The Aid for Trade 4th Global Review – Aid for productive employment

The opening remarks made at the World Trade Organisation 4^th Global Aid for Trade (AfT) Review this week all suggested a degree of consensus. According to nearly all, AfT has largely been a success, notwithstanding the recognised difficulties in carrying out evaluations. Speeches from Pascal Lamy (WTO), Angel Gurria (OECD) and representatives from a range of multilateral organisations (UNDP, AfDB, WB, IMF, ADB, IDB) all agreed on the need for AfT to address trade facilitation, trade finance, infrastructures, standards, value chains, upgrading, involving the private sector, inclusiveness, among others, with mentions of the need for more domestic resource mobilisation rather than AfT (although nobody took the next step to discussing tax policy!). In particular, there is therefore agreement that promoting trade is a broad and cross-cutting agenda. But questions still hang in the air about what its real focus should be, and where AfT fits in the rapidly changing world where aid is becoming less significant in the development process. In his opening speech, Pascal Lamy referred to Least Developed Countries as “the Least Connected Countries”, where the need for greater connection runs from the local to the national regional and international. In our latest edition of GREAT Insights, he also calls for a ‘whole of economy approach’ to AfT, underlining the need to see supporting and facilitating trade as a cross-cutting agenda, not just the focus of, say, the Ministry of Trade and Industry. Promoting this connectedness therefore comes in a number of guises – connecting producers to local, regional and international supply chains; connecting regional economies more broadly; and connecting policies between Ministries and between national governments and regional organisation. All of these represent challenges for the AfT agenda. They also represent something of an evolution in AfT thinking. Our colleagues at ODI have described the trajectory of the AfT agenda through three phases: i) its “conception”, with a focus on resource mobilisation and raising the importance of trade in the donor agenda; ii) “decoupled AfT”, where AfT was detached from the stalled Doha Trade round; and iii) “Third generation AfT” which is more about broader “investment for trade”, leveraging finance and linking to broader dynamics, including the greater role of the emerging economies. This interpretation then sees AfT as part of a broad agenda, but increasingly just one element in the broader dynamics towards greater economic connectedness.

Time to narrow the focus?

While this progression in thinking and adaptation to changing circumstances around AfT is important, the scope of the initiative is clearly something that participants at the Global Review were still grappling with. Should it encompass all aspects of assistance even when beneficial far beyond trade, or should the agenda be more focused on specific trade constraints? Or even go back to its original intention of compensating for losses from trade liberalisation? Indeed, the broader aid agenda is increasingly about engaging with the private sector, so what is the niche of AfT, if it indeed needs one? And is AfT really the most adapted tool for promoting greater investment in infrastructure, for example? Recent joint work between ECDPM, ODI and DIE does provide some suggestions.  More specifically, with regional integration a stated objective of almost all developing countries, recent ECDPM work on AfT at a regional level suggests firstly that while data collection on AfT to regional groupings would need to improve markedly to allow proper analysis of its effectiveness, anecdotally, focusing on corridors can be a useful approach to making AfT effective, even if corridor approaches still face considerable challenges.  Narrowing down the scope of intervention, the number of interested parties and perhaps the scale of the endeavour all seem to help in putting AfT to more effective use in facilitating trade across borders. ECDPM work on engaging the private sector for development, potentially also through corridor approaches, also suggests that participation of the private sector can be a necessary provider not only of additional finance, but also bring momentum to provide sustainability. The ultimate aim, after all, is to create sustainable employment and incomes, so if AfT can help promote more, and more developmental, investments, then all the better.

Focusing on the benefits

The key issue where a better understanding is still required concerns the policies to ensure that benefits are spread widely. Numerous discussions at the Global Review pointed to this need for a focus on workers and small-scale producers at the start of the value chain. For example, “Capturing the Gains” research presented made the point that the benefits of lower transport costs through improved ports and roads often do not filter through to producers; while research on the importance of standards was at pains to stress that without greater knowledge and capacity of producers on the importance of standards in the production of shrimps, for example, the challenges to connect to value-chains are likely to remain high. This then suggests two main roles for AfT – one to focus on tipping the balance for private sector investments with development gains through trade; and another, to really target the workers at the end of the value chain, both through direct support and promoting policies that help them capture more of the gains from trade. Overall though, the discussion remains very donor-oriented. The fact that countries and regions (like ECOWAS or COMESA) design “AfT strategies” rather than having donors simply support their development or sectoral strategies is indicative in itself. Rather than aid for trade, some have suggested we talk more of “investment for trade”, further reflecting the declining role of aid. But ultimately what we are really aiming at is “investment for productive employment”, and the more this builds on government-owned strategies the better. __________________ Bruce Byiers is Policy Officer Trade & Economic Governance at ECDPM. This blog post features the author’s personal views and does not represent the view of ECDPM.