Aid for Trade & Nepal

7/30/2019 Aid for Trade & Nepal

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Aid for Trade and Nepal

Issues and Way ForwardChandra Ghimire

Joint SecretaryMinistry of Commerce and SuppliesKathmandu, Nepal, 19 th Aug 2011


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Talking Points Understanding of Aid for Trade (AfT) AfT flows in Nepal State-of-the Art of AfT in Nepal Issues in AfT Effectiveness Silver-lining with AfT in Nepal

Way forward in Nepalese Context The 4 principles for AfT Final TATWABODH


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Methodology Applied and Limiatations

Review of the literature available around

My own observation constructed over last 2 years at

Ministry of Commerce & Supplies A bundle of frank speaking

Due to some limitations this also doesn't represent

the complete picture


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The argument of Market Access Huge focus on market access (i.e. as of 31 July 2010, some 474 RTAs

notified to the GATT/WTO) - the underlying assumption was thatremoval of trade barriers leads to expanded trade ;

Generalized System of Preference (GSP) since 1968 provided to the LDCswith the same assumption;

Special and Differential Treatment (SDT) for LDCs in WTO and RTAs;

Despite the the LDCs share in global export


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The missing link The issue of supply-side constraints was not addressed Following types of "Supply-Side Constraints" are prominent

in the context of Nepal: Availability of surplus to export (comparative plus competitive advantages); Lack of infrastructural and institutional prerequisites to competitively

supply international market; Relatively high costs of doing business;

Lowest level of Logistics Performance Index in South Asia;

5Constructed by CHANDRA GHIMIRE Aug 2010

Supply-side Capacity Vrs Market Access


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To enable particularly LDCs to use trade effectively for growth,

development and poverty reduction & their developmentobjectives, including MDGs Goals;

To help particularly LDCs to build supply-side capacity andtrade-related infrastructure in order to access to markets;

To help facilitate & implement trade reform & liberalization;

To assist regional integration ;

To assist smooth integration into the world trading system;

To assist in implementation of trade agreements ;


Task Force Recommended


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As Defined by the WTO Task Force 2006 on AfT

" Aid for trade is about assisting developingcountries to increase exports of goods and services , to integrate into the multilateral tradingsystem, and to benefit from liberalized trade and increased market access"


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1. Trade-related infrastructuree.g., road, telecom, electricity

2. Building productive capacitye.g., agriculture, industry, fishery

3. Trade developmente.g., investment promotion, tradepromotion, business services

4. Trade-related adjustmente.g., retraining of workers,

compensation for retrenchedworkers

5. Trade policy and regulationse.g., training of officials and

stakeholders, designing policiesand comply with trade rules

6. Other arease.g., recipients other needs that are not

included above8Constructed by CHANDRA GHIMIRE Aug 2010

Task Force Recommended II


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8 Guiding Principles as laid down by on Aid

Effectiveness & Country ownership; Aligning aid to national development strategies

Harmonization of donor procedures with country contexts ; Use of programme based aid modalities ; Mutual accountability; Managing for result ; Strengthening country ownership; Building inclusive partnership

But Task Force didnt recommend a stand -alone fund or facility, which

means the resources are provided bilaterally


Task Force Recommended III


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LDCs lack basic infrastructures to take advantage of the marketaccess resulting from a successful Doha Round;

The Doha Ministerial Declaration (2001) made technicalassistance and capacity building a key component ;

In 2005, the Hong Kong Ministerial Conference paved way fortransforming IF into EIF & set up a new AfT mechanism


AfT and EIF under WTO


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NEPAL AID-FOR TRADE FLOWSUSD in 000, 2009 constant prices (Source: WTO/OECD, 2011) Commitments Disbursements

