Aid for Trade : Success stories and lessons

11 October 2011

Trade liberalisation, in the context of the multilateral trading system (MTS) and regional integration processes, such as for instance, the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the East African Community (EAC), have provided African, Caribbean and Pacific (ACP) countries with many market access opportunities. However because of supply-side constraints including the lack of necessary infrastructure (roads, ports, telecommunication facilities...) and insufficient trade facilitation institutions, many Least Developed Countries (LDCs) have been unable to take advantage of these market access opportunities. The lack of knowledge by private sector and other stakeholders about these potential opportunities and how to access them have also affected the level of participation of LDCs in the MTS. Trade, which is yet often considered an engine of growth, has therefore not been fully used to spur economic growth in some of these countries.

Despite the Aid for Trade initiative launched in 2005 to help LDCs to effectively take part in international trade, LDCs participation in the MTS still remain very low because of many challenges faced by the private sector in these countries. In Malawi, for example AfT is not helping to build the institutional capacity that the government, civil society and the private sector require to plan their respective development roles and boost Malawi's ability to export. (1) The lack of awareness about AfT projects by many stakeholders including the private sector and bureaucratic tendencies by donors especially on disbursements hinders the effectiveness of AfT.

Success Stories

Because many countries have not fully benefited from market access opportunities available through the MTS due to their inability to produce and export efficiently, AfT is necessary in the developing agenda of many LDCs. Many African countries have benefited from the AfT initiatives and have as a result been able to access international markets.

The UK Mission to the UN has cited several examples of the UK AfT best practices that deliver real results for developing countries including the launch of the African Free Trade Area initiative in which the UK is investing in transport infrastructure with one stop border posts along major transport corridors in East Africa. A one stop border post at Chirundu, Zambia and Zimbabwe resulted in 66 percent waiting time reduction and a 600,000 USD savings to local trucking firms is also an example of the impact that AfT has on the development of a country.

In Malawi, an aid assistance of 18.7 million USD from the International Development Agency, the World Bank and the EU was provided in the form of the Business Environment Strengthening Technical Assistance Project (BESTAP) in support of the World Bank Country Assistance Strategy. It is also given as one of the success story of AfT. This project started in 2007 and will continue until 2012 with the aim of improving the business climate in the country. It is reported as having assisted in the review and drafting of thirty-two business related laws out of which seven have already been passed into law. Through the project, the commercial division of the High Court was established whose outcome has been the reduction of commercial dispute settlement time from 200 days to 98 within two years. As part of the project a Public-Private Dialogue (PPD) - a high level consultative forum involving the Government and private sector - was also established in 2008.

AfT positive impacts on exports: the case of Rwanda and Malawi

AfT, has in some countries been used to boost export marketing efforts either through direct investment in a particular sector or through investments in capacity building in regulatory frameworks and in institutions directly involved with exports. Since coffee is a key export crop for Rwanda, the country developed in 2003 a very aggressive strategy to increase total export of coffee and develop the industry into the high quality end of the coffee market. To achieve this, the country required an investment of 69 million USD out of which 25.75 million USD came from donors and NGOs and 23 million USD from the private sector. Through donor-funded activities, coffee producers in the country were able to develop buyer-seller relationships and also the project assisted in raising the quality of local coffee. Regulatory reforms implemented through the project have also allowed individual Rwandan cooperatives and the private sector involved in coffee production to negotiate directly with speciality coffee roasters in the US and Europe, thereby enabling sellers to offer their coffee at prices that are twice international market prices. (2)

In Malawi, the National Working Group on Trade Policy, a trade consultative forum involving the public sector, private sector, the academia and the civil society were able to organise a Malawian TradeConnection event in Edinburgh in 2007. The event which was part of a three-year Scotland-Malawi Trade Partnership (SMTP) project was funded by the Scottish Government and was meant to showcase the best of a diversity of Malawian products already introduced and available in the Scottish market.  A number of deals for Malawian products were agreed as a result of the event. The SMTP project which is managed by Imani Development is helping in the building of export capacity in Malawi and is also facilitating exports to Europe in general and in particular to Scotland. As a follow up to the Edinburgh trade event, an Exporters Association of Malawi was established and has been very active in the consolidation of exports for small and medium enterprises that do not have the capacity to export on their own.

