Aid for Trade:

Getting Delivery Right

Bernard Hoekman

International Trade Department

World Bank

OECD Policy Dialogue on Aid for Trade

Paris November 3-4, 2008

Focus on:

(i) Responding to demand

(ii) On projects with highest trade impacts

(iii) On „packages‟ of interventions

African factory floor costs compare well with

India & China

$0.16 $0.18$0.12

$0.16 $0.19

$0.65

$0.17

$0.29

$0.00

$0.20

$0.40

$0.60

$0.80

Mad

agas

car

Ken

ya

Ghan

a

Moz

ambi

que

Lesot

ho

South

Africa

Indi

a

EPZ Chin

a

Direct cost per male shirt

World Bank, Africa's Silk Road, 2007

Only by lower costs of trading can countries grow by increasing market share

9.8

22.2

24.5

24.8

29.3

32.5

35.6

0 5 10 15 20 25 30 35 40

OECD

Latin America & Caribbean

East Asia & Pacific

Middle East & North Africa

Eastern Europe & Central Asia

South Asia

Sub-Saharan Africa

Source: Doing Business Report (2008)

Average Time to Export (# of days)

Each additional day of delay in shipping reduces trade by 1 percent –

and adds about 1% to landed costs of exports.

Transport services costs in Africa: Not just

infrastructure; weak competition & regulation

Southern Africa

East Africa

Central Africa

West Africa

USAFranceSpain

Germany

Poland

y = -1.7571x + 12.366

R2 = 0.4826

2

4

6

8

10

12

1.5 2.0 2.5 3.0 3.5 4.0 4.5

Transport Quality

(LPI)

Avera

ge t

ran

sp

ort

pri

ce

(in

US

cents

per

tkm

)

See Transport Prices and Costs in Africa: A Review of Int’l Corridors, World

Bank 2008

All indicators point to same conclusion

High

Income

Middle

Income

Low

Income

LPI

(Score)3.9 3.0 2.8

Trade Facil.

(Score) 6.1 4.2 3.7

Services (Score)15.9 33.7 44.9

DB Import (US$)813.6 1024.2 1212.0

DB Export

(US$)774.4 867.2 949.3

Source: Hoekman and Nicita (2008)

Real trade costs matter most: Trade effects of

convergence to middle-income average

Indicator/policy area

Increase in

Imports

Increase in

Exports

LPI Score 15.2% 14.6%

Doing Business, cost of trading 7.4% 4.1%

Trade Facilitation Index 14.0% 12.6%

TTRI for low income countries

reduced to 5% 5.7%

OTRI for low income countries

reduced to 10% 8.4%

Source: Hoekman and Nicita (2008)

Is aid for trade a priority? Perhaps not: aid for trade

continues to fall as a share of development assistance

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

20

40

60

80

100

Aid for Trade

Sector allocable aid

Total aid excluding debt relief

2005 US$ Billion Total Aid for Trade Commitments

Source: Gamberoni and Newfarmer, 2008 based on OECD, CRS database

Informational “market failures” may lead to

insufficient demand...and supply

Government priorities are often set without a strategic focus on harnessing the global economy for growth

– Finance ministers may undervalue trade

– Line Ministries may have insufficient resources or standing in cabinet

Trade ministers rarely formulate strategies to improve competitiveness

– Requires inter-ministerial coordination

Regional projects are an order of magnitude more difficult

Donors are subject to “development fads” in normative positions

– Normative priorities are mutliple: private sector, anti-corruption, AIDs, gender

– Activities are sometimes influenced by single-interest NGOs

– Absence of “pro-trade lobby”

World Bank Group is trying to do its part to meet demand…

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2002 2003 2004 2005 2006 2007 2008

Source: World Bank, 2008 calculations based on World Bank, Business Warehouse database

IBRD

IDA

IFC

US$ MillionsAid for Trade Commitments 2002-08

But we could do more…A Trade Facilitation Facility

Significant unmet demand for projects to lower trade costs

A grant facility that is country- or regionally driven would help move faster on aid for trade

– Available to all countries, with an emphasis on low-income countries, particularly Africa

– And a focus on regional projects

Overcome financing gaps and time lag between diagnosis and project implementation

– Rapid response

Improve links to project preparation

Increase coordination with other donors, with the EIF, and other partners

Conclusions...

Despite strong evidence that countries need more aid for trade, pressures on both governments and donors are likely to militate against increases.

Governments and donors alike must have solid information about the importance of aid for trade to ensure that the “urgent” does not crowd out “the important”.

(Data is critical: including on trade policies and performance, not just aid. Data is a public good – should be part of agenda)

All of us have to intensify our efforts to avoid that the headwinds in the global economy do not push us backward.