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Chapter 5: The UK’s economic relationship with Sub-Saharan Africa

293.In this chapter we consider three aspects of the UK’s economic relationship with Sub-Saharan Africa: official development assistance, trade and investment, and the diaspora and remittances.

Official development assistance

294.Box 12 explains official development assistance (ODA).

Box 12: Official development assistance

Source: OECD, ‘The 0.7% ODA/GNI target—a history’: https://www.oecd.org/dac/stats/the07odagnitarget-ahistory.htm [accessed 24 June 2020]. OECD, ‘Net ODA’: https://data.oecd.org/oda/net-oda.htm and OECD, What is ODA?: http://www.oecd.org/dac/stats/What-is-ODA.pdf [accessed 24 June 2020]

295.In 2015–17, the UK was the second-largest bilateral donor of ODA to Africa, behind the United States.458 Of all donor countries, the UK was the ninth highest for the share of its bilateral aid spent in Africa.459

296.Dr Vines and Mr Dewar said that the UK was “one of only a handful of countries to meet the UN target of spending 0.7 per cent of national income on aid.”460 The Minister said that the UK should be “very proud” of this.461

297.The Minister said the UK spent “more than £5 billion on the African continent each year”. This was spent in three ways: “bilaterally”, “across regions”, and through “multilaterals” such as the World Bank, and the EU.462 The Minister said that a quarter of bilateral funding was spent on “economic development and long-term transitional work”, and a further quarter on humanitarian response. The remaining 50% was spent “on health, social protection, education, water, sexual health, governance and security”. Many of these programmes were “cross-cutting”.463 Table 3 shows the top 10 recipients of UK bilateral ODA in 2020–21. The UK aid strategy is summarised in Box 13.

Table 3: Top ten recipients of UK bilateral ODA 2020–21

Country		Project budget	Top sector
	Nigeria	£316,546,954	Health (34.917%)
	Pakistan	£270,066,066	Health (39.75%)
	Bangladesh	£230,204,041	Health (42.78%)
	Ethiopia	£196,037,503	Disaster relief (31.21%)
	Syria	£184,586,815	Disaster relief (82.90%)
	Somalia	£175,495,631	Disaster relief (31.96%)
	Nepal	£171,886,579	Health (55.043%)
	Sierre Leone	£167,168,751	Health (59.347%)
	Tanzania	£164,040,684	Health (51.56%)
	South Sudan	£157,951,124	Disaster relief (52.56.%)

Source: DfID Development Tracker, ‘Aid by Location’: https://devtracker.dfid.gov.uk/location/country [accessed 24 June 2020]

298.UK ODA relating to peace and security, and human rights and governance, is discussed in Chapters 6 and 7.

299.The Royal African Society said DfID had a “reputation for efficiency and effectiveness, with well-targeted policies and programmes, and constructive partnerships with African governments”.464

Box 13: The UK aid strategy

Source: HM Treasury and DfID, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/478834/ODA_strategy_final_web_0905.pdf [accessed 24 June 2020]

UK approach to ODA

300.Witnesses raised four overall concerns about how UK ODA is allocated. First, Lord Boateng said that in the past 20 years the UK had moved to “a project and/or programmatic led approach … at the expense of direct budgetary support”. While there was value to many of these initiatives, and he acknowledged that monitoring direct budgetary support was challenging, the result had been that “many otherwise successful initiatives have simply not realised their potential benefits at scale”. This was because many African governments lacked the capacity—resources, administration, infrastructure, the ability to create and enabling environment—for “sustainable implementation”. This weakened the governments’ capacity to respond to threats such as climate change or global pandemics.465

301.He said that budget support, “with strong oversight through diplomatic engagement”, would “generate enhanced capacity and effectiveness in governance, promote institutional strengthening [and] offer increased job generation and improved livelihoods on the continent”.466

