Dan Lui: Aid-for-Trade and trans-national constraints to development

Stakeholders from across the trade and development spectrum will gather at the OECD-hosted Policy Dialogue on Aid-for-Trade (AfT) in Paris on 16-17 January to discuss ‘how to ensure that the AfT initiative remains relevant in a changing international environment’. One of the discussions on the future of AfT is on how to promote regional AfT. To date, there has been relatively little analysis on what makes regional AfT effective. ECDPM and ODI are examining the state of regional AfT and how it can be made more effective, as part of a Gates Foundation-funded research project.

The state of regional AfT is as follows:

• In terms of overall volume, regional AfT is growing faster than overall AfT – which has itself doubled over the past six years – to reach over $500 million in recent years in sub-Saharan Africa, or approximately 8 per cent of total AfT.

• Some sectors favour regional approaches more than others: transportation infrastructure accounts for far less regional AfT than its share of overall AfT would suggest, while trade policy support is significantly over-represented in regional AfT totals. Middle-sized AfT donors such as Netherlands and Sweden have distributed a greater proportion of their funds (double, on average) through regional programmes than partners with larger overall allocations.

• As with AfT more generally, the sheer diversity of regional projects across sub-Saharan Africa makes it difficult to generalise about regional-level programmes. Anecdotal evidence suggests that many projects are implemented at the regional level without officials being aware that they constitute AfT projects. It is also highly likely that many regional level programmes are delivered at the national level, as this is where the legal mandates for implementation are found.

A shift to greater regional delivery of AfT has several policy implications.

• Overall, there is a strong rationale for regional-level responses where there is a need to harmonise policies and unlock key cross-border bottlenecks that would otherwise persist in preventing opportunities for trade.

• Channelling aid through regional-level, however, is more complicated than working directly with national governments. It will require systems to design, manage and execute aid programmes, yet this is made more difficult by the need to ensure effective input and ownership among member states that may differ widely in terms of characteristics and needs.

• At the same time, greater regionalisation of aid offers clear opportunities for improvements in donor coordination, and for more efficient and streamlined aid programmes that can benefit from the replication of best practice and the economies of scale that come from working in several countries. Pooling donor resources can help to rationalise implementation mechanisms and financial instruments and reduce transaction costs. As such, regional AfT gives donors the chance to adhere more closely to the principles of the Paris and Busan Declarations such as aid predictably, ownership, alignment, and harmonisation.

However a number of challenges remain in making regional AfT more effective.

• The need to maintain continued resource mobilisation in face of shifting donor priorities (the EU, for example, is expected to refocus its regional support through projects at national level) and incorporating newer forms of ‘innovative finance’.

• Improving the quality of regional AfT projects through, and by establishing stronger mechanisms for, identifying and prioritising investments according to a genuine regional vision. This is especially difficult to achieve in regions where countries vary in size, geography, resources, population and level of economic development. Regional policy frameworks – including the AfT strategies that are being drawn up in most sub-Saharan regions – may help here.

• Improving regional donor-recipient relations and donor coordination: In the area of donor coordination, joint programming and delivery of support by donors continues to be limited. In practice, development partners are often better structured and equipped to deal with national partners than with regional ones.

• Improving the implementation of regional programmes: Regional programmes have often displayed poor results in terms of implementation downwards from regional to national level, with a lack of clear results. Capacity is often weak but so too are incentives for compliance by countries to regional frameworks. The decision on whether a project should be driven and delivered at the regional level or at the national level should reflect the effectiveness of implementation and execution. This, in turn, depends on such factors as the legal jurisdiction and mandate, and the capacity and effectiveness of regional and national institutions. It is likely that some cases will require a combination of regional oversight and national-level implementation.

Finally, we need to recognise that increased delivery of aid through regional programmes and projects can have a longer-term transformative impact on changing attitudes and thinking about regional trade. One example has been the recent shift in thinking towards more integrated ‘corridor approaches’ to boost regional trade and investment flows. Given some of the challenges to using AfT effectively at a regional level, as well as the growing focus on engaging with international businesses to promote economic development, a corridors approach appears to be one solution: targeting interventions to concrete, visible projects while providing a focal point for (sub)regional coordination.