Aid for Trade needs to redefine for output

The poor trade performance has made analysts critical about the effectiveness of Aid for Trade (AfT).
“The Aid for Trade includes factors that contribute both directly and indirectly to trade,” senior trade analyst Dr Posh Raj Pandey said.
“But the aid that directly contributes to the trade should only be considered under Aid for Trade,” he opined, adding, though the aid for infrastructure that will in the long run contribute to trade is also included in the Aid for Trade.
According to the OECD data, the country has received $173.55 million in 2009 but its output has not been yet visible that has called for redefining of Aid for Trade policy.
Of the total amount disbursed Rs 173.55 million — though $292.50 million was committed by the donors — only 0.8 per cent aid has gone to the trade policy and regulation, whereas almost half of the aid that is 45.7 per cent goes to transport and storage, energy generation supply gets 31.7 per cent and agriculture, forestry and fishing get 13.5 per cent.
“We should consider only such aid that directly contributes to trade under the Aid for Trade,” he added.
However, Nepal faces supply-side constraints that severely limit its ability to benefit from trade, and the donors may be concentrating on infrastructure and transport.
According to the OECD data, the country has received $89.1 million in 2007 — though the donors had committed $224.5 million — out of which, the transport and storage got 18.2 per cent, which has gone up to 45.7 per cent in 2009.
Aid for Trade refers to a subset of development assistance designed to help the developing countries address supply-side bottlenecks and boost their capacity to take advantage of expanded trade opportunities as it comprises aid that finances trade-related technical assistance, trade-related infrastructure, and productive capacity building.
Developed countries and development partners’ support for product development programmes, development of trade infrastructure like inland clearance depots, container freight stations, special economic zones, roads and other forms of transportation in order to enhance trade capacity, apart from enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development are key but they have to define core trade issue and help boost it.
“Infrastructure will not only help boost trade, it will boost overall socio-economic development,” Pandey said, asking for a new approach that could be more output oriented and boost core trade.
According to ‘Evaluating Aid for Trade on the Ground: Lessons from Nepal’ study also, Aid for Trade in Nepal has only been partially effective.
“The potential effectiveness of Aid for Trade has been hampered by various factors, internal factors — like low absorptive capacity; limited progress in making Aid for Trade programmes and projects financially and institutionally sustainable; and the need for more ownership by government agencies and the private sector — and external factors like lack of coordination among donors, bureaucratic hurdles on the part of donors, rampant use of parallel programme implementation units bypassing the recipient government mechanism, slow progress in the use of country systems, and the broadness of definition of Aid for Trade.
“To bridge the gap between commitments and disbursements, the government needs to have a national level co-ordination,” he said, adding that inter governmental agency cooperation will help absorb more aid forcing the donors to bridge the gap.
Though, Aid for Trade is bettering the lives, its integration in broader development strategies, with objectives focusing on competitiveness, economic growth and poverty reduction has made it less output oriented and out of the focus.

Sectorwise share
Transport and storage — 45.7 per cent
Energy generation, supply — 31.7 per cent
Agriculture, forestry, fishing — 13.5 per cent
Industry — 3.9 per cent
Banking, financial services — 3.5 per cent
Trade policy and regulation — 0.8 per cent
Business, other services — 0.5 per cent
Communications — 0.2 per cent
(In total Aid for Trade commitments, 2009. Source: OECD)

Commitment vs Disbursement
Year — Commitment — Disbursement
2007 — $224.5 million — $89.1 million
2009 — $292.50 million — $173.55 million
(Source: OECD)