DFID’s Economic Development Strategy Contents

3Going Forward

A different model to Asian success in Africa

44.ICAI wrote in its report on DFID’s approach to supporting inclusive growth in Africa:

There are concerns among some stakeholders and in the literature about the extent to which the Asian model of mass job creation through industrialisation can be replicated in Africa. DFID will need to be realistic about the pace of change and open to the idea that job creation in Africa may take different forms, including a higher level of informality.97

DFID were very candid in their acknowledgement of this. Melinda Bohannon, Head of Growth and Resilience recognised that the impact of automation on low skilled labour was an unknown but economic trends were suggesting it could be very high. This meant that DFID’s current economic transformation plans were potentially at risk. DFID was watching these trends very carefully and at the same time considering the opportunities of the e-economy which could allow for ‘leapfrogging’ into new technologies.98

Trade opportunity as well as poverty alleviation

45.The Economic Development Strategy puts a new emphasis on the importance of trade for DFID’s work. In the foreword to the strategy the previous Secretary of State Rt Hon Priti Patel MP stated:

DFID’s ambition will be at the heart of the Government’s emerging agenda on international trade and investment, led by the Department for International Trade. We will work across Government to agree trade and investment deals that bring the benefits of trade to every corner of the world. And we will use our voice in the World Trade Organization to promote free trade as one of the bedrocks of global prosperity and stability.99

46.The Trade White Paper contains a chapter on Supporting development countries to reduce poverty. It states that the Government will help “developing countries break down the barriers to trade” and “This will help them to continue to benefit from trade by growing their economies, increasing incomes and reducing poverty.”100

47.Under World Trade Organisation rules, developed countries can grant non-reciprocal trade preferences to developing countries, imposing lower tariffs on imports from developing countries without obtaining trade preferences in return. The UK already grants trade preferences to least developed countries for ‘Everything but Arms’ as a member of the EU (under the EU’s Generalised Scheme of Preferences), and has indicated that it will follow a similar approach post-Brexit. The Government has also committed to negotiated arrangements that provide advantages similar to existing free trade agreements for other developing countries. However, there is an option to go further– for example by granting non-reciprocal trade preferences to all developing countries - after leaving the European Union Customs Union and Single Market. This is currently being examined by our colleagues on the International Trade Committee.101

48.Earlier this year, the Secretary of State for International Development, Rt Hon Penny Mordaunt MP, made five pledges for the future of UK aid, the first of which was to:

[…] develop alongside the Department for International Trade a bold new Brexit-ready proposition to boost trade and investment with developing countries and promote sustainable economic development and job creation. Development policy will not exist in a vacuum. It will be part of a joined-up response to the challenges and opportunities we face as a country. This new offer will provide a clear ‘win-win’ for Britain and the world’s poorest.102

In a recent speech at Chatham House setting out her vision for DFID she said:

With trade we are developing a new Brexit-ready offer created by both departments and this will connect all we have to offer with the opportunities to invest abroad.

Around 60 of my team are embedded with the Department for Trade to form a joint team responsible for shaping the UK’s future trade arrangements with developing countries. We have had a joint executive board with the DIT.103

49.Fairtrade Foundation highlighted apprehension amongst African governments and civil society about the Economic Partnership Agreements104 (EPAs) and the potential for EPAs to require liberalisation that runs counter to domestic industrial strategies. It recommended that the Government:

ensure that any independent post-Brexit trade policy supports rather than undermines the development objectives of partner countries.105

50.The Gender and Development Network expressed concern that the impacts of trade are “deeply gendered” and that previous aid for trade programmes have been criticised for the lack of data on how they impact on poverty. The Network also argued that poorly designed trade policy can undermine women’s rights and deepen existing identity based inequalities. It recommended that DFID’s Economic Development Strategy should go further by explicitly committing to a gender responsive approach to trade and investment.106

51.The APPG on Agriculture and Food for Development warned that DFID’s strategic emphasis - broadening to economic growth from poverty reduction - should not lose sight of the core mission of eradicating poverty. To prevent this the APPG says that appropriate measurement processes were needed to allow DFID to track impact on the poorest.107

