Reflections on the UK Aid budget - 0.7%, cross HMG ODA spend, and the future with trade?

Anxiety over the future of the the UK’s aid budget is understandable as things are in flux with a new Minister, in a post-Brexit environment, under a majority government with the power to push through reforms while everyone is focussed on Brexit and doesn’t notice. There seem to be three different things people worry about: 

  • Will the 0.7% of GDP commitment will be cut?  
  • What does cross-Whitehall ODA spend mean for effective development assistance? 
  • Will aid become politicised as the UK leverages it for trade deals? 

Taking each in turn: 

0.7%: 

Prime Minister Cameron enshrined 0.7% in the International Development (Official Development Assistance) Act 2015 and Prime Minister May just told UK Secretary General Ban Ki Moon that the she was proud of the UK’s leading role on international development and her reaffirmation of the UK’s commitment to spend 0.7% of GDP on ODA.  It would be curious if the UK reneged on this commitment as in light of Brexit, because the aid budget is one of the key remaining factors that allows the UK to play an international leadership role.

We should not be too concerned to see politicians assert that the ODA budget is being used to promote national security or that departments other than DFID/UK Aid will have access to it to augment their budgets.  These comments appease domestic constituency interests who would prefer the ODA budget cut altogether and does not signal a change from what has been happening anyway.  For example, the OECD allows ODA to be used in the UK to care for refugees in their first year of resettlement; other government departments have already seen increased allocation of ODA funds; in like with the Aid Strategy, more of the ODA budget is being spent on the prospect pillar of the UK foreign affairs strategy and 50% is being spent in conflict and fragile zones from where - in simple terms - greatest threats to the UK’s national security emanate.  This is not a bad strategy either, because insecurity is a great threat to development and fostering prosperity is key to addressing poverty. 

Cross-Whitehall ODA spend: 

Traditionally DFID has spent the ODA budget.  This is changing with more money being spent by other government departments.  This is a good thing as, on many development issues like violence against woman and girls, conflict and fragility, health, welfare, security and justice, access to justice, other departments have critical hands-on experience of how to deal with the issues, and a Whole of Government joined up coherent and collaborative approach on policy and programming is welcomed.  

Modern slavery and human trafficking is a new area that will respond well to cross Whitehall working and spending.  The recent call by the Prime Minister for a Cabinet Committee focus on these issues with a £35 million ODA commitment - to be spent by the Home Office - is welcome news.  (We just need to  see this approach emulated at the international level so that donors act more coherently and collaboratively - a constant in-country challenge).

As we move to a more egalitarian “HMG ODA spend model” some things to consider are:  

Development assistance is not a vanity project to rebuild the UK approach in other countries.  Although line departments have expertise, their expertise may not suit the local circumstances in the country where the ODA is to be spent.  Programmes need to be devised after consideration of comparative experience (not just the UK’s) mapped against local circumstances, and the end programme must meet local needs of the poor not play to the external donor/consultant’s expertise.  An obvious example is that UK justice system is not an effective model for a francophone country.  

A valid risk of ODA being spent by non-DFID/UKAid departments is that they have less experience in how to have impact which could lead to accusations of misspent programmes that have not helped the poor.  This can be guarded against.  DFID has most experience across Whitehall in designing, implementing, monitoring and evaluating development programmes (not projects) in countries that will show value for money, and through a theory of change (not log-frame), will have actual impact.  DFID wont have it right all of the time, but it has spent the most time of all HMG departments thinking about these issues in a considered way.  This is a time for knowledge transfer - quick - so that other departments get up the curve fast, enjoy the dividend of DFID’s experience, and spend ODA effectively in poor countries.  At the same time DFID should not feel threatened by the opportunity to have its approach analysed by other departments.  This is an excellent opportunity for further innovation that could lead to even better designed programmes of benefit to the poor.  

In simple terms ‘with money comes power’.  Partial loss of DFID’s ODA budget to other departments must not diminish its standing in Whitehall, nor, in time, cost it Cabinet Minster level representation.  Having the voice of development at the heart of other issues like the National Security Strategy (NSC), and now as the UK develops its trade policy, is important, because the ‘development lens’ provides it is a tempering rights-based, pro-poor, international voice that can ensure the UK does not turn inwards (NSC) or become protectionist (trade strategy).

 
On Trade and Aid: 

Some background first …  

Due to Brexit trade simply must become a major focus for the UK government, because the UK depends on trade for its survival.  An example is that we will simply not eat if we do not import groceries.  All those grocery contracts between Tesco, Aldi, Sansburys, etc, and their suppliers are predicated on market access agreements - specifying tariff and quota - currently assured through agreements the UK is party to by virtue of it membership of the European Union.  