302.Second, Dr Vines and Mr Dewar said that development aid had “increasingly focused on spending volumes, often delivered through multilateral organisations, contractors or NGOs”, “often on short timetables” and with “fewer people”. This made it harder for programmes to adapt as circumstances changed, or to provide the necessary long-term investment.467 The Catholic Agency for Overseas Development (CAFOD) said that there had in recent years been a “shift” by the DfID and other donors “towards large commercial contracts with for-profit contract managers, who then sub-grant to [international non-governmental organisations] and local NGOs” in Sub-Saharan Africa. This had “not been conducive to effective partnership or risk sharing with local NGOs and faith groups”.468

303.Third, under DAC rules, determined by donor countries (see Box 12), ODA is no longer provided when recipients become middle-income countries. Baroness Amos said that there was “a case for looking again at the criteria” for what is eligible for ODA. Donors should “look more at the fragility and vulnerability of countries”, for example the threat posed by climate change, and the absolute number of people in poverty in a country.469 Delegates on the Commonwealth Parliamentary Association UK visit to Botswana in February 2020 reported “unhappiness that the UK seemed to have pulled back on programmes and development projects in the country”.470

304.Fourth, Health Poverty Action was concerned about the Government’s shift, described by the Independent Commission for Aid Impact (ICAI) as using UK aid “to generate economic and commercial benefits both for recipient countries and for the UK”.471 For example, the January 2020 UK–Africa Investment Summit (discussed below) cost £15.5 million, funded by the aid budget. It noted that the ICAI had expressed concern about “a lower share of UK aid being allocated to the world’s poorest countries or poorest people”, including Sub-Saharan Africa. There was a risk that this resulted in “economic growth for the UK and partner country business but not for poorer countries themselves”, “undermining of poverty reduction as a global development norm”.472

Government structure

305.On 16 June the Prime Minister announced that DfID and the FCO will be merged. A new department, the Foreign, Commonwealth and Development Office (FCDO), will be established in September, under the leadership of the Foreign Secretary.

306.The Prime Minister said that aid and foreign policy “are one and the same endeavour, and they’re designed to achieve the same goals, which are right in themselves and serve our national interest”. The Foreign Secretary would “be empowered to decide which countries receive—or cease to receive—British aid”. The UK gave “as much aid to Zambia as we do to Ukraine, though the latter is vital for European security”, and gave “ten times as much aid to Tanzania as we do to the six countries of the Western Balkans, who are acutely vulnerable to Russian meddling”.473

307.The Government said that the new department’s objectives would “be shaped by the outcome of the Integrated Review”474 (discussed in Chapter 2).

308.In evidence to the inquiry before this announcement, Andrew Mitchell MP said that “the Government would be crazy to abolish DfID or merge it with the Foreign Office”. The National Security Council already co-ordinated departments effectively. A merger “would destroy a vital part of global Britain going forward after Brexit.”475 David Lammy MP was “very nervous about any suggestion” of merging the departments; he thought that the idea of “tying aid to foreign policy” was “worrying.”476 Health Poverty Action likewise said that DfID and the FCO should remain separate.477

309.The UK is a major donor of Official Development Assistance (ODA) to Sub-Saharan Africa. The Department for International Development’s approach to funding and its expertise is well-respected.

310.We regret the decision to merge the Foreign and Commonwealth Office and the Department for International Development (DfID). The UK’s commitment to spending 0.7% of Gross National Income (GNI) on international development, DfID’s expertise in overseas aid and the separation of aid spending from UK foreign policy priorities are part of the UK’s international influence.

311.We request urgent confirmation that UK ODA will continue to be administered with the promotion of the economic development and the welfare of developing countries as its main objective, in line with the definition of ODA agreed by the Organisation for Co-operation and Development’s Development Assistance Committee.

312.The reorganisation of Whitehall departments does not change our conclusions and recommendations on the value of UK ODA to Sub-Saharan Africa. We seek assurances from the Government that the creation of the Foreign, Commonwealth and Development Office does not represent a change to the UK’s approach to ODA to the region.

313.The UK’s commitment to spend 0.7% of Gross National Income (GNI) on international development should be maintained. Given that the UK’s ODA is fixed at 0.7% of GNI, the Integrated Review will need to consider the impact of the expected decrease in the overall ODA budget as a result of the negative economic impacts of the COVID-219 crisis.

