Aid for Trade — can it really reduce poverty?

A market stall owner in Uganda where the U.K. Department for International Development helps in the country's recovery through providing match-funding for the private sector to help kickstart the local economy. Aid for trade is making a difference, according to Pascal Lamy, director-general of the World Trade Organization. Photo by: Pete Lewis / DfID / CC BY

Developing countries are increasingly opening up more to crucial trade routes, which connect them to world value chains.

But barriers remain: Deficient infrastructure, low trade finance, high entry costs, restrictive trade regimes and a labor market lacking in skilled workers, among others. The most significant challenge is whether Aid for Trade (AfT) actually bridges the poor to the world economy.

Eight years after the initiative was launched to align donor’s aid money to recipient’s trade opportunities, government officials and representatives from development agencies, aid groups and the private sector are reviewing in Geneva what AfT has accomplished and what challenges it still faces.

The Fourth Global Review of Aid for Trade where a report released by the World Trade Organization and the Organization for Economic Co-operation and Development points to AfT as the future to untying developing countries from the grips of poverty.

How AfT is changing development policy

Developing countries, the report says, now invest their money in opening up to trade, while donors fund programs that tie development to trade, like technical assistance for trade talks or building infrastructure. AfT reached $41 billion in 2011, up 57 percent from 2005.

“Aid for trade is making a difference,” WTO director-general Pascal Lamy said this week in Geneva.

Lamy mentioned an example that illustrates both the success and challenges of AfT: Eight years ago, it took 41 days to export a container from a least-developed country; now it takes 33 days, a considerable improvement but still too much time.

U.N. Development Program Administrator Helen Clark underscored in her speech that smart development assistance nurtured by this initiative “can be catalytic in helping countries attract and use finance, produce goods and services efficiently, and develop skills and infrastructure.”

The community, Clark said, should hone in on making sure developing countries draw up their development plans with an eye on trade are supported to strengthen their institutions and government, and encouraged to join regional markets.

Reduce poverty?

AfT is supposed to reduce poverty, as the poor would become a more integral part of the economy when they are for instance able to to sell their produce to markets abroad easier, faster and cheaper.

But is that truly the case in reality?

Not quite, according to Traidcraft and the Catholic Agency for Overseas Development, two NGOs that have studied British and European Union AfT and found that most of the aid money actually goes to middle-income rather than low-income countries.

A study from a consulting firm commissioned by both groups argues there is very little information available about the impact of AfT programs on poverty, because for one there is gap between goals and actual projects on the ground.

“By and large, casual linkages between a project delivers and the impact on poverty is based on a series of assumptions (and, in some cases, a leap of logic) unless the poor are direct beneficiaries of the project/program,” says the report.

Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.

You have 2 free articles left
Log in or sign-up to unlock all of the free news on Devex.

About the author

  • Alliage profile

    John Alliage Morales

    As a staff writer, John Alliage Morales covers the Americas, focusing on the world's top donor hub, Washington, and its aid community - from Capitol Hill to Dupont Circle, Foggy Bottom to the downtown headquarters of USAID, the World Bank and Millennium Challenge Corp. Prior to joining Devex, Alliage worked for a variety of news outlets including GMA, the Philippine TV network, where he conducted interviews, analyzed data and produced in-depth stories on development and other topics.