Aid for Trade: Showing results

11 October 2011

There is a large and growing body of evidence (1) about the positive links between openness to trade and economic growth, which depending on its pace and pattern is important for sustained poverty reduction. (2) This virtuous relationship can be observed in many developing countries that have succeeded in expanding their domestic markets regionally or globally. Steady reductions in trade barriers have enabled these countries to rapidly integrate into the world economy through export-led industrialisation, thereby sharing the prosperity generated by globalisation.

However, liberalising trade regimes and enhancing market access are often not enough to enable developing countries - and in particular the least developed countries (LDCs) - to reap the potential benefits of trade liberalisation. These countries need help in building trade-related capacities - in terms of information, policies, procedures, institutions, and infrastructure - to compete effectively in global markets. To address these supply-side constraints, the WTO has led the call for more and better Aid for Trade.

Some encouraging progress

The OECD and the WTO periodically put a spotlight on Aid for Trade to monitor what is happening, what is not happening, and where improvements are needed. The joint OECD-WTO publication Aid for Trade at a Glance 2011 shows that the initiative has achieved considerable progress in a short time. (3)

Partner countries and donor agencies are prioritising trade in their development strategies, and corresponding Aid for trade flows (4) reached USD 40 billion in 2009. This translates in an average annual real growth rate of 15 percent (commitments) since the start of the initiative in 2006. Donors are meeting their commitments: disbursements have been growing at a constant rate of between 11 and 12 percent for each year since 2006, reaching USD 29 billion in 2009 (see figure 1).

The outlook for Aid for trade is stable. In Seoul last year, G20 leaders committed to maintain beyond 2011 at least the levels of Aid for Trade that were reached in the years 2006-08. Although some OECD countries are confronted with large budget deficits and are finding it difficult to respond adequately to the higher demand for Aid for Trade, continued growth of South-South cooperation is complementing the support provided by DAC donors.

Lessons from case stories

To further examine the results of the almost USD 100 billion that has been spent on Aid for Trade between 2006 and 2009, partner countries, bilateral and multilateral donors and providers of South-South cooperation submitted over 260 case stories (5) about the successes and failures of their Aid for Trade programmes and projects. (6) Many stories highlight how this aid has enhanced the capacity of trade officials to effectively participate in international negotiations, understand the implications of agreements and implement them once agreed. Other stories recount how demand-driven, technical capacity-building programmes are helping countries define export-oriented growth strategies (see figure 2). For instance, an Aid for trade programme in Vietnam helped to increase the level of its exports to the United States from USD 1.1 billion in 2001 to USD 8.6 billion in 2006, and increased the level of imports from the United States from USD 460 million to USD 1.1 billion. Aid for Trade allowed a resource-poor small island like Cape Verde to make significant social and economic progress, which helped it to become more competitive and graduate from its status of LDC.

A large number of stories detail how industry-specific programmes address market failures to help the private sector access better foreign markets. For example, an Aid for Trade project to support the competitiveness of the agricultural sector in Senegal increased export by almost 80 percent between 2005 and 2009, and helped create 85 new businesses. 600 small farmers in Ghana benefited from a programme aimed at expanding and diversifying the exports of African businesses. They now export 210 tonnes of fresh fruit and vegetables a week to customers in Europe, and South African cosmetics companies export their products to Canada. Furthermore, the "Design Africa" brand was successfully launched in the area of home-furnishing products significantly facilitating exports to OECD markets.

Stories about aid programmes assisting companies in meeting international standards demonstrate successful efforts at becoming part of global value chains. A project in Sri Lanka increased export volumes to the European Union from 13 532 metric tonnes in 2002 to 20 594 metric tonnes in 2008. In Pakistan, exports of fishery products to the European Union increased from 84 693 metric tonnes in 2002 to 135 000 metric tonnes in 2008. A programme helping Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and the Dominican Republic expanded agricultural trade and generated export revenues to the value of USD 100 million since 2006, also with positive impacts on employment-creation for women.

Accounts of trade facilitation programmes and economic infrastructure projects, including regional corridors, describe how trade costs were significantly reduced. A project for upgrading the border post between Zambia and Zimbabwe reduced waiting times from about four - five days to two days and often to just a few hours. A regional project in East Africa improved border transit times from three days to three hours. In Mongolia import clearance time dropped from three hours to just 23 minutes, and export clearance time from two hours to 13 minutes. Improvement of the international transit of goods between El Salvador and Honduras reduced clearance times from 62 minutes to an average of eight minutes.

These case stories highlight several factors that are critical to delivering the longer-term trade and development objectives of the Aid for Trade Initiative: ownership at the highest political level; active engagement of all domestic stakeholders, including the private sector and civil society; long-term donor commitment, and adequate and reliable funding; leveraging partnerships, including with providers of South-South cooperation; combining public and private investment with technical assistance; supportive macroeconomic and structural adjustment policies; and good governance (see figure 3).

These case stories are merely the start of a learning process, and many more follow-up activities are needed to better understand the different contexts of aid for trade results and their wider applicability. Such knowledge-sharing should also address the question of how to better demonstrate that Aid for Trade is a worthwhile investment to improve trade performance, generate economic growth and reduce poverty. This is the topic of the OECD publication Strengthening Accountability in Aid for Trade, which outlines good practices in using aid to achieve trade results. (7)

Conclusion

The challenges of effectively delivering Aid for Trade are not unique, but are part and parcel of the broader development effectiveness agenda. Improving aid quality and, more broadly, development effectiveness is the key objective of the Fourth High Level Forum on Aid Effectiveness, (8) which will be held from 29 November to 1 December 2011 in Busan, South Korea. Aid for Trade will be an important element on the agenda.

Author: Frans Lammersen is Principal Administrator with the Organisation for Economic Development and Cooperation (OECD). For more information about the Aid for Trade at a Glance 2011, please see here.

Note

1  Click here

2  Patrick Love and Ralph Lattimore (2009). International Trade: Free, Fair and Open ? OECD Insights. OECD Publishing

3 OECD-WTO (2011). Aid for Trade at a glance: Showing Results.

4 Click here

5 Click here

6 Click here

7 See here

8 Click here

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