Aid for trade: A misdirected initiative?
Given that the motivation for aid is poverty reduction, I argue that Aid for Trade (AfT) measures need to demonstrate that they are effective and have a potential impact on poverty. The debate about aid for trade measures lacks a focus on the poverty dimension of trade. Trade is an indirect instrument for poverty reduction and in SADC, increasing trade has a low impact on poverty. From a donor perspective, support to sectors such as agriculture, where the poor are located, is therefore more effective than to sectors or activities in which the poor are hardly involved.
While the overall motivation for providing aid for trade is poverty reduction, I argue that such aid should only be given if there are market failures, for example in coordination and public goods. Aid for trade is particularly important for countries that already have market access but face supply constraints that restrict their utilisation of this market access (as is mainly the case for SADC countries). In this case, aid and trade might serve as complementary activities.
I present new data of AfT to SADC countries. The main finding is that so far AfT has played only a minor role for SADC countries, and its role has not changed significantly during recent years – at least not in terms of disbursement. The disbursement ratio of AfT is low (around 50 %). We do not find any robust relationship between disbursement of AfT among individual SADC countries and documented needs. There is accordingly scope for major improvement in the effectiveness of AfT.
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