The Future of UK Development Co-operation: Phase 2: Beyond Aid - International Development Committee Contents

3  Transition strategies in middle-income countries

16. UKAN, like other witnesses, also recognised aid "as an important part of the equation in middle income countries (MICs) where a growing majority of the world's poor and marginalised and excluded communities live."[15] An estimated 80% of world's poor live now not in poor countries but in MICs.[16] Ben Jackson, the Director of the BOND coalition of NGOs, told us that "our members are quite clear that the focus of aid should be on poverty and need […] not defined simply by whether the overall economy is low income."[17] Adam Smith International commented that

    As recent events have shown, problems can flare up in MICs just as easily as poorer countries. Recently DFID has had to open a programme in Libya, and reopen one in Ukraine as well as restarting activities in Iraq. Where the next problems will emerge is not easy to predict. If DFID had been running a substantive, high quality programme in Syria for some years, such that real reform was attempted, would it have been possible to avoid the conflict there? Conflict can be expected to continue to flare up in new countries and regions, with rapid increases in poverty as a result.[18]

17. Barder and Evans added that "all five of 2014's highest fatality conflicts so far are in MICs; many other MICs are affected by violence ranging from rural insurgencies to endemic urban violence that blurs the line between organised crime and conflict."[19] More generally, others emphasised the importance of not neglecting poverty in MICs. The importance of building new development relationships with previous UK aid recipients, including China and India, was emphasised. For example, Professor Melissa Leach talked about mutual learning between the UK and China on renewable energy: the UK has the opportunity to learn from China, but also to influence China's internal and external policy in this field.[20] 'South-south co-operation', whereby emerging powers such as Brazil and China share their expertise with developing countries, was also emphasised.[21]

18. DFID's Secretary of State, Rt Hon Justine Greening MP, emphasised that DFID recognised the importance of getting transition strategies right: "We are not in a marathon here where a country starts off poor and then we get to the end of the race and it is suddenly developed. It is more like a relay race […] We need a transition strategy. […] Even if an economy is rapidly developing, human rights do not always progress along the same path; you get some things surging ahead and other things lagging back."[22]

19. We asked the Secretary of State about India, which is now a MIC, but where one-third of the country still lives in extreme poverty on under $1.25 a day.[23] She said that the UK's relationship was changing into one of partnership:

    When [India are] spending—I think I am right in saying—around $50 billion themselves on health and education, the most effective thing we can do is work with them, with our technical expertise, to get the most out of their budget. Alongside that, as their economy grows, we can look at some of the so-called returnable capital investments in the poorer states still—so, targeting it, but rather than simply having grants, we have investments that we have a chance of getting back that we can then recycle. […] What we have worked hard in DFID to do over the last two years is to develop that transition where we hand the baton over, where it moves gradually from aid to trade.[24]

20. Witnesses recommended a number of possible actions for DFID in India following the withdrawal of the bilateral aid programme in 2015. World Development Movement said "DFID should make more complex judgements and also consider what expertise and experience the UK has to offer. For example, can we help India build its own version of the NHS?"[25] UKCDS recommended UK science and technology research and policy funders focus on opportunities in India.[26] The Independent Commission on Aid Impact (ICAI) drew on its 'DFID's Livelihoods Work in Western Odisha' evaluation which looked at a DFID-supported project to reduce poverty by improving very poor communities' water resources, agriculture and incomes. ICAI told us

The impact of DFID's support in this environment depends less on the volume of financial support and more on its ability to act as a purveyor of development excellence, helping its partner countries to identify innovative solutions to their economic and social challenges. For example, in our Odisha report, we saw that DFID had developed a very good demonstration project for a development initiative that was subsequently and widely taken up by the Government of India. The project involved quality engagement with the intended beneficiaries, which took time to achieve but proved to be a key success factor. This is an area on which we have consistently recommended that DFID put more emphasis. DFID India was also good at identifying opportunities for policy dialogue and technical assistance to make a real difference. This kind of engagement, based on knowledge partnerships rather than on large-scale funding, is likely to become more important in less aid-dependent contexts.[27]

21. As grants of aid become less appropriate in some countries, so new forms of development co-operation are necessary. During our recent visits to countries like India, we have noted how the UK could act as a partner in a very wide range of areas, including health, law, education, culture, planning and transport. We recommend that the UK Government increase its efforts to facilitate links between the UK and MICs in these areas, and use a new set of approaches and financial mechanisms, a number of which we explored in Phase 1 of this inquiry.

