Aid-for-Trade and Africa is an ongoing process

July 19, 2013 12:51 am0 comments by:

 Benefits at the local level will be crucial to showing the impact of Aid-for-Trade in Sub-Saharan Africa. Image provided by www.guardian.co.uk.

Benefits at the local level will be crucial to showing the impact of Aid-for-Trade in Sub-Saharan Africa.
Image provided by www.guardian.co.uk.

A week ago I received an advanced copy of the 2013 report, Aid for Trade at a Glance: Connecting to Value Chains, composed by the Organization for Economic Co-operation and Development (OECD), which outlined the impact that the Aid-for-Trade Initiative has had over the last several years. Since its inception in 2007, the World Trade Organisation (WTO) and the OECD have partnered to create a system that encourages transparency of borders, through trade liberalisation to increase dialogue between developed nations and developing or emerging economies, opening the channels for trade with the idea that more trade will create more income and jobs, thus reducing the developing country’s dependence on foreign aid. The concept of replacing direct aid with trade agreements—both bi-lateral and multi-lateral—invokes a more balanced and sustainable sentiment to developing countries that can become global economic participants instead of simply taking handouts. Despite the positive impact the program is having on global trade agreements, as well as reducing aid dependency in certain regions, its direct impact on Africa, especially for those that require aid the most, such as rural Sub-Saharan Africa inhabitants, still leaves much to be desired.

The global economic crisis hurt the Aid-for-Trade programme significantly as overall investment from OECD’s Development Co-operation Directorate (DCD-DAC) members dipped by a whopping 14 percent in 2011, while commitments to Africa dropped by over 30 percent as it fell behind Asia in total value of agreements for the first time since 2008. This is indeed alarming for Africa as a whole in terms of replacing foreign aid with tangible trade commitments. This also exposes the flaws in a plan such as Aid-for-Trade. While the concept itself looks good on paper, the realities of incorporating private business in aid intertwines profit-seekers with assistance funds, which will inevitably exclude those most in need and dependent on foreign aid. Private enterprise is in the business to make money, so few can fault them for abandoning certain projects in favour of those that are deemed more profitable. This mentality leads to drastically fluctuating figures in commitments from participating nations.

In addition, corruption at the upper echelon of government, particularly within least-developed countries (LDCs) formulates a vacuum in which trade agreements, intended to replace foreign aid, are put in place, but all of the income generated is doled out to the political elite. This pattern of hoarding by politicians and corruption within government is the primary reason for poverty in LDCs in the first place. The correlation between corruption, a lack of transparency and LDCs is evident in examining Transparency International’s annual Corruption Perceptions Index. When comparing this to the United Nations (UN) Human Development Index (HDI), most countries with poor scores on the Corruption Perceptions Index are also ranked among the bottom of the Low Human Development category of the HDI. This means that in order for Aid-for-Trade to work as it was designed, corruption must be cleaned up and improved transparency is a necessity.

This is not to say the Aid-for-Trade is not attempting to combat these obstacles. The OECD and WTO developed framework to monitor and evaluate governments and provide incentives to those that improve transparency and trade borders. However, the Initiative must take this a step further in holding LDC governments more accountable for their corruption, possibly by limiting aid itself to those governments that refuse to adhere to improved transparency. The fact that foreign aid often fuels corruption is not a new concept. Therefore, if countries do not want to show transparency in aid or aid-for-trade agreements, then their total aid and aid-for-trade assistance is reduced. If the money is not reaching the people it was intended to better in the first place, what’s the difference? Lining the pockets of the corrupt and political elite only serves to empower those that manipulate the system. An agreement such as this could be negotiated among DCD-DAC members within the OECD or in collaboration with the World Bank and the International Monetary Fund (IMF).

One major positive impact that has emerged from the Aid-for-Trade Initiative is the rise of South-south trade agreements. China and India specifically have doubled their assistance to emerging economies and LDCs. Improving these agreements between emerging economies to a multi-lateral level will create trade arrangements that benefit all countries involved, limiting the dependence of the Global South on the West. This not only improves overall trade for emerging nations, but levels the playing field among trading partners as they are often dealing with countries that are developing as well. Plus these treaties can improve relations dramatically over the course of the partnership as countries feed off one another to improve their overall development standing. While I think that emerging economies and LDCs need to be leery of too much trade with China in particular, if the Chinese can help broker deals that encapsulate a plethora of emerging nations, then this will improve dialogue between nations dramatically.

Another positive from Aid-for-Trade is the emphasis that is put on the value chain. The value chains provide important access to markets, technology and networks. If utilised correctly these value chain connections can streamline the trade process and share knowledge in industries that are thriving in certain developed countries. Value chains between nations can improve industries such as food, tourism and textiles, as well as sharing information to improve transparency and open borders on more restricted nations. However, following the value chain all the way to the local level will improve overall development from the ground up, allowing small entrepreneurs access to the global market, which will inevitably create jobs. The importance of a value chain in the process is crucial, but it must be traced to the average person to implement improvements in local development.

While Aid-for-Trade in general is an interesting programme, especially on paper, ironing out the details to perfect the system remains crucial. If proper analysis is given, then the flaws within the Initiative can be exposed and addressed to ensure the value long-term. Tackling obstacles such as corruption and excessive profiteering will be vital towards maintaining positive dialogue and results in the system over time. Aid-for-Trade’s ability to create trade agreements on a South-south basis could encourage developing nations to help one another reduce their dependence on foreign aid and improve their overall economic standing through cooperation. As a whole, Aid-for-Trade can have some affect on aid reduction if properly managed, but many deficiencies need to be solved before it can start replacing foreign aid on a regular basis. Its impact on Sub-Saharan Africa will be the ultimate measuring stick to see if the concept is creating the type of change it set out to accomplish, otherwise it is simply another system that empowers the political elite to widen the gap between rich and poor.

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