Taking stock of Aid for Trade

21 July 2011
Yurendra Bassnet
Comment

Aid for Trade, which accounts for a third of total aid, has been effective in improving trade performance of developing countries, but there remain challenges. Whilst David Cameron was making the case for trade in Africa important discussions   were taking place atthe 3rd Global Review of Aid for Trade. This was an opportunity to examine progress thus far and consider key issues for the future.  It was marked by the release of a joint publication by the World Trade Organisation (WTO) and the Organisation for Economic Cooperation and Development (OECD) titled ‘Aid for Trade at a Glance 2011: Showing Results’. More than 270 case stories, half of them from developing countries, were submitted that shared the experience of the Aid for Trade initiative.

Some of the main headlines were:

  • The top 10 recipients of Aid for Trade in 2009 were: Vietnam, India, Afghanistan, Nigeria, Uganda, Indonesia, Pakistan, Kenya, Bangladesh, and Ethiopia.
  • The top 10 donors of Aid for Trade in 2009 were: World Bank, Japan, United States, European Union, Germany, African Development Bank, United Kingdom, France, Korea, and Spain.
  • The least developed countries received about 50% of total Aid for Trade flows in 2009. The demand for Aid for Trade by developing countries is on the rise.
  • The sector allocation of Aid for Trade flows, between 2005 and 2009, was: 53% for economic infrastructure; 44% for building productive capacity; and 3% to trade policy and regulations and trade-related adjustments.
  • In 2009, Aid for Trade flows reached US$ 40 billion, an increase of 60% from 2005. But growth rates in Aid for Trade flows maybe slowing. Aid for Trade flows increased by just 2% from 2008 to 2009, as opposed to 28% from 2007 to 2008. There are concerns that increasing constraints in public finance in donor OECD countries may dampen future growth in Aid for Trade flows.
  • Aid for Trade flows have been benefiting from increased South-South cooperation, which complements North-South cooperation. But it is difficult to quantify South-South Aid for Trade flows, as it is not captured by the OECD-DAC Aid activities database.
The positive impact of Aid for Trade can be seen in:
  • The increasing profile of trade issues, i.e. trade mainstreaming, in national development agendas and strategies.
  • Building trade and productive capacities. For example, Aid for Trade projects in Mali on upgrading and capacity-building have resulted in increased mango exports from 8.1 tons in 2008 to 10.4 tons in 2010, and the WTO Director General noted that there had also been a shift from export of raw towards value added products.
  • Improving economic infrastructure. For example, Aid for Trade investments in trade corridors and one-stop border posts have significantly reduced the cost of transporting goods.
But challenges remain. For instance, how do we define Aid for Trade and measure its worth? The lack of a clearer definition of Aid for Trade has produced diverging understanding of the concept, its application and benefits between donors and partner countries. This was the focus of past reviews, but it remains unresolved. India, one of the largest beneficiaries of Aid for Trade, argued “except for a DFID funded UNCTAD India project that wound up in 2010, no aid that comes to India is for trade. All bilateral assistance that India gets is for either social sector or for infrastructure”. Recently, while I was preparing Namibia’s Aid for Trade Framework, a donor said to me, “We have funded infrastructure projects and if it is called Aid for Trade that is fine with us, but we would have done the project with or without the concept of Aid for Trade”. The absence of a clear definition makes it much harder to quantify the added value of Aid for Trade.  

Similarly, there is need to increase national ownership of Aid for Trade initiative. The issue of national ownership featured prominently in the 3rd Global Review of Aid for Trade. In my own experience in preparing Aid for Trade country strategies for Vanuatu, the Solomon Islands, Sudan, South Sudan and Namibia, I often found the level of awareness on Aid for Trade was limited to the Ministry of Trade and, within it, few officials that worked closely on WTO issues. We need to encourage national ownership and strengthen donor-partner country coordination in the entire Aid for Trade process-chain – from articulation of needs, to implementation arrangement, to monitoring and evaluation of outcomes. The present OECD/WTO report on Aid for Trade departs from past reports in that it presents experiences of developing countries, and not just donors. In doing so, it has moved us in the right direction, but it is not sufficient. The next step should entail reporting of Aid for Trade flows based on numbers provided by partner countries too.

Whatever the solutions to remaining challenges it remains clear that one of the successes of Aid for Trade, which surprisingly received little celebration, is its flexibility. The number of case stories shows that where developing countries took the lead they were able to tailor Aid for Trade to meet their specific needs. It is important that such flexibilities are preserved. Engaging private sector, building linkages with broader development agenda, leveraging new sources of finance, South-South cooperation and regional integration will be some of the important areas for future work on Aid for Trade.