This report discusses the opportunities and challenges of improving the effectiveness of Aid for Trade (AfT) through a regional approach.
After emerging at the World Trade Organization (WTO) Hong Kong Ministerial Meeting in 2005, theAfT initiative is now a credo of the international trading system. Although there has been some scepticism about its ‘added value’, there is now broad acceptance of the need to assist developing countries to build their capacity to benefit from trade. Moreover, the AfT initiative has mobilised donor resources for a range of trade-related activities while improving the quality of aid in terms of the ownership and design of programmes and policies. Overall, AfT now accounts for more than one-third of all official development assistance (ODA) delivered by traditional donors.
The limited evidence there is suggests AfT works best when targeted at regional trade-related constraints, among other factors. While donors have traditionally focused their development cooperation at the country level, regional trade-related projects have increased in recent years. One key driver is the desire in many developing countries to pursue a deeper level of regional integration as a step towards integrating into the global economy. Arguably, negotiations on economic partnership agreements (EPAs) between the European Union (EU) and various regional groupings have also played a role, while the stalled WTO Doha Round also underlined the regionalism as an attractive alternative.
Within this context, the ‘corridors approach’ has emerged gained prominence as a way to link countries and create regional supply chains, particularly in sub-Saharan Africa, with AfT playing an important role. This approach emphasises tackling regional barriers to trade in an integrated and coherent manner, complementing liberalisation commitments with a combination of physical and ‘soft’ infrastructure investments to lower the costs of trading across borders. Increasingly, this approach also goes beyond infrastructure to promote investment and clustering in sectors such as agriculture to boost productive capacity.