They need our trade more than our aid

In the immediate aftermath of a disaster the world can help, but from now on local people know best
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The Independent Online

Another shock has hit South-east Asia. Hundreds, maybe thousands of people have lost their lives. It is small comfort to make the obvious point that mercifully the scale of the disaster is of a different order of magnitude from the tsunami of Boxing Day. But if this further disaster is to have any positive purpose it is surely to make the rest of the world reflect on how it can really do something useful to help the economies, not just of the countries hit by the tsunami but also less developed countries everywhere. For now, three months on from that first catastrophe, there are some truly important lessons that we can learn.

Another shock has hit South-east Asia. Hundreds, maybe thousands of people have lost their lives. It is small comfort to make the obvious point that mercifully the scale of the disaster is of a different order of magnitude from the tsunami of Boxing Day. But if this further disaster is to have any positive purpose it is surely to make the rest of the world reflect on how it can really do something useful to help the economies, not just of the countries hit by the tsunami but also less developed countries everywhere. For now, three months on from that first catastrophe, there are some truly important lessons that we can learn.

The first and perhaps most important of these is the distinction that has to be made between money and people. The loss of life has been so huge - some 300,000 people, or 10 times the deaths in London from bombing in the Second World War - that it is still hard to grasp.

By contrast it is much easier to come to terms with the scale of the financial losses. The picture varies from country to country. Some tiny countries, such as the Maldives, will be struggling to rebuild their economies for several years, for their principal foreign currency earner has been tourism. Rebuilding a market in a harsh commercial world takes time. Sri Lanka will have a long and difficult slog too, though proportionately the damage has been less severe.

But by far the greatest losses, in human and financial terms, have been in Indonesia, the country that is once again suffering the greatest human loss. That carries the more important messages for us.

The Indonesian authorities have set to work on a plan to reconstruct the hardest-hit region, the province of Aceh. The cost,estimated by the World Bank, will be some $5bn (£2.7bn). To put that in a British perspective, it is less than the cost to the taxpayer of the foot and mouth débâcle.

Even from an Indonesian position it is not so large in regard to the size of the economy as a whole. Indonesian GDP this year will be about $240bn and is forecast to grow by 5 per cent, the current account is in surplus and the budget deficit proportionately is half that of the UK. It is a huge and important economy that has been performing really quite well.

We need to respect that. So much of the coverage of the disaster relief effort has been in terms of what rich countries can do for poorer ones - from airlifting medical supplies to debt relief - that it is important to recognise that Indonesia has considerable resources in both human and financial terms.

It also is more liable to know how to tackle the matter than foreign advisers whose background and skills base are quite different. In the immediate aftermath of a disaster the world community can indeed help and in this instance the effort it has made has been both huge and humbling. But from now on local people know best.

That points to a first lesson: that the economic relationship between a mature developed country such as Britain and a rapidly developing one such as Indonesia is much more one between equals than it would have been even a decade ago. In current money the UK economy is still about seven times larger than that of Indonesia. But the gap would be smaller if one were to make the comparison in terms of purchasing power parity, which reflects the different cost if living, and in any case is it closing fast. Nothing in the world economy is set in stone but it is quite plausible that in another 30 years the two economies will be much the same size.

Put bluntly, Asia is growing faster than Europe and it will continue to do so for the foreseeable future.

That leads to a further lesson: that international trading and investment relationships are enormously important and will become more so. In the case of Indonesia tourism is not a particularly important sector: nearly half of GDP is generated by industry and another 15 per cent by agriculture. For some specific regions tourism is indeed the staple crop and those are of course the places that we go to. We should go on going. But the great drivers of Indonesian growth will come from elsewhere.

That "elsewhere" will be exports, principally of manufactured goods, to the developed world. Agriculture matters and it is hard to see much excuse for the trade barriers that still exist there. But the greater motor will be manufactured goods.

At last Europe and the US are widening the access to their markets in textiles. Cheaper imported clothing and footwear has helped hold down the cost of living through much of the developed world. The wider the access, the more our consumers benefit. But we also need to be thoughtful about other goods, higher up the value chain.

Here the main barriers have not been official tariffs or quotas but the lack of direct investment. Direct investment - building local plants either directly or in partnership with local companies - has been the principal motor of growth in China. Some 60 per cent of Chinese exports involve some form of foreign partnership.

The point here is that the investment brings not just money but two other things that are even more important. One is know-how of foreign markets and tastes; the other, direct access to those markets via the distribution networks of the investing companies.

In the case of Indonesia, however, there has been less progress. Indeed in recent years there has been little or no net foreign direct investment, largely because local political unrest has scared away foreign investors. Nothing is as cowardly as money.

There is a lesson here not just for Indonesia but also for other countries eager to attain the sort of growth achieved by China, and more recently India. Insofar as a disaster helps the new Indonesian government to focus on its relationship with international business then something helpful will have come out from the catastrophe. The point here is simply that the might of the international business community dwarfs that of foreign aid agency bloc. And while companies can make reasonable returns, they stick around.

For what matters in creating wealth are the ongoing commercial relationships, not the one-off efforts at help. To say that is not to disparage the latter. Any response to a crisis has to be one-off. It is simply to point out that stories that don't hit the headlines, such as increased imports of Indonesian textiles, are ultimately more important in helping Indonesia than many of the stories that do, such as celebrities giving money for disaster relief.

There will, sadly, be more natural disasters in the years to come. If past history is any guide some will take an even greater toll on human life. When they happen humankind has a right to hope that the disaster relief teams will have learnt from this episode: that the relief effort will be swifter, more effective and save more lives.

But we also have a right to hope that the long-term lessons, as well as the short-term ones, will be learnt. In particular we in the West need to appreciate that we have a mutual self-interest in building our economic relationships with countries such as Indonesia. Of course long-term trade and investment is not a front-page story, unlike disasters. But that is great. The fewer horror stories and the more quiet mutual respect the better.

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