Assessing the effectiveness of Aid for Trade: Lessons from the ground
Case studies conducted on the ground in eight developing countries suggest that Aid for Trade is effective when the right conditions prevail. However, these conditions are often absent. The Aid for Trade initiative should refocus on building the institutional mechanisms that are critical to the effective delivery of aid.
A number of developments have made evaluation more urgent than ever before. First, donors are facing a tight budget situation at home, forcing them to reassess their external aid policy. OECD (Organisation for Economic Co-operation and Development) data shows that, while Aid-for-Trade (AfT) flows at constant 2012 prices have increased over the years, the gap between commitment and disbursement has grown wider after the financial crisis in 2008. Second, the landscape for aid has changed dramatically with the rise of emerging economies, whose AfT activities, while significant, remain largely outside of the OECD Development Assistance Committee (DAC) framework. Finally, the demand for greater transparency and accountability in developing countries has increased with the return of democracy in many countries and aided by rapid and efficient information exchange.
Perhaps more than ever before, there is a need to demonstrate to donors that AfT is value for money and that their disbursements help poor countries harness the benefits of trade as an engine of development.
This article examines the conditions that make AfT effective by looking at country-specific factors based on the direct experience with AfT of eight developing countries, including four least developed countries (Bangladesh, Cambodia, Malawi, Nepal), three lower-middle income countries (Ghana, Guatemala, the Philippines) and one upper-middle income country (Peru). Assessments of the AfT initiative have been undertaken in these countries since mid-2010, using a methodology that the ICTSD has developed jointly with the South Asia Watch on Trade, Economics and Environment (SAWTEE), an NGO based in Nepal.
Looking at the unique circumstances of countries
A variety of methods have been proposed to evaluate AfT, and these have generated evidence of various kinds. The value of the ICTSD-SAWTEE methodology lies in its simplicity and intellectual appeal. It is largely based on the Paris principles of aid effectiveness, including:
local ownership of AfT projects – the degree of trade mainstreaming and the extent of stakeholder engagement in the design and implementation of projects;
absorptive capacity – the institutions and human capability needed to effectively manage AfT flows and AfT projects; and
donor responses to recipient’s needs – alignment of donors’ objectives with the recipient’s priorities and the extent to which donors use in-country systems for aid delivery.
However, the methodology goes beyond the Paris Declaration and includes other quantitative and qualitative benchmarks. Specifically, it argues that the additionality and predictability of AfT funds are critical to aid effectiveness and assesses these by tracking AfT flows. Moreover, the methodology considers the extent to which AfT is green, looking at possible inter-linkages between AfT projects and environmental and climate change financing. Finally, it proposes a framework to assess the impact of AfT projects at the macro level and in a particular sector.
What do country studies tell us about AfT effectiveness?
On the whole, it seems that the AfT initiative has fallen short of its objectives in the countries studied. Focusing on the indicators that could be marked on a Likert-type scale – that is, the 8 indicators from additionality to donor coordination proposed by our methodology –, we can rank the constraints to aid effectiveness in decreasing order of importance as follows: lack of absorptive capacity; limited use of country systems (or inefficient/unreliable systems); low degree of trade mainstreaming; lack of stakeholders' coordination/involvement; no additionality of AfT funding; low predictability of AfT disbursements; donors' objectives misaligned with host-country priorities; lack of donor coordination.
Overall, our findings are not radically different from what has emerged from the more general aid effectiveness debate. In that respect, AfT is no exception and might actually have done slightly better than other areas of ODA. In short, AfT is likely to be effective when the host country has the appropriate institutions and human resources to utilize aid; when the aid program enjoys broad local ownership, including political ownership, and when donor objectives are aligned with local priorities. To these, we shall add that specifically for AfT flows it is crucial that these are additional, and not just a diversion from existing ODA resources. Indeed, our analysis points to a strong correlation both between additionality and predictability of AfT funds, and between additionality and the overall effectiveness of AfT.
An interesting observation from the above ranking is that the top four constraints are specific to the AfT recipient, and not specific to the AfT initiative itself. In other words, there is nothing inherently wrong with the way AfT is being conducted, and so elaborate studies aimed at assessing AfT effectiveness may be looking at the wrong problem. A corollary is that the biggest returns to effectiveness are to be derived from tackling local constraints.
