Aid for Trade funds can help advance infrastructure development in Africa
Aid for Trade (AfT) is one of several global initiatives launched, over the years, to help developing countries to integrate into the global economy through trade. It was launched in the context of the multilateral trade negotiations in December 2005.
As an innovation, the Aid for Trade initiative was conceived not only to mainstream trade into the broader national development strategies of the beneficiary countries but also to deal with broad trade-related constraints ranging from trade policy and regulations to hard infrastructure for trade. AfT also aims at ensuring country ownership, and helping to improve the absorptive capacity of beneficiary countries by assisting them in the development of appropriate AfT project proposals as well as effective monitoring and evaluation (M&E) mechanisms.
A critical review undertaken by ECA showed that the sectoral composition of AfT in Africa has been fairly stable since 2006 and is broadly in line with the worldwide trends. The bulk of AfT funds is directed towards trade-related infrastructure (50 per cent) and productive capacity (46 per cent); trade policy and regulations account for a further 3 per cent of disbursements, whereas a negligible share of the funds is earmarked for trade-related adjustments. In other words, at the peak of AfT disbursements to the region in 2011, Africa received USD 6.4 billion for trade-related infrastructure, USD 5.6 billion for productive capacities, USD 328 million for trade policy and regulation, and merely USD 3 million for trade adjustment.
Over 60 per cent of the funds allocated to trade-related infrastructure have financed transport and storage facilities (mainly roads, and to a much lesser extent rail, water and air), of which inadequate provision is often cited as one of the key constraint hampering the competitiveness of African firms.
The above statistics suggest that AfT has already contributed to Africa’s infrastructure development. AfT also appears to provide an opportunity to bridge the gap in preparing the continent’s infrastructure projects to levels that would attract the attention of potential financiers, particularly the private sector.
Overall, there seems to be a bond between infrastructure projects and trade development initiatives. On the one hand, improving trade is cited as a justification for most of these projects, while initiatives such as AfT highlight infrastructure development as a major area of funding, on the other. However, the following questions are often posed by infrastructure experts: Were the infrastructure projects reported under AfT funded deliberately because of their potential to promote trade and in the context of AfT? Were the recipient countries (the concerned African countries) aware at the time of disbursement that the funds received for an infrastructure project were in the context of AfT?
These questions are relevant because of concerns about possible opportunistic reporting of AfT for infrastructure development, where funding for any infrastructure project is automatically recorded under AfT whether or not AfT was the reason or context in which the project was funded. Some argue that what is important is the implementation of projects, irrespective of the source or context of the funding. While there may be some merit in this argument, disagreements about the actual amount of AfT channeled towards infrastructure projects may affect the credibility of the initiative.
To avoid such controversy, African countries should explore ways of purposefully seeking AfT funds to implement their infrastructure projects. This seems to be a logical approach as there is consensus among donors and recipients of AfT as well as between infrastructure and trade constituents that infrastructure is indispensable for trade.
The Regional Forum on the Implementation of Cross-Border Transport Infrastructure Projects in Africa is being held in Addis Ababa from 24-26 July 2014 under the theme, “Boosting Market Integration and Intra-African Trade through Effective Management of Regional Transport Infrastructure and Services”. Download the Concept Note below.