Private sector participation (3)

Trade is a powerful engine for economic growth and poverty reduction and to realise this potential, all stakeholders and in particular the private sector must be fully involved in all development impact of AfT. The private sector which is key in spurring development in LDCs constitutes not only enterprises of various sizes but also Business Membership Organisations (BMO) such as Chambers of Commerce and other trade associations and organisations. The private sector is a prominent stakeholder in AfT since it is not only a major beneficiary of trade-related technical assistance but it is also a key agent in making any AfT effective. BMOs such as chambers of commerce are intermediary institutions between the public and private sector which are formed through collective private sector actions. These organisations offer a wide range of advocacy and advisory services to their members and in most cases contribute to the lowering of transaction costs of trade. Because of the importance that private sector plays in an economy, BMOs have the potential to contribute to AfT initiatives by acting as a link between the private sector and AfT implementation units or organisations to support the implementation of AfT initiative.

With aid from the Danish Government, a BMO network project for ten countries comprising Kenya, Tanzania, Uganda, Rwanda, Burundi, South Africa, Zambia, Botswana, Mozambique and Zimbabwe was formed in 2008. This network project, which is coordinated by the Confederation of Danish Industry in association with the Kenya Association of Manufacturers, aims at developing and advancing common advocacy for business in the Eastern and Southern African (ESA) region. It acts as a platform for knowledge sharing and learning from best practices and the group is also used to develop and promote common policy positions for domestic and regional integration issues. Similar groups have been formed in some other African countries to advance a common good for different countries. The African Trade Insurance Agency (ATIA) which was founded in 2001 by African countries with financial and technical support from the World Bank Group through a COMESA initiative is another successful case study of private sector participation in AfT.

Although there are many successful Trade Related Technical Assistance case studies, there are a number of factors that inhibit private sector participation in the AfT agenda. In many countries, donor initiatives do not focus on actual productivity improvements or on exports but in most cases, donor aid is directed towards capacity building mainly in government and trade facilitation institutions. Ownership of such AfT projects is therefore limited to the government and not necessary to the private sector which is the locus of production, trade and development. Moreover in countries like Malawi the enabling environment still remain very hostile with core issues that affect investments and business not being urgently addressed.

Making AfT effective

The WTO and the OECD have been tasked with monitoring AfT and the International Centre for Trade and Sustainable Development (ICTSD) has been conducting AfT assessments in a number of developing countries.

According to UNECA, based on 114 AfT case studies that the organisation reviewed, there are some common factors that may affect the success or failure of AfT implementation. Some of the success factors include wide stakeholder participation and involvement, ownership of the initiative by beneficiary country and the establishment of networks and partnerships among private and public actors. Factors that have been included as impeding successful implementation of AfT are notably the absence of institutions or weak institution set up, burdensome bureaucratic procedures especially those relating to funds disbursement, insufficient resources and or absorption capacities and lack of qualified or high turnover human capital.

From the above factors it is clear that the success of any AfT initiative depends on the coordination between different stakeholders but in particular donors and the recipient countries. Another important aspect of AfT is the foreseeable sustainability of the AfT initiative. If proper sustainable systems and mechanisms are not put in place, AfT projects could end up as isolated events instead of well-coordinated projects that are meant to assist a country in market access opportunities and overall economic development. A Joint Integrated Technical Assistance Programme (JITAP) which was a capacity building and strengthening programme meant to assist eight African countries integrate into the MTS through trade negotiations, implementation of WTO agreements and related trade policy formulation although successful in its implementation in Malawi did not attain its desired results. The project did not consider sustainable issues at the time of its implementation and as such almost all Reference Centres and National Enquiry Points on TBT, SPS and TRIPS that were established during the programme's four year period from 2003 are no longer fully operational due to budgetary constraints.

Conclusion

AfT is an effective tool in helping developing countries particularly LDCs to fully benefit from trade liberalisation and WTO agreements. Success stories have been cited in both African and other countries which indicate that the AfT initiative is assisting some countries to fully participate and take advantage of market access opportunities available through MTS. AfT effectiveness is however dependent on many variables including the ownership of the initiative by all stakeholders and ensuring that projects implemented as part of the initiative are sustainable after their initial donor funded periods.

Author : Simon Itaye is the Managing Director of a large international packaging company. He has had to lobby government often for his own industry so has been on the receiving end as well as the policy end of trade.

1  Imani Development & South African Institute of International Affairs (2011):  A Methodological Framework for Conducting Independent Evaluation of the Effectiveness of Aid for Trade

2 Newfarmer(ed). 2006. Trade, Doha and Development a Window into Issues. THE WORLD BANK Trade Department Poverty Reduction and Economic Management Vice-Presidency Washington D.C.

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