The post-Brexit UK situation is unprecedented.  The UK needs to confirm the terms of its WTO membership (will the UK baseline tariff stay the same, become more liberal, or more protectionist?) and also renegotiate every bilateral/partnership trade agreement it enjoys due to its membership of the EU.  This is an utterly enormous challenge.  There are 34 signed agreements, 17 provisionally applied (including the CARIFORM grouping), 8 signed, but not provisionally applied; 25 agreements finalised, but not signed; and 12 currently being negotiated (including the Gulf Cooperation Council and Mercosur).  The UK is a different economy, but arguably the Brexit situation is as complex as the task of China or Russia joining the WTO, and it took the former 15 years and the latter 19 to finally accede. 

In helping the UK meet this challenge it would be nice if EU trading partners rolled over the same terms for the UK that it enjoyed through EU membership, but this is unlikely because the balance of power has shifted out of the UK’s favour.  The EU is simply a far more persuasive market than the UK alone.  Instead, this is an opportunity for countries to renegotiate better terms.  The whole process is probably going to take more than 2 years from triggering Article 51, so as part of that process we are likely to see interim measures agreed confirming the status quo for a reasonable period of time until new deals can be negotiated.  At the end of the day it is not in the UK or an exporting country’s interest to have trade flows disturbed - bluntly, no one intends UK citizens to starve or exporting countries to be denied important revenue. 

To the specific concern about how trade will now affect the UK aid budget …. 

Molly Anders’ recent helpful DEVEX article reports on allegations that Secretary of State for International Development Priti Patel has said she will use aid budget to ‘open the door’ to trade negotiations. To do so seems inconsistent with the intent of the International Development Act 2002.  Also, the ODA budget is worth around £12 billion, which, as compared to the 2016 expected grocery market at £179 billion, is actually quite a small amount.  It seems more likely that countries contemplating trade deals with the UK will be attracted to the power of the UK economy and its wealthy consumers, than their potential share of the aid budget.  

Moreover, using ODA to start conversations on trade may simply not be relevant because the UK’s prioritised list for negotiating trade deals will include those who provide the UK with most of its goods and services. These are the United States, Germany, Switzerland, China and France who, other than China, which received £56 million in 2014, have no recent history of receiving UK aid.  A current mapping exercise of unofficial DFID figures shows that the main recipients of UK aid in 2015 were Pakistan, Ethiopia, Nigeria, Sierra Leone, South Sudan, Syria, Tanzania, Afghanistan, Bangladesh and India.  These countries do not need aid dangled in front of them to induce them to agree to trade deals, because most of them are so poor they will get the best deal anyway.  This would be the case if the UK duplicated the EU Generalised Scheme of Preferences (GSP), GPS+, the Everything But Arms Agreement, or simply allowed them favourable terms or free access under a preferential market access agreement - which the UK should. 

So, while it seems unlikely that the aid budget would ‘open’ any doors to trade deals, OECD rules do allow for aid to be used to build the infrastructure and supply-side capacity that developing countries need to connect to regional and global markets.  Trade for Aid is a major focus of OECD/WTO work.  It is big business that the UK has simply never had to meaningfully engage in because it did so at arms length through its EU membership.  The EU is a big player in this field.  Last reported figures from the EU show that in 2013 it spent EUR 11.7 billion on ODA trade related assistance.  The UK will need to decide whether and, if so, how it wants to offer trade development technical assistance to poor countries as it negotiates trade deals with them.  

The UK would be out of step with all other developed economies if it did not offer ‘ODAable' trade development assistance.  Money to do this will need to come from somewhere and may have  implications for the current geographical and substantive focus of the existing ODA budget.  However, even if going forward a proportion of ODA moves to support trade development in key trading partnerships, the UK should maintain a focus on contexts of fragility and insecurity and on the most poor in line with its commitments under the Aid Strategy and constraints of the International Development Act.  What we can also hope for is that the UK development agenda capitalises on the ‘big-win’ for human rights and good governance that the power of trade deals can provide through strongly worded conditionality clauses.  The EU, USA, and others take a leadership role in doing this.  The EU’s efforts to use trade access to improve the Thai fishing industry is an example of mobilising trade policy behind human rights.  One could imagine the newly prioritised HMG modern slavery agenda being given a great boost through implementation of a rights-based trade policy strategy.  The US State Department does this already through terms of its aid agreements.  The US and UK could augment this through the threat of, or actual, trade sanctions.  
 
So as the UK gears up to undertake a multitude of trade negotiations, we may not see ODA being used to ’open doors for trade’, but being used to honour ‘trade development’ components of every deal.  This is likely to have an impact on the existing ODA budget.  To what extent remains to be seen.  What is called for now is a careful mapping of how the UK can add value in terms of trade development assistance and - importantly - the UK should not loose the opportunity to include robust human rights and good governance conditionality provisions in trade agreements.  DFID and Department for International Trade officials need to advise negotiators on both these considerations and to build their own capacity to deliver post-deal trade development assistance.  Civil society needs to lobby government to ensure the UK makes the most of the new post-Brexit necessity to focus on trade, so that ODA continues to be used for the benefit of the most poor in the most effective way.