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    Delivering Effective Regional Strategies

     

     
     
    International Trade Forum - Issue 2/2009

    Aid for Trade has met with controversy since its beginnings. Now further challenged by the economic crisis, it is essential that it develops new, forward-thinking mechanisms.


    Since its inception, Aid for Trade has spurred debate among stakeholders in a way few other developments could. Now, four years since it came to light in the 2005 Hong Kong Ministerial Declaration, Aid for Trade is still polarizing the opinions of political leaders and development economists worldwide.

    Developed nations have pledged unprecedented sums, but with the economic downturn and stalemate in the Doha Development Agenda, which seemed so promising a few years ago, the outlook for a full-scale implementation of Aid for Trade commitments is grim.

    In the current context, lessons must be heeded and the appropriate resolutions made. The industrialized world's financial meltdown has flowed on to developing countries rapidly, showing how fragile their recently earned development gains are. Concrete actions and less discussion are urgently required to at least contain further damages. Additional Aid for Trade resources may not be the main agenda item; instead, efforts should be placed on improving the quality of resources.

    Lessons should also be learnt from developed countries' attempts to rescue their own industries. That doesn't mean providing bailout packages or relying on overseas development assistance; rather, governments should note the benefits of intervening in free markets to curb the effects of the crash and alleviate social tension. A review of the strategies to boost productive capacities may be required. Aid for Trade resources may assist by supporting stimulus packages to the private sector in developing countries.

    Improving the quality of Aid for Trade



    "What should be funded?" "In what form should the money be given?" "Who should manage the transfer?" These critical issues were raised by Joseph Stiglitz and Andrew Charlton in their 2006 Aid for Trade report to the Commonwealth Secretariat. Since those early days, significant progress has been made and the thinking has been enriched to take regional integration processes into account.

    The forms through which Aid for Trade should be disbursed and by whom are still being discussed. An emerging consensus, however, recognizes that there are multiple mechanisms and that different players may be involved. The key principle is to ensure aid effectiveness. Accordingly, the European Union strategy on Aid for Trade highlights the importance of using regionally owned mechanisms. The involvement of stakeholders in the design, prioritization and implementation of Aid for Trade has also been largely stressed and agreed.

    But the communication stalemate between the demand and supply sides is still a major impediment to progress. While donors insist their development partners should prioritize their Aid for Trade projects, developing countries argue that priorities can only be defined if resources are predictable. Both positions have legitimate grounds. Donors need to justify the effectiveness of their contribution towards development to their constituencies. On the other hand, priorities are dictated by the realities of the political economy. Policymakers in developing countries are perpetually faced with the dilemma of arbitrating between projects with short- and long-term impacts. As long as resources are not predictable, economic and trade reforms will continue to be relegated to the lowest priority.

    It's a "chicken and egg" situation that can only be resolved by establishing new, mutually beneficial mechanisms. Focusing on specific categories of Aid for Trade needs, the Common Market for Eastern and Southern Africa (COMESA) has conceived a regional fund with two components: the COMESA Adjustment Facility, which supports member states in implementing regional policies at national level; and the COMESA Infrastructure Fund, which will provide resources for grants and facilitate leveraging of private participation in infrastructure projects, namely through public-private partnerships. Through those mechanisms and combined with conventional trade-related assistance, Aid for Trade resources will be able to target specific areas while enabling beneficiaries to plan implementation with predictable resources.



    Improving productive capacities in developing countries



    The improvement of productive capacities is a key component of the Aid for Trade agenda and is particularly reliant on the private sector. However, the private sector is generally very diverse, especially in developing countries, and has therefore been only partially involved in designing Aid for Trade programmes. Support for building productive capacities has also been scattered, with a multitude of actors on the ground intervening at various levels.

    Since the 1980s, private sector development has attempted to reach enterprises through intermediate organizations that would represent their collective interests and enhance their role as development partners. This strategy has been relatively successful in strengthening private sector associations in many countries, but a large portion of enterprises, mainly small and medium-sized enterprises (SMEs), have still not been able to constitute intermediate organizations that could play a meaningful role as a development partner at national level. Considering that SMEs employ about 70 per cent of the workforce in Africa, the overall impact of Aid for Trade on poverty reduction would be insignificant if those enterprises were left out.

    Aid for Trade programmes need to foster regional cooperation, particularly in regard to the production value chain. The agro-processing industries in the COMESA region provide examples of how SMEs could benefit from such programmes. For instance, it is estimated that 60 per cent of the value added to Zambian honey comes from packaging and branding. However, the enterprises of the sector do not have adequate technology to pack the product in a manner that complies with market standards, including sanitation requirements. Nor do they have the capacity to brand their products adequately, for example under an exclusive geographical designation in the same way as for other world-renowned produce such as Parma ham or Canadian maple syrup.

    Although there are actions on the ground by various cooperating partners, it is obvious that support must be scaled up to address needs from technology to financial services and logistics. Governments need to take proactive measures in targeting key sectors where there is high value-added potential, work out comprehensive incentive packages and promote regional cooperation.

    Although Aid for Trade is sometimes dubbed "old wine in new bottles", it has provided a framework for donors and their development partners to design joint strategies in promoting trade as a development instrument and linking it with aid. Discussions will continue and improvements will be sought, but Aid for Trade must continue: the best lessons, after all, are learnt through practice.





    COMESA promotes regional economic integration through trade and investment. COMESA's 19 members states have a total population of more than 389 million, with an annual import bill of around $32 billion and an export bill of $82 billion. COMESA's vision is to be "a fully integrated, internationally competitive regional economic community with high standards of living for all its people ready to merge into an African Economic Community".





    This article has been adapted from an address made at the Second Global Review of Aid for Trade: Maintaining Momentum on 6 July 2009 in Geneva, Switzerland.