses and to tea farmers in the southern highlands of Tanzania.

Does a rising economic tide float all boats?

The idea behind the UK’s backing of such initiatives is that such aid will help bring greater wealth to Tanzania. In her announcement about the funding in Dar es Salaam, reported in the Guardian, the development secretary explained that by boosting economic activity and creating jobs “everyone benefits from that growth”.

But is it true that a rising economic tide ‘floats all boats’? Tanzania’s economy has been growing steadily at over 6% each year, mainly thanks to the gold mining industry and tourism, but the country remains one of the world’s poorest in terms of annual income per head (at around 1,600 dollars). Critics argue that economic growth is not benefiting the majority of Tanzanians, with an estimated two-thirds of the population living on around a dollar a day.

"Little concrete evidence"

Two non-governmental organisations (Traidcraft and CAFOD) recently commissioned a study on the effectiveness of British and European aid for trade assistance. The study concluded that there was still very little concrete evidence to demonstrate the positive impact of aid-funded trade programmes on overall poverty levels.

This could partly be due to the difficulty of measuring the actual effect. Results can rarely be seen in a short timeframe and any impact on poverty levels can be quite indirect. Evaluations are also costly; research to measure changes in income levels among 500 households would cost around £200,000.

But perhaps the main reason why it’s hard to find concrete evidence for the poverty-reduction benefits of trade aid is because improving people’s lives through work and employment is more complicated than it might sound. Improvements depend not just on jobs, but also on the quality of such jobs and whether the rights of workers, particularly women, are equal and protected. For example, in many developing countries women are responsible both for feeding and caring for families, and for producing food and generating income.

Does employment have hidden dangers?

Women smallholders in Kenya
(Photo: McKay Savage, via Wikimedia Commons)

Enabling more women in Tanzania to access paid employment such as tea-picking would seem only beneficial, since it should raise household income. However, a study in Kenya looking at the increased participation of women in sugar production found that women often had no control over how extra income was spent. In addition, their physical health and weight suffered due to the additional workload since the extra calorie-burning work activities were not necessarily offset by a better diet.

Great opportunities, but also great risks

Generating employment in vulnerable regions can also be tricky when the flows of capital, technology, information and trade are so strongly skewed in favour of wealthy nations. And the global demand for cheaper goods and food can put huge pressure on businesses in developing countries to keep costs as low as possible. This can result in meagre wages or prices being offered for raw materials, and businesses paying scant attention to working conditions or employee benefits.

There is no doubt that the globalisation of trade and business offers great opportunities. But it also carries great risks, particularly when businesses are operating in regions where rights and equalities require greater protection. Therefore providing aid for trade has to be just one component in a package of many measures in order to ensure that everyone benefits.

SOS Children has worked in Tanzania for two-and-a-half decades. Find out about our work there...

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