Global Policy Forum

Aid Critical To Ensuring Benefits From Trade


By Pascal Lamy and Donald Kaberuka

September 24, 2007

While developing and industrialized countries continue to wrestle in the Doha Round of negotiations to reach a new international trade agreement, there is increasing recognition that even if there was free trade between nations, many countries simply do not have the basic infrastructure needed to take advantage of it. Hence the organization in Dar es Salaam next week of a high-level meeting to promote "Aid for Trade" – assistance aimed improving the capacity of countries to join fully in the international trade system. Pascal Lamy, Director-General of the World Trade Organization, and Donald Kaberuka, President of the African Development Bank, explain.

For many developing countries, trade has been a vital instrument for reducing poverty and raising levels of development. One need only look at Korea, Malaysia, Singapore and China to see how trade can help raise living standards. But many other developing countries have yet to derive the same benefits from a global trading system which could provide them with an important route to economic growth. One important reason for this is that many developing countries, not least in Africa, lack the technical and institutional capacity to integrate successfully into the system. To address this problem, governments around the world are establishing a financial assistance partnership dedicated to building trade capacity in the developing world.

From October 1 to 3, the African Development Bank will host trade, finance and development ministers in Dar es Salaam, Tanzania to build support for the global "Aid for Trade" initiative in which the World Trade Organization plays a central role. The meeting – one of three regional Aid for Trade meetings to be held in the northern autumn – is designed to encourage beneficiary countries to make trade a greater development priority and to encourage aid donors to scale up trade-related development assistance.

Aid for Trade is needed to train developing country trade officials so that they can more effectively participate in WTO activities. But it is also needed to improve trade-related infrastructure in Africa, to help African countries implement commitments they will take in the Doha Round while providing adjustment assistance necessary to reform trade regimes. All governments agree that an "Aid for Trade" package is no substitute for an ambitious and development-oriented Doha agreement. By reducing trade barriers and paring back distorting subsidies, an agreement would create real opportunities for African businesses in the world marketplace. But if entrepreneurs are to take advantage of these opportunities, they will need help. African trade is growing – trade has risen nearly five times in 20 years and exports have risen an average of 15 percent annually since 2000 – but the continent's share of world trade still lags behind. In 1950, Africa's share was 10 percent, but today her share hovers at less than three percent. With exports of goods and services having grown 20-fold to more than U.S. $14 trillion since 1950, a return to market share of 10 percent would mean a vast expansion of resources. But this will not come without effort and money.

Infrastructure and enhanced customs procedures are two solutions to improving African trade performance. Africa suffers from underdeveloped roads, ports, rail and telecommunications systems. The cost of telephone connectivity in Africa is higher than anywhere else. African freight costs as a percentage of total import value are 13 percent compared to 8.8 percent for developing countries elsewhere and 5.2 percent for industrial countries. In Kenya, the average cost to import one container is nearly $2,500, or five times more than the cost in Singapore. The operating costs per kilometre of using two-axle trucks in Tanzania is two and half times the costs in Indonesia or Pakistan. Fixing these infrastructure deficiencies will not be cheap, but the potential benefits are immense. The World Bank estimates that to build roads linking Africa's capitals and major cities would cost $20 billion and another $1 billion a year in maintenance. But the bank also estimates that such infrastructure improvements could boost trade by $250 billion within 15 years with the rural poor being major beneficiaries.

Other capacity-building programmes require fewer funds but offer equally important gains. An average customs transaction in Africa requires the involvement of 20-30 different parties, 40 documents and 200 data elements. The result is that customs delays in Africa average 11.3 days, compared with 7.2 days in Latin America and 5.5 days in Asia. This is significant because there is a direct correlation between such delays and a country's volume of trade. The OECD estimates that reducing such delays to six days could result in a 10 percent rise in African exports. An agreement on trade facilitation arising from the Doha round would help by streamlining global customs procedures but African governments will need money to train customs officers and to computerise operations. Aid for Trade can also assist African exporters in meeting the quality and safety standards mandated by industrial country governments and consumers. Relatively modest investments in helping governments meet sanitary and phyto-sanitary requirements for fish or horticulture products or in finding overseas partners for local entrepreneurs can deliver significant economic results too.

Financial support to make all this come true is needed from international organizations and from bilateral donors. The good news is that these donors have stepped forward and shown real commitment to this process. Development banks, like the African Development Bank, and the World Bank have integrated trade in into their poverty reduction strategies. The economic problems facing Africa are diverse and complex. Addressing these problems will require a great deal of determination and commitment from all sides. But such efforts are essential if we are to bring Africa in from the sidelines of the global economy.



FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.