22. We support the UK's principled stance against tied aid, but this should not stand in the way of building links between middle income countries and UK institutions. We recommend that the UK be confident about its decision to continue its 'beyond aid' engagement in middle­income countries. The UK may no longer have a traditional aid relationship with these countries, but it is spending ODA in Brazil, India and China-and is rather diffident about admitting this. We believe the Government should stand up for this course of action, rather than giving its critics opportunities by obfuscating about itsperfectly legitimateactivities in these countries.

23. We recommend that DFID think creatively about other ways in which it could develop non-aid forms of co-operation between the UK and MICs such as India, for example by linking up with smaller organisations, and by exporting UK knowledge in a wide range of areas. We remind DFID of ICAI's report on the Department's livelihoods work in Odisha state, which demonstrated how very good demonstration projects can have significant impact, especially when taken up by the Government of India. We support ICAI's recommendations that DFID focus on knowledge partnerships in the poorest states.

24. While we should continue to grant aid in some middle-income countries, we believe thatas we have argued in previous reportsthe substantial and growing DFID spend in conflict-affected middle-income countries like Pakistan must not divert funds from poorer African countries. We encourage DFID and other Government Departments responsible for aid spending to maintain continuous improvement in management and accountability, so that well-informed, evidence-based decisions can be taken about when and where to use aid.

Global institutions

25. Professor Ngaire Woods of Oxford University told us that the growing prominence of the BRICs countries means global structures, and global institutions in particular, must adjust. She said

    The BRICs Bank is two things: first, a development bank owned and run by the BRICs; and, secondly, a reserve currency fund owned and run by the BRICs. This is a direct competitor to the IMF. If the IMF and World Bank were functioning well, we would not need these new organisations, but they are emerging fast.[28]

Professor Woods said that modern, efficient and inclusive global institutions were a crucial route towards dealing with the current set of global problems:

    Do we have the capacity multilaterally to respond to Ebola or these new security challenges? Where is it that the world will have discussions on that? Last week the G20 Finance Ministers did discuss Russia and Ukraine to a limited degree, but to me there is a case for thinking about how to ensure the world does not become two parallel systems, but somewhere in the middle there is a multilateral system that works and that China, South Korea, Brazil and India, as much as Britain, feel they can trust […] What would it mean to make the IMF, World Bank or the World Trade Organization into an organisation where Indians could say, "We trust that organisation as much as the British do"—it might not be a whole lot—and there is a parity of trust and distrust and ownership of those international organisations? We should have been doing it 10 years ago. We did not. The parallel system has now emerged, but it is not too late. We can do it with resolve. I think DFID and Britain have done a pretty good job at trying to push for some of the changes. Britain should […] use its capacity to present a co­ordinated across-government role and its diplomacy, including aid diplomacy, to push its partners to change these institutions faster. If we do not, they will simply be left by the side of the road.[29]
  1. The growing profile of shared global problems, and global public goods, means we must be sure global institutions are fit for purpose. The international financial institutions must seek to include the needs of the BRICS and other emerging powers, or they will risk irrelevance. The UK Government must continue to push for reforms to the IMF and World Bank, in particular, to ensure they meet the needs of emerging powers as much as developed countries.

15   UKAN submission, p.2 Back

16   Andy Sumner, written evidence to International Development Committee, Post-2015 Development Goals inquiry, October 2012 Back

17   Q 7 Back

18   Adam Smith International submission Back

19   The five highest fatality conflicts so far this year are Syria, Iraq, Nigeria, north west Pakistan, and Ukraine. Barder and Evans submission Back

20   Q 8 Back

21   Q 179 and Saferworld submission Back

22   Q 181 Back

23   World Development Movement submission Back

24   Q 181 Back

25   World Development Movement submission Back

26   UKCDS submission Back

27   ICAI submission Back

28   Q 3 Back

29   Q 3 Back

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Prepared 2 February 2015