Aid for Trade

314.Mr Wickstead said that one element of UK aid spending was to bring Sub-Saharan African countries into the global economy;478 for example, DfID provided funding to support African trade negotiators.479 This is in line with the objectives of the World Trade Organisation and Organisation for Economic Co-operation and Development’s Aid for Trade initiative.480

315.Lord Boateng said that Aid for Trade was “a very effective form of ODA”;481 the ODI said the UK had “a good track record” in this area.482 Aid for Trade should “be central to the UK’s development partnership” with the region.483 The ODI described this role as facilitating co-ordination, helping to address bottlenecks and contributing to the provision of public goods that countries might require.484 Lord Boateng said Aid for Trade could help build African countries’ capacity to trade and address the adjustment costs arising from the implementation of trade agreements. The UK development sector had “built up considerable experience” in “support for economic infrastructure, regulatory reform, protection of indigenous intellectual property rights [and] effective internal resource mobilisation through taxation” Aid for Trade also had “proven effectiveness in improving export performance and the reduction of import costs.”485

316.Witnesses gave examples of the areas to which the UK had contributed. Several witnesses cited TradeMark East Africa as a positive example (see Box 14).486

Box 14: TradeMark East Africa

Source: World Trade Organisation and Trade Facilitation Agreement Facility, ‘TradeMark East Africa’: https://www.tfafacility.org/trademark-east-africa [accessed 24 June 2020] and TradeMark East Africa, ‘About TMEA’: https://www.trademarkea.com/who-we-are/ [accessed 24 June 2020]

317.The ODI said UK aid had had helped to support Ethiopia’s industrialisation, in line with the Ethiopian government’s priorities for economic growth and transformation.487 Ahmed Soliman, Research Fellow, Chatham House, said the UK could further “play a role in advising the government on how to manage the process of privatisation and generate employment, providing technical and regulatory support in key sectors”.488

318.Dr te Velde said the UK had successfully helped countries in Sub-Saharan Africa to build industrial parks, which attracted investors and built an ecosystem around them. This was “important for the development objectives in developing countries”, and “UK investors and traders, as well as other traders, might help in the process”.489

319.The ODI said that the UK was a shareholder of or contributor to a number of bilateral and bilateral bodies—including the CDC Group (discussed below), AgDEVCO,490 the African Development Bank and the International Finance Corporation491—which were working to stimulate investment in Sub-Saharan Africa.492

320.Lord Boateng said that the UK was “uniquely positioned” to support the AfCFTA.493 Tom Pengelly said African countries could “do the tariff cutting themselves”, but the UK could usefully “help with … the trade facilitation side, which is where most of the benefits are”494 (discussed in Chapter 4). Mr Wickstead said “lots of capacity building and technical assistance” from the UK “could help” with the development of the AfCFTA.495

321.The Minister said that the UK would “invest more” in the AfCFTA, both “putting cash in … through programmes such as TradeMark East Africa” and “time and expertise, particularly on the capital market side”.496 A UK trade expert had been seconded to the AU’s AfCFTA Unit.497 The UK was also providing research support for this unit, and planning a capacity-building event for both national and regional trade negotiators involved in the AfCFTA negotiations.498

322.Mr Pengelly, however, said that the UK had “faded a bit into the background as a partner” on the AfCFTA. It had been active at the start of discussions and had provided the AU with technical assistance “to support the first stages of the negotiations”. However, that role had “been taken over by the European Commission and the German aid agencies”, and “the question is: what is the UK position?”499

323.More broadly, Mr Pengelly said that the UK had largely left the EU to fund Aid for Trade and trade facilitation work, through the European Development Fund.500 After Brexit, it would be “sensible and right for the UK to look at increasing its bilateral aid-for-trade contributions”. He said the UK should commit 50% of its total Aid for Trade to Africa. It should make a long-term commitment on Aid for Trade, “with a bound target”.501

324.UK development assistance is supporting the development of the AfCFTA and helping to improve the business environment and address trade barriers. The UK should offer any form of technical assistance which facilitates achieving the AfCFTA’s objectives. This support has benefits for both Sub-Saharan recipient countries and UK businesses seeking to do business in the region.

