The impact of the Aid for Trade initiative in Ghana

26 May 2015

How effective has the Aid for Trade Initiative been in Ghana and what are the limiting factors in its implementation? An assessment using the common and independent methodology developed by the ICTSD and South Asia Watch on Trade, Economics and Environment (SAWTEE) shows that Aid-for-Trade is becoming less predictable. Stronger national oversight, improved donor coordination, and greater private sector involvement are suggested as policy recommendations for improvement.

Ghana was among the top ten recipients of both Aid for Trade (AfT) commitments to Africa in the last decade (US$616 million since AfT started). At the regional level, Ghana received 20 percent, the most, of total commitments to the Economic Community of West African States (ECOWAS).

Between 2002 and 2010, Ghana’s top five donors of AfT included the US (38.2 percent), Canada (26.2 percent), Germany (23.2 percent), Japan (22.1 percent), Denmark (19.4 percent), the UK (14.6 percent), France (8.1 percent), Netherlands (6.9 percent) Switzerland (6.0 percent) and Spain (3.6 percent).

Since the AfT initiative started, although commitments of aid to economic infrastructure have constituted the majority (55 percent), actual disbursement is often particularly weak. Some stakeholders observe that this has primarily to do with the difficulties that the Government of Ghana (GoG) faces in fulfilling its counterpart obligations.

A study was undertaken by ICTSD to examine the effectiveness of AfT in Ghana. It makes its assessment on the basis of a common and independent methodology developed by the ICTSD and South Asia Watch on Trade, Economics and Environment (SAWTEE).

Key findings from the AfT study

Trajectory of AfT: Both the Organisation for Economic Co-operation and Development (OECD) and national-level data show that overall AfT funds in Ghana do not constitute new financing. Even though AfT has increased in recent years, Official Development Assistance (ODA) in other sectors has decreased. The data thus seem to suggest that AfT has crowded out aid to other sectors, such as health and education.

The results indicate that AfT, especially AfT for infrastructure, is becoming less predictable than aid to other sectors, i.e. donor AfT pledges, especially funding for economic infrastructure, are often not realised.

OECD data reveal that AfT funds are more often in the form of grants and are becoming less debt creating, while the national data and stakeholder perceptions indicate the opposite. More alarmingly, the national data demonstrate that there was a reversal in the declining trend of Ghana’s public debt ratio when the AfT initiative started, and this was caused mainly by AfT loans. 

There is ownership in theory but not in practice: Even though trade is theoretically mainstreamed in the national development agenda and sectoral policies, the technical implementation of these policies has been weak. The high-level coordination and collaboration described in the various trade-related policies or strategies are limited on the ground. Uniquely, the trade sector has enjoyed significant policy consistency and institutional and human capacity development; however, these gains have had limited sustainability. Where there has been more planning and a stronger private sector element, sustainability has been greater.

Room for improvement in the alignment of financial support with the country’s main trade development strategy : It appears that donor programmes are well aligned with Ghana’s development strategies and trade priorities; however, greater efforts for alignment under the trade agenda should be consolidated with efforts to align financial support with the country private sector development strategy (PSDS). While there is an increasing trend in budget support, the majority of ODA is still provided through non-budget support and project aid. Despite the results of another independent assessment that concluded that donors provide untied aid, stakeholders largely feel that aid is still tied in favour of development partners (DPs).

Intra-donor coordination is weak: Although donors are increasingly using a variety of effective coordination mechanisms, the assessment also highlighted that in fact greater intra-donor coordination is needed between donor offices based in Ghana and those in headquarters.

South-South cooperation: Non-traditional AfT funds (for example from China, Brazil etc) appear to be increasingly important.

Limitations in absorptive capacities: Despite limited national data indicating a high absorptive capacity of AfT projects/programmes, there is much more evidence to suggest that the utilization rate of AfT funding is low i.e. much of the funding is not used.

Environmental sustainability in AfT is ineffective and not proactively sought: The incorporation of environmental issues in AfT projects is widespread; however, it appears to be ineffective, as it is done only as a routine requirement by donors and on a broad basis, i.e. not specific to AfT projects. Increased knowledge and sensitization on specific financing opportunities for AfT projects are needed. Furthermore, the enforcement and implementation of environmental issues ought to be strengthened.

Policy recommendations

Government: The Ministry of Trade and Industry (MOTI) and the Ministry of Finance and Economic Planning (MOFEP) need to play a much stronger role in the overall national coordination of the AfT process. This would ensure greater synergy among the identification of trade development needs, the mobilizing of resources as well as the monitoring and evaluation of the impact of resources. GoG should engage the diverse stakeholders in the early stages of the design of projects before negotiating with donors on AfT. The government should work with DPs to identify and remove the bottlenecks, and to understand the reasons why donors do not use national procurement and public financial management systems. Moreover, GoG should proactively source and leverage financial opportunities to address much of the human and institutional capacity constraints, all the while ensuring environmental sustainability of projects.

Donors: To improve donor coordination in the trade sector and alignment with Ghana’s trade development strategy, DPs should move towards providing support through the Pooled Funding arrangement established by GoG as the proposed Sector Wide Approach (SWAP). Greater coordination between donor offices based in Ghana and DP headquarters is needed as well as, where possible, greater decentralization of power to allow for a smoother implementation of projects. Donors should seek to use national resources and expertise in the first instance rather than as a last resort. Where there is a lack of national capacity, donors should proactively seek to build it and to transfer knowledge and capacity in the medium- to long-term, in both public and non-state sectors (private and civil society).

Private sector and Civil Society: The private sector should initiate a closer working relationship with GoG to develop public-private partnership proposals for the implementation of AfT projects and seek to build capacity to take over projects once donor funding has finished. The constructive engagement of both the private sector and civil society is critical to undertake more research geared towards informed and effective inputs into all stages of the AfT process. Private sector and civil society should also play a more active role in the monitoring and evaluation of projects to ensure that resources are used appropriately to achieve the objectives, and that both GoG and DPs honor their roles and responsibilities.

Author: Sarah-Jane Danchie is a Policy Adviser at African Center for Economic Transformation (ACET).

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