Trade Negotiations Insights • Volume 8 • Number 5 • June 2009

Private Sector Participation in Aid for Trade: Breaking Barriers to Private Sector Growth

by Trevor Simumba

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It is well recognised that developing countries need to unleash the potential of the private sector by promoting entrepreneurship, creating a sound enabling environment for doing business and helping entrepreneurs connect to new global markets.

However a number of shortcomings in the Aid for Trade agenda inhibit the role of the private sector. These include:

A failure to prioritise trade support activities and to mobilize the resources needed for them. Minimal resources are often spread wafer-thin over a number of different activities.
Poor donor coordination. Donor initiatives have overlapped and focussed on trade policy formulation, negotiation and implementation, as well as participation in meetings of regional trade bodies, the WTO and international financial institutions. Direct aid to production and export processes is rarely found.
Lack of measurable results.

These shortcomings then must be faced squarely if AFT is to be directed to the private sector.

While the private sector is the real locus of production and trade, it often lacks the technical and financial resources needed to invest in its own competitive development. Furthermore, the business environment and physical and institutional infrastructure necessary for it to thrive are largely outside of its control.

Firms are thus caught in a vicious circle of inefficiency. Market access alone has not guaranteed export expansion. A salutary lesson in failure in this respect is the case of the ACP countries. Despite decades of virtually unrestricted access to the European Union markets, there has been little export growth and diversification. By contrast, in South East Asia, trade and development outcomes are closely correlated with improved infrastructure and various productivity enhancing measures.

The contextual challenge

Donors have come to recognise that recipient country ownership is essential to the effectiveness of aid and development efforts. This can only be achieved if recipient governments take a more proactive role in determining how aid is allocated and managed.

In particular, recipient governments must work more closely with the private sector in their countries to develop priorities in the following three areas:

The private sector as advocate in trade policy-making and for creating a business friendly environment;
The private sector as partner in design, financing and execution of infrastructure projects;
Small and medium enterprises (SMEs) overcoming supply side constraints to take advantage of the opportunities provided by trade liberalization.

Underlying all of this is the need for greater mutual understanding between the public and private sectors, based on genuine partnership and consultation. Business has a central role in developing trade: “Governments may create trade rules, but it is business that actually creates jobs and opportunities” (International Trade Centre).

Government authorities need to strike the right balance between trade facilitation, customs control and supply chain security on one hand, and the promotion of increased international trade on the other. They also need greater awareness of the wider impact their actions have on international supply chains and the economy more generally.

Finally, we need to consider the political economy dimension in all AFT initiatives. Can we expect bilateral donors to provide advice on trade negotiating strategies or export development which conflict directly with their own economic interests? As discussed, the approach to Aid for Trade should be based on ‘leadership’ and ‘ownership’ by beneficiary countries. It must be a process in which countries actively engage in assessing trade development needs, defining priorities and designing highly targeted projects, with appropriate technical support.

One successful example

An approach based on these considerations has been successful in the Angola Customs Modernisation programme implemented by Crown Agents, a UK based international development consulting company. Results from this large customs and trade facilitation reform programme inlcude:[1]

Customs clearance time for business slashed from an average of 21 days to 48 hrs.
Introduction of risk-based controls, speeding up the flow for legitimate traders.
1730% increase in government revenue between years 2000 (baseline) and 2009 (up from U$215m to U$4bn+ respectively).
Angola being the first Southern African Development Community country to implement the SADC format single administrative document.
Automated customs entry processing (TIMS) at Luanda’s air and sea ports and key regional border posts (including direct trader input).
New Consolidated Customs Code & Regulations introduced, aligned with internationally agreed standards such as the WTO rules for customs valuation.
Customs code of conduct and ‘customer’ service standards adopted, improving transparency and predictability for business.

Three of the most fundamental reasons for success were:

- early ‘buy in’ by key stakeholders in the government and the private sector
- development and implementation of systems and processes to enhance integrity and transparency
- client country ownership and collaboration throughout the programme (e.g. joint working and senior level mentoring).

Institutional transformation was achieved through a sustained long term technical assistance support programme that worked to instil best practices aligned with internationally recognised standards such as the World Customs Organization and the WTO.

In going forward, we must focus on the priorities identified by stakeholders in the numerous Aid for Trade reviews and studies conducted. For Africa these include:

Infrastructure: Effectively dealing with infrastructure constraints through trade corridors, one stop border posts, roads, ports, utilities and other infrastructure;
Policy: National and intra-regional policies to support trade development. At the national level, cross-border trade facilitation, export strategies and rule-making, in conformity with international standards;
Supply side: Trade-related technical assistance that helps countries develop the skills and capacity to export in competitive global markets;
Regional Integration: Building capacities of Regional Economic Communities (RECs);
Private/Public Sector Dialogue: Effective participation and involvement of the private sector in the process and building effective public-private sector partnerships for implementation.

The trade-led developmental success stories in South East Asia and the Pacific demonstrate the importance of outward oriented trade and investment policies as well as public-private partnerships as integral parts of national development strategies.

Countries and regions in Africa have to focus on what matters most to increasing trade - e.g. regional cooperation, infrastructure, trade facilitation and trade finance - and the areas that can deliver the biggest returns on investment. It is clear that an appropriate Aid for Trade strategy in Africa must be tailored to meet the specific needs of diverse developing countries.

The Aid for Trade initiative should in fact be thought of as “Aid for Trade for Development,” and not simply as Aid for Trade per se. It must be firmly grounded in the region’s development agenda. The overall conclusion is to move forward with an agenda that can translate Aid for Trade from concept to implementation in Africa. The private sector needs to see all this good talk translated into actions on the ground that improve rather than impede trade and investment.

Author

Trevor Simumba is Senior Advisor, Customs and Trade Facilitation, Crown Agents UK

[1] Source: ‘Delivering Trade Facilitation’ Presentation by Crown Agents to a UNECA Workshop on Trade Facilitation, Addis Ababa, 12-13 March 2009. http://www.uneca.org/atpc/WorkshopMarch09/CrownAgents.ppt