Trade and Development-The Role of Aid for Trade in Promoting Growth and Development in East Africa

1. Trade and Development-The Role of Aid for Trade in Promoting Growth and Development in East Africa DR. Halima Noor Abdi CPA, Commonwealth Secretariat Regional Workshop for East African Parliamentarians 27-28 2010 Arusha Tanzania

2. Outline • Introduction • Objectives of AfT and Development • Rationale of AfT • Scope of AfT Initiative • AfT Progress in EAC Countries • Trade Related Bottlenecks in EAC Countries • Recommendations and Way Forward

3. Introduction • Trade and Economic Development • Empirical results show a mixed picture. There are cases where trade expansion has helped a country grow faster (China) and on the other hand there are countries that have experienced poor economic and social conditions after trade liberalization (SSA) • Flanking measures and trade liberalization

4. Introduction (2) • The direct impacts of trade are at least three-fold (i) employment (ii) income and revenue (iii) prices. • Indirect impacts have to do with how changes in trade and export promotion measures affect the informal and household sectors.

5. Objectives of AfT and Development • Expansion of developing countries trade is the core objective (WTO, 2005) • Philosophy of AfT initiative is not to support trade per se but trade in as much as it contributes to growth and poverty reduction • According to the WTO Task Force on AfT (2006b) “effective aid for trade will enhance growth prospects and reduce poverty in DCs, as well as complement multilateral trade reforms and distribute the global benefits more equitably across and within DCs”

6. Rationale for AfT • Global crisis has strengthened the rationale-The quantity and quality of aid and including AfT are now more important than ever for economic growth and human welfare • Provides an essential stimulus in the short term creating employment and reinvigorating growth • Address long term competitiveness • Fear that OECD might reduce AfT because of the global crisis

7. Scope of Aft Initiative • Trade is a diverse and complex activity, AFT is broad and not easily defined and it includes: • Technical assistance: helping countries to develop trade strategies, negotiate more effectively, and implement changes • Infrastructure assistance: Building the roads, ports, telecommunications that link domestic, regional and global markets • Productive capacity assistance: investing in industries and sectors so countries so countries can build on their comparative advantages to diversify and add value to their exports • Adjustment assistance: helping with the costs associated with tariff reductions * AfT initiative is reviewed 2 to 3 years at the global level. The 2nd Global Review (July 2009) evaluated progress and scrutinized how the initiative is being implemented on the ground. The next global review is scheduled for 2012.

8. AfT Progress in EAC Countries • Regional Integration is a powerful catalyst to economic growth • The WTO Task Force recommended that AfT “assist RI WTO 2006b • EAC capacity constraints in capitalizing on the full potential • Poor cross border infrastructure and transport infrastructure • Export Bans • Customs procedures, taxes, delays and bribes • Lack of awareness and understanding/limited capacity at regional and national level • Poor implementation of food safety standards

9. AfT Progress in EAC Countries (2) • The logical framework to assess whether progress is being made towards the desired aid-for-trade goals consists of the following four elements. • Mainstreaming and prioritising trade (Demand) • Trade-related projects and programmes (Response) • Enhanced capacity to trade (Outcome) • Improved trade performance and reduced poverty (Impact)

10. AfT Progress in EAC Countries (3) AfT has made progress • Activities in the area of TRTA/CB at the country level has been prolific • EAC countries have mainstreamed trade in their development strategies and clarifying their needs and strategies • Donors are improving AfT delivery and scaling up their resources • Trade policy analysis, negotiation and implementation suggest that training and workshops have been particularly useful in helping officials to better understand the function, structure and rules of MTS (Kenya) • However concern that programs risk officials turning into “rule takers” rather than “rule makers” by focusing too narrowly on rules, rather than development or PPP-may bring importance increases in customs revenues and increased trade.

11. AfT Progress in EAC Countries(4) • Trade Facilitation • This is the 2nd most frequently identified area where AfT is seen as effective. Simplification of customs procedures and improvements to ports authorities (Kenya and Tanzania) • Customs reforms-often supported by TA programmes and financial assistance • Infrastructure development • North-South Corridor as an example of an AfT programme being implemented

12. AfT Progress in EAC Countries(5) • Productive Capacity • It is difficult to address productive capacity building at the regional level (since it is better dealt with at the national level) and the regional strategy focuses upon trade-related infrastructure and trade related adjustments

13. AfT Progress in EAC Countries(6) • EAC region has made a lot of progress in identifying projects for AfT • EAC partnership Fund established in addition to EC support, EAC receives financial and technical assistance from a number of EU Member States including Germany, Finland, France, Sweden, Denmark and the United Kingdom. • EAC key priorities under 9th EDF support have been the environment (notably Lake Victoria), institutional capacity of the EAC institutions, information technology and conflict prevention activities • 10th EDF-Regional Integration-update EC assistance to take account of EAC’s strategic priorities (in its development plan) and to address “Aid for Trade” issues (i.e. EAC Development Strategy 2006-2010, EAC Agriculture and Rural development Strategy 2005-2030).

14. Trade Related Bottlenecks in EAC • Shortcomings (from a trade perspective) • Trade ministers are rarely at the table in AfT discussions • Intra and Inter ministry consultations • Cabinet may not focus on improving competitiveness and promoting exports • RI-lack of co-ordination between donors and partners

15. Trade Related Bottlenecks in EAC (2) • High transport costs • Complicated and cumbersome customs procedures • Inadequate usage of information and communication technology • Payments, insurance, and other financial requirements, and • Non-tariff barriers in export markets

16. Recommendations and Way Forward • EAC’s growth potential depends upon marketing its existing degree of integration at a global level, upon creating economies of scale, and at the same time upon addressing some critical constraints, notably in infrastructure, services and institutional capacity.

17. Recommendations and Way Forward • Donor Side • Need for donors to strengthen their capacities to respond to rising AfT demand by bolstering in-house expertise • Raising awareness among policy makers and practitioners at headquarters and in the field • Alignment of donour and partner countries procedures and systems and undertaking joint initiatives (Need to keep track of who is getting what, how much and for what activity)

18. Recommendations and Way Forward(2) • Beneficiaries • RI -Further coordination on regional AfT activities is needed (EAC regional strategy) • Broadening the AfT dialogue to engage parliamentarians, CSOs more effectively. • Without broader engagement and outreach initiative AfT is likely to be only of interest to bureaucrats and remain divorced from political landscape in which it must be carried forward.

19. Recommendations and Way Forward (3) • Inclusive dialogue is important especially given the political sensitivities of many trade reforms • Importance of monitoring AfT and national Parliaments and EAC Parliament can play a crucial role • Need for an organized database at the level of EAC on AfT activities, projects and funding.