Year 2002-05 Average 2006 2007 2008 2009 2006 2007 2008 2009

Trade policy andregulations andtrade relatedadjustment

84 0.05%

2982 1.41%

1344 0.51%

1423 0.75%

2366 8.08%

44 0.04%

859 0.73%

318 0.20%

494 0.28%

Economic

infrastructure

76347

44,81%

130689

61.93%

125165

48%

121622

64.3%

227173

77.7%

76992

68.7%

83341

71.23%

122533

79.29%

118959

68.54%

Building productivecapacity

93930 55.13%

77324 36.64%

134998 51,62%

65997 34.91%

62963 21.52%

35022 31.25%

32799 28.03%

31684 20.50%

54100 31.17%

Focus on tradedevelopment

3739 1.42%

12622 6.67%

32540 11,12%

1457 1.245%

4692 3.036%

11008 6.34%

Other trade relatedneeds/Tradeadjustment

Total AfT (Average

31.36%) 170361 30.51%

210995 44.35%

261507 36.63%

189042 29.87%

292501 31.38%

112058 27.64%

116999 26.75%

154534 29.73%

173553 26.075%

Total Sector

Allocable ODA

558356 475657 713801 632881 931971 405297 437267 519641 665590

NIL


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AfT Flows in Nepal

Only 60% of the committed figure is disbursed


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Distribution of AfT in Nepal


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Who are the AfT donors of Nepal?


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Aid for Trade Commitment for Nepal (2002-2009), constant 2008 US$ million


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Nepal as Compared to Other Group of Countries


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An Indicative List of Existing and Potential Trade-relatedProjects in Nepal


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State-of-the Art of AfT in Nepal

Nepal has the policy and institutional ground works well-done Trade Policy 2009 and NTIS 2010

Nepal's NTIS is regarded as a best one

A 3 Three-tier institutional set up in effect, i.e. NSC, NIU, FP, TCs, DF

Least duplication in the AfT funded activities as NIU is there toavoid

NTIS 2010 is well articulated as the territory for AfT, thus the

practices seem to have been the "bottom-up" Over last few months, delegates from 2 countries visited Nepal

for learning out of it experiences


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Framework for Analyzing the Issues in Nepal(As Pascal Lamy, 2011)

Resource mobilization

Trade mainstreaming

Ground level impact Result Showing


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The quantum mobilized so far is below satisfactory

Global vrs Nepal Growth 36% vrs 42% increased (2002/05-2006/09)

0.07% out of the global AfT

< 2% of the AfT allocated to Asian countries

Nepal not in the list of top 10 recipient countries whereas so didemerging countries like India, Iraq, Indonesia, Vietnam,Bangladesh Ghana etc

No data base available depicting the AfT in Nepal i.e. from where

and where to??? Huge gap between commitment and disbursement

Compared 2006-2009 to 2002/2005, the gap increased as follows:

In non-AfT case from 102% to 98%

In AfT case from 98% to 59%

1st Issue: Resource mobilization


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Absorptive capacity is blamed as 'poor No agency responsible specifically for AfT (In GoN apparatus and even within

MoCS)

Even MoCS is not fully aware of the AfT around i.e. what is where?

Resource mobilization AfT not mobilized as per DTIS in the past

So, projects beyond trade also funded with AfT, e.g. KTM-Sindhuali Highway

In Hardware vrs Software, DPs do love 'software

Passion in some DPs for the TA category higher than the ordinary AfT aid Running directly by donors outside the govt mechanism

Not recorded in GoNs Red Book

Use of foreign consultants unnecessarily

1st Issue: Resource Mobilization


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Foreign Aid Policy silent on AfT mobilization Respect of Paris Declaration and Accra Plan of Action

Out of review as some AfTs are not reflected in Red

Book, i.e . EC-WTO Assistance Program Nepal has not yet seen any aid for trade adjustment

although the need is high

1st Issue: Resource mobilization


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GoN gone to a significant extent, however, its DPs turn mainstreaming tradeinto their cooperation agenda

No good space for AfT in their CAS

Many DPs has no a dedicated strategy for AfT

Having poor understanding about AfT

Not all are aware of the principle of additionality

Peace and conflict and social sectors are the darlings of the DPs in Nepal

Trade is yet to be fully mainstreamed into sectoral policies, plans and annualprograms, e.g. agriculture, forest, industry etc, yet

Continuity of the trade as a priority sector Changing dynamics of trade sector and its sub-sectors

Private sector engagement yet not fully

Sustainability of the institutional set up erected as of now

2nd Issue: Trade Mainstreaming


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3rd Issue: Ground level Impact There has been additionality in commitment but no additionality in

disbursement.

