The Way Forward: Aid for Trade Has Long Been Recognized as a Sure Path to Employment, Investment and Sustainable Development. Now More Than Ever, Says UNCTAD, Developing Countries Depend on Its Guidance

Article excerpt

Outside the port of Dares Salaam in the United Republic of Tanzania, trucks queue up to load and unload goods. The port faces congestion in customs and control procedures, as well as deficiencies in infrastructure that increase waiting times and ultimately trade costs. Globally, some 77 per cent of all goods by volume transit seaports, and in Tanzania the figure is probably even higher.

Yet Tanzania is not unique by any means. The picture for developing countries globally is not much better: in Latin America, it currently takes on average 36 days to move goods from the pre-arrival stage through to the warehouse; in East Asia 28 days. It takes just half that time in member countries of the Organisation for Economic Co-operation for Development (OECD).

Targeting aid at trade capacities in developing countries is therefore a sensible way of boosting export potential. But the benefits go further, also facilitating their imports of consumer goods and inputs to domestic industries that can contribute to the building of vital productive capacities. Additionally, in the context of the current economic crisis, providing support to infrastructure development and trade capacity is one way to stimulate employment and attract investment in the medium to long term.

Progress so far

The World Trade Organization and OECD report that Aid for Trade, as a component of overall aid budgets, has increased by about l0 per cent per year since 2005, In 2008 that aid amounted to about $25 billion in total new commitments, plus about $27 billion in non-concessional trade-related financing, However, donor countries are now facing a period of belt-tightening. One must hope they resist the temptation to freeze or reduce official development assistance or to commit support in one area at the expense of another. Indeed, one note of caution raised in this regard is the lack of transparency surrounding what commitments donor countries have made in the name of "Aid for Trade".

Trade finance is one of the elements of the Aid for Trade initiative, and the urgent need for it was unambiguously addressed by the G-20 nations earlier this year. They agreed to commit $250 billion to underpin the desperately needed short-term credit typical of trade transactions. It remains to be seen whether this additional finance alone will kick-start global trade, but it is a necessary element to fill the hole left by the generalized credit crunch and also to boost confidence in the global economy.

For many developing countries, where exports represent between 40 and 100 per cent of gross domestic product (GDP), the current downturn in world trade as a result of the crisis is having an acutely pernicious effect on their economies. …