A surprising finding from the case studies is that there is an abject lack of awareness about AfT and AfT projects, even in implementing agencies. This may be partly due to definitional problems as well as poor information flow and lack of coordination among line ministries and implementing agencies.
Insights from the experiences of Malawi and Ghana can help complement the above summary of findings. In Malawi, a fragmented approach to aid is largely to blame for the country’s failure to tackle its export constraints in a comprehensive manner. Indeed, a lack of local ownership, weak absorptive capacity, and poor alignment and coordination have meant that while overall exports were growing, the relationship with AfT remained weak. In particular, a fundamental disconnect between AfT and the private sector in most areas of economic activity was manifested not only in Malawi, but also in Ghana, Bangladesh and Guatemala.
Ghana has done slightly better than Malawi in many respects. For instance, the Northern Rural Growth Program, with projects financed by a mix of donors, has generated some modest gains. The programme – aimed at addressing some of Ghana’s key national development priorities with a focus on improving income through production in the country’s poorest regions – has benefited from a highly participatory, consultative and demand-driven process, involving the private sector, civil society, and local and regional authorities. However, due to lack of absorptive capacity, the programme has not been effective in achieving the majority of its short-term targets and is not likely to meet its medium- and long-term objectives. What is more, the AfT programme itself lacks a substantive focus on tackling existing capacity constraints in Ghana. Unless this shortcoming is addressed, the programme will continue to show poor results.
The way forward
The evidence gathered from the eight countries has several implications for the Aid for Trade initiative. First, AfT projects must address local capacity constraints and institutional weaknesses in their very design, and, more generally, the initiative should tackle problems related to additionality and misalignment. As the donor community calls for AfT to deliver results, it must share responsibility with partner countries to see if AfT brings value for money.
In this respect, the growing focus on AfT project evaluation may be counterproductive, as it can divert dwindling resources from more pressing needs. In most of the countries considered in the study, and especially in the LDCs, the conditions that make AfT effective are often absent. Significantly, most of these conditions are host country-specific and are independent of the way the AfT business is conducted. It might therefore be more efficient for the donor community to devote greater effort to tackling the key determinants of success of AfT – notably, local capacity constraints and supply-side constraints – rather than investing more resources in AfT evaluations.
As donors come under a tightening budget constraint, there is a growing need to strengthen recipient countries’ ability to effectively manage AfT resources. Enhancing partners’ capacity to benefit from AfT requires the establishment of effective institutional arrangements and mechanisms at the domestic level for stakeholder participation and interagency coordination, supported by appropriate legal frameworks. Yet, most countries have not elaborated a national definition of AfT nor have they established clear AfT strategies, incorporating results-based management practices, to allocate resources and assess impacts. Supporting them in this endeavor might have more impact than simply trying to improve the design and delivery of individual AfT projects.
Another problem emerging from the country studies is the limited coordination among relevant ministries and government agencies in the design and implementation of AfT programs. The private sector is generally poorly involved in the AfT process and country donor agencies do not always coordinate their activities among themselves and with national stakeholders. All these factors tend to affect local ownership, aid effectiveness and, ultimately, development outcomes regardless of the quality of the AfT projects.
Overcoming the constraints that have limited AfT effectiveness is not an impossible task. Indeed, the eight countries have tried to address some of them with different degrees of success. There is a growing wealth of experience and creative solutions among recipient countries, particularly those who have been successful at making the most out of limited aid resources. As we move forward, identifying the best practices in managing AfT based on experiences so far, and sharing them among recipient countries might be one of the most efficient ways to improve the use of AfT resources and ultimately increase development impacts. Such South-South exchange of experiences should become part of a continuous learning process involving not only recipient countries but also traditional and emerging donors.
Authors: Vinaye Ancharaz is Senior Development Economist at the ICTSD; Paolo Ghisu is Programme Officer in the Agriculture Programme at the ICTSD; Christophe Bellmannis a Senior Resident Research Fellow at the ICTSD.
A version of this article was originally published in Bridges Africa, Volume 2, Number 4 (July 2013).