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Aid for Trade: a poverty escape route

Written by Kate Bird

Economic performance is on many people’s minds at the moment as we hear that the global financial crisis has led to the worst economic performance in Britain (in Quarter 1, 2009) than at any point in the last 30 years. Weakly regulated globalised financial markets have been shown to be risky and to increase the chance of ‘contagion’ spreading across countries. We hear of tensions about labour migration – another sort of market openness, and fears that cheap imports are going to undermine British jobs.

What we are hearing less about at the moment, is the way in which – under the right conditions – global markets can generate growth and support development outcomes. Through increased trade openness, poor people can see their incomes, consumption and well-being improve. Trade can also support growth by enhancing a country’s access to a wider range of goods and services, knowledge and technologies. Together, these factors can increase the likelihood that the Millennium Development Goals are met – not just at the aggregate level but for all socio-economic groups.

Countries that make trade a part of their development process have tended to grow economically, and reduce poverty, faster than those that have not. Yet many developing countries have not been able to fully capture trade’s benefits. The reasons include:

  • high transport costs;
  • absent or unsupportive policies and regulations;
  • cumbersome and slow export processing procedures;
  • inadequate export and trade negotiating skills;
  • poor product standards;
  • low productivity and competitiveness;
  • lack of export diversification; and
  • low added value production chains.

Less developed countries are often poorly resourced in terms of energy, communications and transport infrastructure and their markets often function poorly. This means severe constraints for producers, workers, entrepreneurs and traders and stifles global competitiveness.

Developing country governments and their international development partners have a huge opportunity to make positive changes in these areas. This is where Aid for Trade (AfT) comes in – by helping developing countries increase the volume and value of trade, maximise the growth and poverty reduction potential of trade, and reduce any negative effects associated with changes in trade. Multilateral and bilateral development agencies committed substantial funds to the Aid for Trade at the WTO Ministerial Meeting in 2005

Five priorities were identified:

  • trade policy and regulations;
  • trade development;
  • trade-related infrastructure;
  • building productive capacity;
  • trade related adjustment;

Through effective aid and policy engagement in these areas, Aid for Trade can promote an inclusive investment climate, enhancing the opportunities for a range of trading groups.

At the Second Global Review on Aid for Trade in Geneva last week (6-7 July) the WTO, trading nations and the international development community assessed progress made since 2007 and reviewed how Aid for Trade is being operationalised.

The meeting:

  • Assessed progress in securing additional, predictable financing for AfT, despite the global recession – and found that substantial flows of funds are being delivered, including through South-South support by the BRICS and other emerging economies;
    • Discussed results from a three-tiered AfT monitoring framework;
      • tracking AfT flows through the OECD Creditor Reporting System;
      • monitoring what donor funded AfT activities are taking place (data from donor self-assessments answering an OECD-WTO questionnaire)
      • national level AfT impact – identifying what indicators might be appropriate to assess the impact of AfT, not only on enabling increases in the volume and value of trade, but also in improved development outcomes, including poverty reduction

At the Global Review meeting I presented highlights from recent work by ODI’s Growth and Equity Programme on AfT and its impact on poverty (funded jointly by the UK Department for International Development and the Swedish Ministry of Foreign Affairs). I also discussed what indicators might be used to track the effectiveness of AfT across a range of dimensions. AfT can and does enhance trade performance, but this is only part of the picture. When thinking about these indicators it is important to recognise that AfT-related programmes and projects can help aid recipient countries to:

  • Increase the volume and value of trade;
  • Enable a wider range of producers, workers, traders and entrepreneurs to engage in trading sectors – and in such a way that they benefit;
  • Reduce the negative impact of trade-related adjustment – particularly where poor people are affected.

Our case studies show that effective AfT interventions can take place at different levels. For example at the national level, with inter-ministerial collaboration – (Cambodia SWAp). Effective programming at this level can allow the building of constructive linkages between national trade strategies and broader national development frameworks. While this is rare, the Cambodia case study shows that it can be achieved, and with beneficial results. Such an integrated approach allows macro-level policy formulation to be linked to the productive sectors. A regional case study (the RTFP – Regional Trade Facilitation Programme) shows that a regional programme can address common (cross-country) constraints, improve regional trade and support regional integration (see video via this link for ‘North-South corridor - Africa’).

Further case studies show that interventions at the supply chains/ value chains/ market level can be effective and illustrate the fact that working with business to strengthen transparency in supply chains and markets is crucial if poor producers are to be integrated into global supply chains in a way that benefits them. These case studies also illustrate the important role that the public sector can play in enhancing supply chain transparency through investment in track and trace systems and through strengthening monitoring and evaluation. These will soon be made available through WTO website).