52.Dr Stephen Buzdugan, Senior Lecturer in International Political Economy at Manchester Metropolitan University, suggested that the insights of the UK’s own Industrial Strategy White Paper may increase the effectiveness of DFID’s support to inward investment and trade by assisting partner countries increase productivity and integration with global supply chains.108 Justin Moore of Development Monitor highlighted the trend that Foreign Direct Investment (FDI) by UK companies in Least Developed Countries(LDC) was less than 1% of total UK outward FDI in 2015 and that the level of UK FDI in LDCs fell nearly 30% from 2014-15.109 It will be interesting to see if this trend has been reversed under the economic development framework and the Economic Development Strategy as new figures become available. Equally it will be important to assess these figures as the UK exits the European Union. We will also be considering the potential effects of the UK exiting the European Union on DFID and developing countries over the next few months.110

Emphasis on the UK gains

53.In her June speech at Chatham House the Secretary of State Rt Hon Penny Mordaunt MP said:

We will go much further, working strategically with big business, and building networks of entrepreneurs, civil society, and community groups, to connect them with people and opportunities.

So, as well as seeing us in places like Singapore and Dubai in the future you will also see DFID in Belfast and Glasgow and Newcastle and in fact every region of the UK, talking to local businesses who are keen to bring their expertise and skills to help the world’s poorest. As part of a cross-government commercial approach, my teams have already been to Birmingham, Leeds and Cardiff to discuss how businesses there can apply for DFID funding.111

54.Bond told us that the Economic Development Strategy’s emphasis on UK business and prosperity, and the likely resulting programmes, may present a serious risk to sustainable development and poverty impact outcomes.112 CARE International recommended that DFID’s focus should not be on whether the global supplier is British but on whether the value chains fulfils the most development objectives such as incorporating the most women. 113

55.We considered this in our recent inquiry on Definition and Administration of ODA.114 In keeping with the UK Aid Strategy, we recommended that poverty reduction should be the central pillar of UK ODA spending. As part of that inquiry we heard extensive evidence about the development of “dual purpose” aid, whereby a development objective forms the primary objective of an ODA-eligible activity accompanied by a secondary national interest objective, such as increasing trade. Of particular concern to us was the Prosperity Fund which cites its primary objective as poverty reduction and development in partner countries with a secondary benefit of the creation of opportunities for business, including UK business. We recommended that “ODA must be directed primarily at reducing poverty, helping the very poorest and most vulnerable rather than being used as a slush fund to pay for developing the UK’s diplomatic, trade or national security interests.”115

56.In the oral evidence for this inquiry, we noted Rachel Turner’s ‘knock-on’ argument in support of the Prosperity Fund, its focus on middle-income countries, and the creation of opportunities for trade other than with the UK. She said that:

If the Prosperity Fund programmes succeed in tackling some of the improvements to the ways these [better regulated, more open, better run, less corrupt and more stable] … economies are run and the removal of regulatory barriers in many of these better-off countries, that will also help the poorer countries trade with those parts of the world. It will help poorer countries receive better-quality investment from them. It will also drive out some of the systemic causes of corruption, and the Prosperity Fund has quite a strong focus on driving out corruption. Although this is a separate fund, and is stewarded by the overall Aid Strategy, as the Minister said, we feel that, if it works and if the programmes deliver, it will have knock-on benefits for the poorer countries that are our focus.116

98 Q58

99 DFID Economic Development Strategy: prosperity, poverty and meeting global challenges, January 2017, Foreword from the Secretary of State

100 Preparing for our future UK trade policy, Cm 9470, October 2017, Chapter 4

101 International Trade Committee: Trade and the Commonwealth: developing countries

103 The Great Partnership: Delivering Global Britain, International Development Secretary Penny Mordaunt’s speech at the Chatham House London Conference 2018, 21 June

104 Economic Partnership Agreements (EPAs) are trade and development agreements negotiated between the EU and African, Caribbean and Pacific (ACP) partners engaged in regional economic integration processes.

105 Fairtrade Foundation (EDS0020), para 23

106 Gender and Development Network (EDS0021), para 6.1/6.2

107 APPG on Agriculture and Food for Development (EDS0003)

108 Manchester Metropolitan University (EDS0007)

109 These figures are based on the latest data from the Office for National Statistics (following a request from Development Monitor), Mr Justin Moore (EDS0024)

111 The Great Partnership: Delivering Global Britain, International Development Secretary Penny Mordaunt’s speech at the Chatham House London Conference 2018, 21 June

112 Bond (EDS0015)

113 CARE International UK (EDS0009)

114 International Development Committee, Fifth Report of Session 2017-19, Definition and administration of ODA, HC 547

115 International Development Committee, Fifth Report of Session 2017-19, Definition and administration of ODA, HC 547, para 112

Published: 17 July 2018