7-8 JUNE 2017 / Tour & Taxis / Brussels

Aid for trade, trade for aid : What's the new deal?

Aid for trade, trade for aid : What's the new deal?

Wednesday, November 27, 2013 - 14:00 to 15:30

Key points

  • Trade and market access do not always translate into sustainable growth for a country. Nigeria is a good example of what happens when a resource like oil is discovered, but infrastructure for other sectors is ignored and new wealth is created for a very small group of people.
  • A new international consensus is needed: the Geneva or Brussels consensus, with a framework that has robust institutions, as well as transparent and free markets, within a rules-governed system.
  • Africa needs to create value-added for its raw materials. For example, it produces 20 % of the world’s leather, but only 2 % of the world’s leather goods.
  • We must replace ‘aid for trade’ with ‘aid for investment’.



In the keynote address, Pascal Lamy, former Director-General of the World Trade Organization (WTO) said that trade policy had been based on the belief that if trade were liberalised, God would take care of the rest. As a result, development aid had focused on supporting public institutions so they can encourage investment markets and help leverage growth and welfare creation.

However, private sector activity has not automatically supported development. What is needed now is to replace ‘aid for trade’ with ‘aid for investment’.

As part of its Agenda for Change, the European Union has made significant efforts and given large amounts of money to help the private sector grow, and to facilitate trade and investment. Part of development aid’s function in this context is to fill gaps in some government support, particularly in areas such as technology transfer.

The new United Nations Industrial Development Organization Director-General, Li Yong, said emerging economies like the BRICS (Brazil, Russia, India, China and South Africa), growing South-South trade, and thriving triangular trade (i.e. South-South-North) offer huge potential for developing countries. But as well as needing aid to support trade, poor countries need to strengthen the local private sector’s capacity to meet international production or food health standards and they need access to world markets.

The discussion at this high-level panel was a testament to how the approach to development and working with business has changed. For example the World Wildlife Fund, the nature conservation organisation, takes a strategic approach, realising that one must work with businesses to ensure their products do not contribute to climate change, destroy the environment or compromise biodiversity.

Ironically, trade can also have a detrimental effect in a developing country. For example, in the 1960s Nigeria had a vibrant agricultural sector, but then caught ‘the Dutch disease’, when oil was discovered. As a result the country’s agricultural sector declined due to the lack of proper infrastructure, and the government had to step in to create an enabling environment for private enterprise in the agricultural sector. Nigeria has become a country of consumers who buy imported goods with their newfound oil wealth, while their agriculture sector is dwindling.

Developing countries also need help to develop their own industrial sector, but there are a number of obstacles:

  • In Africa, tax systems are not conducive to trade.
  • A free market economy is developing without any rules to contain it.
  • If agriculture is going to develop an export market, land reform is a priority, with clear legislation stipulating property rights – particularly important for women.
  • Africa’s wealth is being extracted and exported without any added value. For example, the continent produces 20 % of the world’s leather but only 2 % of the world’s leather goods.

Speakers generally agreed that a new consensus is needed. The Washington Consensus that emerged after World War II put markets in charge. In Africa this has since been followed by the ‘Beijing consensus’, where deals are done and silence maintained about human rights abuses, provided the country benefits from some new infrastructure. Both have resulted in unanswered questions and disenchantment.

A new framework – the Geneva or Brussels Consensus – needs to get institutions and the financial architecture right, and to create free and transparent markets that operate within a rules-based system.


In 2009, when US President Barack Obama came to Africa he said, ‘Africa doesn’t need strongmen, it needs strong institutions.’