Sustainability aspect is still blurring

The impact is subject to rigorous examination

Even the Paris and Accra based criteria for evaluatingeffectiveness may not necessarily reflect the true ground levelimpact

One regression analysis shows, + impact of AfT on exportperformance. 1% increase in AfT is associated with exportsgrowth by 0.224 %

Nepal's case is taken as too early to evaluate the impact


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Sustainability Aspect of AfT in Nepal


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Silver Lining with Nepalese AfT

Nepal being a LDC has a great advantage Some unique comparative advantages it has Policy and institutional set up ready for take off Private sector eager to have support for capacity

building Trade mainstreaming to a certain extent

undertaken DPs has a great interest as the country is a post-

conflict ridden one


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Way Forward in the Nepalese Context Accept MoCS as the lead role in AfT mobilization

By recognizing it in the Rule of GON's Business Allocation

By keeping MoCS in loop prior to accepting any AfT from DPs

By maintaining a sound database at MoCS

By broadening the country ownership of AfT beyond MoCS and MoF

Strengthen the NIU established at MoCS Improving HR planning

Minimizing staff turnover rate

Building the capacity of HRs for designing projects and resource absorption

Fully activate NSC, TCs, etc Mainstream NTIS 2010 and Trade Policy into sectoral policy, strategy and

annual programs


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Way Forward in the Nepalese Context 2 Optimize the donor group established for trade & development

Benefit from the principle of 'additionality'

Mainstream of NTIS 2010 and Trade Policy into sectoral policy,strategy and annual programs

Engage private sector as an active actor especially in formulationand implementation of Tier 2 projects By exploring avenues for public-private partnership

By developing jointly bankable projects

Keep at top the agenda of aid effectiveness as per the Paris andAccra elements, i.e. ownership, alignment, harmonization, results, mutualaccountability, predictability, country systems, conditionality, and untying

Revise Foreign Aid Policy to incorporate AfT


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Promote South-South cooperation, i.e. India, China,Kuwait, Saudi Fund and OPEC Fund

Run with the idea of regional integration in the SouthAsia (linking Nepal to India, Bangladesh and Bhutan) whileshifting from software to hardware

Secure a greater quantum of the AfT Get the political economy right: the feasibility of

reforms Where possible, link AfT with think-tanks and

national academic institutions to have close oversighton the changing/emerging dynamics of trade sector

Way Forward in the Nepalese Context 3


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Focus on the awareness and coordination capacity of private sectors, FNCCI, CNI, CoCand civil society for AfT

Make DPs eager in trade by:

including trade in their country assistance strategy (CAS)

providing dedicated AfT through TTF/Trade SWAp

stopping conditionalities on the sourcing of equipments and HRs

allowing local institutions and experts, as far as possible

when hiring international expert unavoidable, station them inside GoN agencies

increase the use of financial management and procurement system of GoN

effectively ban direct implementation of projects by bypassing government mechanism and byrunning PIU (parallel implementation unit)

building the capacity/expertise of local institutions, e.g. emphasis on ToT rather than just training

Provide AfT in grant form as far as possible

Focus on the absorptive capacity to narrow the gap between the commitment anddisbursement

Enhance the understanding and capacity of the GON's bureaucrats dealing with AfT



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Get all AfT assisted programs in Red Book in order to bringinto review

Unpack the NTIS by creating a 'project bank'

Seek aid for trade related adjustment, where negativeconsequences of trade liberalization

Get private sector developing AfT project proposals in PPPmode

Get think tank institutions and private sector conductingresearch & studies for informed inputs to the GoN

Make investment in HRD from private sector so as to mobilizea greater AfT



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1. Additionality: Developing countries need aid for trade and such aid must not come at the expense of aid for development;

2. Predictability: It is easy to be taken in with promises of bilateral aid, and make seeminglyinnocuous commitments in bilateral agreements;

3. Country ownership: Development cannot beimposed, it can only be facilitated."


4 Principles by Stiglitz and Charlton on AfT


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4. Coherence: Trade liberalization must becarefully managed as part of comprehensivedevelopment strategies

Private sector: In productive capacity & publicsector in infrastructure

Loans vs Grants: "Many have rallied to the idea of dropping the debt. I say let's rally to the idea of

stopping the debt


4 Principles by Stiglitz and Charlton on AfT


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TATWABODH

Should we really go for 'Trade Trust Fund'/TradeSWAp ?

If YES the answer what should we do??? Formulation of different operation modalities, e.g. financial, institutional, project

management etc. Motivation to trade related DPs buy-in the idea

What else to make it very NEPALESE, wellfunctioning and result oriented???

Aid for Trade & Nepal

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