Aid for Trade: widening gap between disbursements and commitments amid increased needs

SDG indicators

SDG target 8.a: Increase Aid for Trade support for developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-related Technical Assistance to Least Developed Countries.
SDG indicator 8.a.1: Aid for Trade commitments and disbursements (Tier I)

What is Aid for Trade?

The Aid for Trade initiative was launched at the 2005 WTO Ministerial Conference in China, Hong Kong (SAR) -—
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. Its goal is to help developing countries, particularly LDCs, build the supply-side capacity and trade-related infrastructure that they need, to assist them in implementing and benefiting from WTO agreements and, more broadly, in engaging in international trade. The assistance is targeted at enhancing national trade policy and regulations, developing infrastructure, and building productive capacity. Aid for Trade is an integral part of regular ODA programmes. It covers three main categories: i) economic infrastructure; ii) economic capacity building; and ii) trade policy and adjustment1.

The OECD and WTO put in place the 'aid-for-trade monitoring framework' to evaluate the progress in implementing the Aid-for-Trade Initiative. The seventh joint OECD-WTO Aid for Trade monitoring and evaluation exercise held in 2019 highlighted the importance of economic and export diversification, with a focus on promoting growth in the manufacturing sector for African countries, and the role that economic empowerment can play to facilitate this process as well as benefit from it -—
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. The eighth global review of Aid for Trade which is to take place in July 2022, with the theme of “Empowering connected, sustainable trade”, will discuss the key areas where developing countries and LDCs need a support to overcome supply-side constraints limiting their participation in international trade. This exercise will also focus on policies promoting women's economic empowerment and on the opportunities that inclusive growth and digital connectivity offer to meet the SDG targets -—
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Academic research and donor evaluation programmes provide evidence of the positive impact of Aid for Trade -—
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. Such evaluation, however, can be limited by scarcity of useful data and methodological challenges -—
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. A study on the effectiveness of Aid for Trade suggests that a one per cent increase in Aid for Trade for policies and regulations (as a percentage of GDP) induces a 0.15 per cent decline in tariff volatility -—
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. According to the OECD, for every dollar of Aid for Trade, on average eight additional dollars in exports from all developing countries are generated; this reaches up to twenty dollars for the poorest countries -—
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Aid for Trade flows remained resilient despite the COVID-19 crisis

The COVID-19 crisis created major setbacks in financing for sustainable development, which had already been under strain before the pandemic. Foreign aid to developing countries rose to unprecedented levels in 2020 (US$161 billion in real terms), partly due to additional spending mobilized to help developing countries deal with the COVID-19 crisis and an increase in bilateral sovereign lending by some donors -—
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. However, the UN warned that increasing spending of donors on military expenditures and on Ukrainian refugees in Europe because of Russia-Ukraine war could occur at the expense of ODA provided to the poorest countries and climate action -—
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In 2020, the donors maintained and even increased the Aid for Trade volumes, supporting an inclusive global recovery. In 2020, the Aid for Trade disbursements from official donors to developing economies rose to an all-time high of US$48.7 billion in constant 2020 prices, up almost 4 per cent compared to 2019, and up 136 per cent compared to 2006. Aid for Trade commitments to developing economies totalled US$64.6billion, in 2020. This represents a yearly increase of nearly 19 per cent, and an increase of 139 per cent compared to 2006, the baseline year which followed the launch of the Aid for Trade initiative. However, the Aid for Trade disbursements fell short of commitments by about a quarter. The average Aid for Trade gap amounted to approximately US$9 billion for the period of 2002-2011 and to US$13 billion for the period of 2012-2020. The Aid for Trade disbursements to LDCs, in 2020, were 2.7 times higher than those in 2006 and stood at US$14 billion. It is slightly below the 2019 peak of US$14.3 billion. The ratio of total disbursements to total commitments to LDCs was 71 per cent in 2020 (see Figure 1).

Figure 1. Aid for Trade flows to developing economies and LDCs
(Billions of US$ in constant 2020 prices)

Source: UNCTAD calculations based on data from -—
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Notes: Aid for Trade gap is calculated as the difference between Aid for Trade commitments and disbursements.

Country grouping refers to country classification as per OECD (2021c). LDCs group includes Vanuatu.

Despite the growth in volumes, the share of Aid for Trade in total ODA disbursements declined by 12 per cent in 2020, as compared to the previous year, when it peaked at more than 28 per cent. Its share amounted to approximately 25 per cent in 2020 (see Figure 2).

Figure 2. Aid for Trade share of total ODA disbursements
(Percentage)

Source: UNCTAD calculations based on data from -—
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Aid for Trade goes primarily to Africa and Asia

Africa and Asia received most of the global Aid for Trade disbursements in 2020, US$18.5 billion (38 per cent) and US$17 billion (35 per cent), respectively (see Figure 3).

Figure 3. Aid for Trade disbursements by region
(Constant prices 2020 USD billions, 2006-2020)
(Percentage, 2020)

Source: UNCTAD calculations based on data from -—
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Notes: Country grouping refers to country classification as per OECD (2021). Other regions include Europe and unspecified countries.

The countries that received the most Aid for Trade in 2020 were India (US$ 2.7 billion), Bangladesh (US$ 2.5. billion), Egypt (US$1.8 billion), Ethiopia (US$1.6 billion), and Kenya (US$1.3 billion) (see Figure 4).

Figure 4. Top 10 recipients of total Aid for Trade disbursements, 2020
(Constant prices 2020 USD billions)

Source: UNCTAD calculations based on data from -—
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Aid for Trade targets economic capacity building and infrastructure

Economic infrastructure and economic capacity building represented the bulk of total Aid for Trade disbursements. In 2020, they amounted to US$23.7 billion and US$23.9 billion (49 per cent each). Trade policies and regulations accounted for only US$1.1. billion (2 per cent). Assistance in the energy sector was the highest (24 per cent), followed by transport and storage (23 per cent) and agriculture (18 per cent) (see Figure 5).

Figure 5. Aid for Trade disbursements by sector
(Proportion of total)

Source: UNCTAD calculations based on data from -—
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The sectors receiving Aid for Trade disbursements vary across regions. In 2020, the transport sector led disbursements in Oceania, with 44 per cent of allocated total and Asia with 37 per cent of allocated total. Energy and agriculture were the dominant beneficiaries in Africa, accounting for 23 per cent of total disbursements each, while only 16 per cent of spending went to transport (see Figure 6). On average, only 0.4 per cent of total Aid for Trade disbursements to developing countries were allocated to tourism, the sector most severely hit by the COVID-19 pandemic.

Figure 6. Aid for trade disbursements by sector and region, 2020
(Proportion of total)

Source: UNCTAD calculations based on data from -—
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Note: Country grouping refers to country classification as per -—
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. Other regions include Europe and unspecified countries.

Notes

  1. Economic infrastructure includes transport and storage, communication, and energy. Economic capacity building includes banking and financial services, business and other services, agriculture, forestry and fishing, industry, mineral resources and mining, and tourism. Trade policy and adjustment includes trade policy and regulations.

References

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