325.We would welcome further information from the Government on how it will fund Aid for Trade for Sub-Saharan Africa after Brexit, and how it intends to reallocate its funding and direct support that has been channelled via the EU for Aid for Trade projects after the transition period ends.

Agriculture

326.Ms Thorpe, Dr Ayele and Dr Naess said that DfID had “been according reasonably high priority to agriculture in Sub-Saharan Africa”.502 The Natural Resources Institute, University of Greenwich said there were “fewer project opportunities with a specific focus on agriculture than ten years ago, albeit agriculture may well feature as an important component within sectoral programmes”.503

327.The FCO said that UK ODA for agriculture would “improve incomes for 5 million people and encourage £300 million of new private investment in the sector by 2021”.504 Lord Boateng said that DfID had provided ODA for initiatives such as improved seeds, and to help farmers link to supply chains so they could “engage with the private sector, agribusiness and global markets”. DfID was “in many instances” a ‘market leader’ in this area.505

328.Ms Thorpe, Dr Ayele and Dr Naess said the UK also funded programmes with the World Bank, the UN and NGOs. The Natural Resources Institute, University of Greenwich, said that in addition to DfID spending, UK Research and Innovation managed the £1.5 billion ODA-funded Global Challenges Research Fund, which included work on agricultural productivity in sub-Saharan Africa.506

329.The Natural Resources Institute, University of Greenwich, said that the most recent DfID conceptual framework on agriculture had been published in 2015. This had re-emphasised the importance of the agricultural sector, “but with an increasing focus on resilience and promoting food security”.507 There had “been a clear push towards commercial agriculture in more recent years”. As there had been “significant change in the past five years”, there was a “need for an update” from DfID.508

330.Lord Boateng said that African governments often did not have the “human resources or infrastructure capacity in place to provide the necessary support to farmers” to help them take advantage of the improvements funded by DfID and its partners. Agricultural extension services and research institutes in some countries had been closed down as part of IMF-mandated structural adjustment programmes,509 and African governments’ “budget lines” to provide this support were “inadequate or non-existent”.510

331.We welcome DfID’s support for the agricultural sector in Sub-Saharan Africa, and its recognition that this sector is critical to growth and job creation. We were told that an update to the DfID conceptual framework on agriculture would be helpful, to reflect the changes to the sector, and ask the Government to give this consideration.

332.Further technical assistance to support improvements in agricultural productivity should be a high priority for the UK’s development work.

Energy

333.The FCO said UK ODA would “help 3.2 million people get access to electricity in their homes for the first time by 2021”.511 Andrew Mitchell MP said that there was “strong DfID support, both technical and financial” for the African Development Bank’s efforts to ensure that the 250 million people in the region without access to electricity and energy were able to get this off grid.512

334.Dr te Velde said it was important to “make sure that we do not subsidise the use of fossil fuels or investment in them, and that we do subsidise the use of, and develop, renewables”. The UK’s aid budget was “going much more into renewables than into fossil fuels”.513

Water and sanitation

335.Andrew Mitchell MP said that DfID’s successes in providing access to clean water were very important.514 Lord Boateng said that DfID funding for water and sanitation was “building institutional capacity and partnerships across the private and public sectors”. The Water and Sanitation for the Urban Poor scheme in Kenya had provided 20 million low-income residents with improved water sanitation and hygiene since 2004. The project had engaged with corporate companies and improved infrastructure. DfID had provided technical expertise and concessionary finance in Ghana in order to expand the take up of household toilets, including working with the municipal authorities to encourage private landlords to invest in toilets in housing compounds.515

