Aid for Trade and the Private Sector: A Partnership That Works

By Ash, Ken | International Trade Forum, October-December 2011 | Go to article overview

Aid for Trade and the Private Sector: A Partnership That Works


Ash, Ken, International Trade Forum


The private sector is a key partner in fostering economic development through investments in new businesses, creating jobs and providing an innovative range of goods and services. All these activities have potential benefits for the least developed and developing economies.

The 2011 joint Organisation for Economic Co operation and Development (OECD)/World Trade Organization (WTO) Aid for Trade at a Glance report highlights the significant impact Aid for Trade programmes have had on the private sector. Since the launch of the initiative in 2006, US$ 137 billion has been committed, of which 44% has been devoted to building productive capacity and 53% to economic infrastructure, both of which are critically important to the private sector.

The report also shows how Aid for Trade has become a priority for an increasing number of developing countries and donors, and how it is being connected to the broader development agenda, with strategies and priorities increasingly focused on competitiveness and trade-led economic growth.

Five years into the initiative, donors' commitment to Aid for Trade remains as solid as ever; financial commitments and disbursements have been growing at an average annual real rate of 15% and 12%, respectively, for each year since 2006, reaching US$ 29 billion in 2009, The share going to low-income countries and consequently to the sub-Saharan African region has been steadily rising. While G20 leaders are committed to maintaining, at least, the levels reached during the 2006-2008 period, some debt-laden Development Assistance Committee (DAC) donor countries may find it difficult to raise their financial commitments in response to the higher demand for Aid for Trade. However, the continued growth of South-South cooperation can become an important complement to the support provided by DAC donors.

Case stories submitted for the report demonstrate how Aid for Trade can support government efforts to build the human, institutional and infrastructure capacity required to integrate into regional and global markets and benefit from trade opportunities, Several industry-specific programmes have been introduced to help the private sector better access foreign markets and integrate into regional and global value chains.

For instance, efforts to provide trade finance were critical in the wake of the 2008 global slowdown. Access to credit is crucial for the private sector, and OECD analysis has found that a 10% increase in the credit-to-GDP ratio boosts economic growth through its trade impact by 1.8%. Banks providing credit to traders in developing countries were extensively supported by Aid for Trade programmes from development banks. For instance, the Asian Development Bank's Trade Finance Program provided financial support for US$ 2.8 billion worth of trade in 2010, attracted US$1.5 billion in co-financing, worked with over 200 private banks in 14 countries in East and South Asia, and supported the operations of close to 500 small- and medium-sized enterprises (SMEs). A similar programme by the European Bank for Reconstruction and Development also provided technical assistance to participating banks, helping them improve operational efficiency. Two thirds reported significant reductions in processing time and half reported improvements in risk management.

Support to the private sector also took the form of export promotion programmes that were designed to reinforce export development agency support services for export promotion and trade expansion, This also included assistance to firms to upgrade product and service quality, increase productivity and reduce transport costs, Impact evaluations undertaken by Tunisia's export promotion programme show the extent to which such programmes could significantly raise export performance in beneficiary sectors. These programmes exist also at the subregional level, such as the Caribbean Export Development Agency's efforts to provide trade and investment services to firms, including SMEs, within the region, with financial and technical support from multiple donors. …

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