CIDA's Sustainable Economic Growth Strategy

Summary

Stimulating Sustainable Economic Growth

At a time when as many as 2.6 billion people worldwide are living on less than $2 a day, evidence demonstrates that sustainable economic growth is critical to reducing poverty. In fact, countries in Asia, Africa, and Latin America have shown repeatedly that growing the economy is the best way to help people permanently lift themselves out of poverty.

This is because a dynamic, growing economy will create jobs and higher incomes. Economic growth, in turn, generates the financial resources governments of developing countries need to invest in the well-being of their citizens. When governments create the right economic conditions, they can spur investment and innovation, and stimulate trade. They can produce a fair, open and equitable marketplace in which the enterprises that drive the economy can grow and succeed and in which the people behind them can prosper.

The Government of Canada understands the value of stimulating sustainable economic growth to fight global poverty. In keeping with the Canadian government's commitment to deliver international assistance that is more efficient, focused, and accountable, CIDA has developed a sustainable economic growth strategy that will help developing countries:

• Build the enabling framework needed for sustainable economic growth
• Support the growth of a productive and competitive private sector
• Help their people to benefit from economic opportunities

Why do we need action?

For developing countries, the barriers that prevent sustainable economic growth are difficult to overcome.

These barriers can include:

• Workforces that lack necessary skills
• Financing that is difficult to obtain
• Economies that are vulnerable to external shocks
• Social and cultural restrictions—for women in particular—that prevent people from reaching their full potential

With accountable governments, open and effective markets, quality infrastructure, capable human capital, equal opportunities for women and men, and natural resources that are managed sustainably and responsibly, economies that flounder can turn into economies that flourish.

Through the Sustainable Economic Growth Strategy, CIDA will support development efforts to ensure the essential elements for growth are in place and that they function together to reduce poverty.

CIDA will implement the strategy while recognizing that all countries face different challenges, with their own unique barriers to growing their economies. CIDA will work with development partners, including those in developing countries, other donors, and Canada's civil society and private sector to understand better what prevents economic progress in each situation and to identify and apply the measures that will best generate sustainable economic growth.

CIDA'S Sustainable Economic Growth Strategy

Through the Sustainable Economic Growth Strategy, CIDA will focus its main targeted investments to support sustainable economic growth that:

• Fosters a stable foundation for viable businesses and industries to thrive
• Increases opportunities for meaningful employment, particularly in the formal economy
• Maximizes the contribution of growth to the public resources available for investment in the welfare of the population

The strategy also integrates environmental sustainability, equality between women and men, and governance as essential considerations to achieve sustainable economic growth.

Within the strategy, CIDA will focus on three paths:

• Building economic foundations
• Growing businesses
• Investing in people

Building economic foundations

Growth happens best where governments encourage investment, innovation, and transparency, and where fair regulations let entrepreneurs grow their businesses without the burden of excessive red tape.

In too many developing countries, obstacles like bad fiscal management, corruption, and political instability overshadow opportunities of investment, innovation, and competition.

For economies to flourish, countries must ensure sound financial and economic management that encourages private investment and reduces corruption.

Developing countries must also build up the institutions, laws, and regulations that govern their economies in order for growth and success to happen. This includes government policies that open markets to trade and attract infrastructure investment to deepen integration into local, regional, and global economies. It also includes promoting policies that improve natural resource management and environmental sustainability, including corporate social responsibility.

To help build economic foundations, CIDA will:

• Strengthen public financial and economic management capacity and institutions at the local, regional, or national levels
• Improve legal and regulatory frameworks and systems, and their implementation, all of which are key to stable national and local economies
• Support governments, businesses, and industries in widening their business base and integration into regional and global markets
• Build national and local capacities in managing natural resources and the environment in a sustainable and socially responsible way to support economic growth

These measures will translate into an economy that is an attractive place to invest, is more resilient to instability and external shocks—such as financial crises, natural disasters, or climate change realities—and that can identify effective options to reduce poverty.

Growing businesses

The private sector is the driving force behind sustainable economic growth, yet in the developing world, many people—especially women—face constraints in establishing and growing their businesses and fully contributing to the economy.

Given that developing countries with diverse and healthy private sectors typically have higher levels of growth and poverty reduction, it is crucial that, to stimulate economic growth, businesses in the developing world be more sustainable, more productive, and more competitive.

Businesses, especially those that are micro, small and medium-sized, need support to meet international standards, to integrate into local and global value chains, and to move from the informal to the formal sector. They also need greater access to innovations and new and emerging technologies that increase productivity and sustainability.

Entrepreneurs also require the financial means to launch their business or grow it once it gets off the ground. They therefore need support to access credit, and insurance and financial services, including microfinance products, and to bridge the gap between microfinance and mainstream financial services.

To help grow businesses, CIDA will:

• Strengthen support for the development and growth of micro, small, and medium-sized private sector businesses, with a special emphasis on women
• Aim to increase the productivity and sustainability of businesses, based on realistic market potential to fill value chain gaps, which will result in increased long-term formal employment opportunities for the poor
• Strengthen and increase the availability of financial institutional products and services, including microfinance, which will result in greater job creation for the poor

Through increased access to global and local value chains, technology, and financial services, more enterprises, especially those led by women, will be viable and productive.

Investing in people

At its core, sustainable economic growth revolves around people. People create and seize economic opportunities for themselves. People fill jobs, own businesses, and invest in local economies.

Developing countries need to create opportunities that allow the poor, particularly women and youth, to reach their potential by developing new skills, expanding knowledge, and breaking down the barriers that limit opportunity.

Because many workers lack the skills required to find and keep a good job or to take on the risks of running their own business, they need demand-driven skills training programs to acquire the skills they need to meet changing labour market opportunities. They also need support to strengthen their essential employability skills, such as the ability to read and write, count and compute.

To help invest in people, CIDA will:

• Increase access to essential, demand-driven skills training and knowledge needed for formal labour market participation, including literacy and numeracy
• Increase the availability of appropriate, meaningful, and structured workplace learning opportunities, including in the agricultural sector
• Support relevant, results-based learning initiatives, which will stimulate business growth, market expansion, and productivity

As CIDA works with countries to help them better invest in their people, more working-age adults will gain marketable employment skills, women and youth will be better equipped to take advantage of economic opportunities, and workers will have acquired new knowledge and skills that increase their productivity and revenue-generating potential.

Conclusion

For developing countries to reduce significantly the number of people living in poverty, they must stimulate long-term, sustainable economic growth.

Canada's own experience of sustainable economic growth underscores the importance of open trade and free markets governed by prudent policy and sound regulation. This means avoiding the extremes of protectionism on the one hand or ungoverned markets on the other.

CIDA's Sustainable Economic Growth Strategy, with its emphasis on building economic foundations, growing businesses, and investing in people, aims for concrete results that will make a significant and sustainable difference in reducing global poverty.

CIDA will review its progress against the Sustainable Economic Growth Strategy and report this progress and any lessons learned on a regular basis. All activities associated with the development and implementation of this strategy comply with the Official Development Assistance Accountability Act.

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CIDA's Sustainable Economic Growth Strategy (PDF, 544 KB, 7 pages)

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Canada's Aid Effectiveness Agenda:Stimulating Sustainable Economic Growth (PDF, 402 KB, 3 pages)