Political support for ‘Aid for Trade’ initiatives continues to grow, both because their nature and impact is becoming more widely understood and because the reality of persistent sluggish global economic growth and tighter government budgets mean that today resources must often be deployed to pursue multiple objectives simultaneously.
The sceptics of ‘Aid for Trade’ often raise the question of how increasing trade can translate to pro-poor gains and not simply grow the wealth concentrated in the hands of the few who already own the means of production. Essentially it comes down to making sure that the ways in which trade are opened up support sustainable development and inclusive growth by their very nature.
When it comes to opening up and facilitating trade between nations and regions perhaps the most obvious link with development is that trade drives economic activity and with it the creation of jobs. However, the channels through which increases in trade are sought that can contribute positively are many and varied. Those that support increased transparency and efficiency simultaneously are a powerful example in this respect.
The cost of corruption is considerable. In fact figures from the World Economic Forum have estimated the cost to be more that 5% of global GDP (US$2.6 trillion), while the World Bank reckons around US$1 trillion is paid in bribes each year. The aid sector has not been immune to its share of corruption allegations and as such many donors have been careful to include various governance and capacity building measures in their programmes to try and combat this weakness.
The potential impact of trade facilitation programmes with a heavy focus on streamlining processes and increasing transparency should not be overlooked. They not only boost productivity and increase competitiveness, but part of the mechanism through which they will do so is by eliminating corruption. Programmes to institutionalise standards also reduce the room for corruption by clearly and openly setting out product specifications, rather than leaving them at the discretion of third parties.
Through its various projects and the Ease of Doing Business Index the World Bank has identified six strategies for fighting corruption, two of which closely relate to ‘Aid for Trade’. The first is the cutting of red tape because excessive permitting and approval processes present multiple openings for people to levy additional fees or favours at each stage. The second is the adoption of smart technology. Here the Bank draws on the example of Chile, which has created one of the most transparent public procurement systems in the world through the use of smart technology. ChileCompra, as the system is called, launched in 2003 is a public electronic system for contractors that hosts transactions totalling several billion US dollars each year and has received accolades for its transparency and efficiency.
Of course ‘Aid for Trade’ also places great importance on the potential for increasing domestic revenue generation, essential for ensuring that growth is sustainable and that such programmes help the recipient transition beyond aid. Transparency with regards to revenue generation is also important, however transparency regarding how it is spent is ultimately in the hands of the government.
As ‘Aid for Trade’ becomes more widely understood and discussed it is important to target such initiatives to ensure they fully take advantage of the potential for combatting corruption in the course of opening up trade. This will best serve the objective of driving sustainable growth and inclusive development.