From Aid for Trade to aid for business, partnership and profits

The OECD hosted the 2013 Policy Dialogue on Aid for Trade last week to discuss “how to continue delivering aid for trade results in a changing international environment for trade and development”. While this in part retread old ground, discussions nonetheless suggested that a change in thinking is taking place, particularly in terms of working with the private sector and helping developing country companies enter into global value chains. As my colleague Dan Lui discussed in a previous blog, the Aid for Trade agenda has faced a constant stream of questions, among others about definition (is it just about trade or economic development more generally?), additionality (did it bring extra aid funds?); definitions (where does AfT stop and other aid start?); orientation (is it all about aid inputs or economic development outputs?); approaches (to what degree does a regional rather than national approach promote greater AfT effectiveness?); impacts (how can we identify, measure and attribute any impacts to AfT initiatives?); how to go from policies to action on the ground?; and how to maintain relevance in a fast-changing world? In online discussions in the runup to the OECD event (to which ECDPM contributed) some researchers have called for a “third generation” of “Connected Aid for Trade”. Several others at the event referred to the need to think about “aid for investment” rather than aid for trade, highlighting that the scope is well beyond only trade; others referred alternatively to “investment for trade”, referring to the constraints on aid resources with the on-going global crisis and the need to blend aid with private sector investment and finance. In this regard, there is much enthusiasm about engaging with the international private sector for development within the AfT context. While there are surely many potential advantages from working with multi-national companies, in his keynote address, Pascal Lamy worried that “coherence is under threat from pressure to put national interests first”, highlighting the risk of a return to tied aid. Perhaps in response, several speakers at the Dialogue hastened to state that their policies were in no way in danger of reverting to tied aid although this nonetheless remains a concern. As well as engaging with the private sector, the big focus was on how to use AfT to promote integration of businesses from developing countries into global value chains. Although this is the new conventional wisdom in the economic development discourse, this is not a panacea. One speaker referred to a confusing conversation with an entrepreneur in his home country of Bangladesh who asked, “do you really mean value chains or value change?”, in reference to the importance of value-addition rather than just being a part of the chain. If it is about value-addition, “then it’s about increasing the gain?” “No” he heard, “just reduce the pain” - whether focusing on engaging with the private sector or value chains, “the pain” caused by an unfriendly business environment remains crucial as a constraint to achieving major advances even with greater value-chain integration. Perhaps most importantly, a Tanzanian speaker pointed out that the majority of trade across her and many African countries’ borders is informal, and the majority of that is carried out by women. “Where do they fit in this discussion of global value chains?”. From the discussions that took place, this indeed risks slipping off the Aid for Trade agenda. ECDPM’s own work on the trade corridors approach to promoting smallholder integration into agricultural value chains also points to the overriding burden of domestic business constraints in the eyes of private sector operators. Other recent work also points to the fact that value chain initiatives reach only around 10 percent of smallholders, This underlines both of the above concerns. With the fourth global Aid for Trade review due in July this year, then, there remain many questions to be answered. And what then? At present, the Aid for Trade discussion remains very much restricted to “trade people”, while interventions have wider impacts than only trade. Perhaps a good next step will be to integrate discussions on aid for trade, which is in essence about donor support for economic development, with more policy-focused discussions on how to prioritise and link with the agendas on private sector development (“PSD people”), on boosting agricultural trade and development via CAADP, the Comprehensive Africa Agriculture Development Programme (“agriculture people”), on improving infrastructures through PIDA, the Programme for Infrastructure Development in Africa (“transport people”),  and how to use the agenda to assist the large majority caught in informal activities (just “people”). -- Bruce Byiers is Policy Officer Economic Transformation Programme at ECDPM. This blog post features the author’s personal views and does not represent the view of ECDPM.