Health

336.Lord Boateng said that there had been “highly successful interventions in the field of AIDS, Malaria, Polio and lifesaving vaccines for children”.516 The APPG for Africa said DfID did “excellent work” in “improving access to family planning and contraceptives services which are essential for the empowerment and participation of women and girls and the Disability Rights Fund”.517

337.However, Lord Boateng thought health was “a classic example of the weaknesses inherent in” the UK’s approach. In spite of DfID’s contributions, “overall health care systems” in Sub-Saharan Africa were “weak.” Tackling this required “a whole systems approach”, which was “currently lacking”. To build resilient health systems, “direct budgetary support by … donors” and “more effective generation and collection of local resources” were needed.518

338.The FCO—in a submission before the COVID-19 pandemic—said that the UK was “sharing learning, best practise and expertise on issues relating to global health security, including direct support to the AU’s ‘African Centre for Disease Control”. A UK public health specialist from Public Health England had been seconded to the AU.519

Health and COVID-19

339.We heard about the links between UK aid and the health impacts of COVID-19 on Sub-Saharan Africa. The OSF said that funding from the UK for healthcare was welcome, but “only a small part” had been provided to the Africa Centres for Disease Control and Prevention (CDC). The UK needed “to take a more long-term strategic view in its support to the African CDC as well as the World Health Organisation” … as part of future pandemic preparedness measures”.520 The LSHTM said “emergency interventions” should include “strengthening health systems, particularly their governance” as a critical element.521 As discussed above, the UK has made a further contribution to the Africa CDC. The OSF said the UK should also support “national health system strengthening” and national health insurance schemes.522

340.Lord Boateng said that, to respond to COIVD-19, the UK should revisit “the case for increased targeted direct budgetary support to African governments” for health, water and sanitation”. This would “better assist in addressing the fragilities that present a block to development and a global public health risk”.523

341.CAFOD said that a comprehensive response to COVID-19 would “need to support health services run by the Church and Church-linked institutions”, and “work with faith actors … to engage with the population and influence social norms and behaviour”. This was particularly the case in areas which the government and UN agencies struggled to reach.524

342.The LSHTM said that it was important not to neglect services such as immunisation, maternal and child care, treatment for other communicable and non-communicable diseases during the pandemic.525

343.We welcome successive Governments’ work to support public health initiatives in Sub-Saharan Africa. While direct budgetary support for governments in the region may be necessary in some cases, it can often lead to corruption. The Government should only employ this approach where there are no other options.

Climate change

344.The Minister said that the Government had given consideration to “what we could do that was innovative and thought-leading” on climate change in Africa in the run up to the—now postponed—26th UN Climate Change conference (COP26), which had been scheduled to be held in Glasgow in November 2020 under the presidency of the UK Government. This had included consideration of “solar and … energy issues, and … leadership through the CDC [Group]”526 (discussed later in this Chapter).

345.Ms Edmondson said that a new cross-Whitehall Africa climate programme had been established, “in which we will be investing a lot”.527 Ms Palmer said that climate change was one of the Government’s ‘shifts’528 (discussed in Chapter 2). DfID was focusing on “adaptation to climate change”, while the Department for Business, Energy and Industrial Strategy (BEIS) was concentrating on “the mitigation angle and the big picture around emissions”.529

346.Part of the UK’s response was to fund research, because while some of the impacts of climate change on Sub-Saharan Africa were known, “we need lots more data, lots more modelling and lots more evidence”. UK-funded research aimed to improve “understanding of weather and climate events and what is happening”, and to help “improve [countries’] ability to collect, model and predict things so that they can adapt ahead of time—to strengthen the capacity at a country level to do that.” For example, the £20 million Future Climate for Africa programme aimed “to generate … new climate research in partnership with African institutions.”530

347.The Government was working with the World Bank and African countries to provide direct support to those affected by extreme weather events,531 and to build resilience in affected countries—for example in Mozambique in the aftermath of Cyclone Idai.532

348.The Climate Policy Institute said DfID’s focus on adaptation was “likely appropriate” given the “high level of vulnerability to the impacts of climate change” in Sub-Saharan Africa. It noted that DfID “provided half of the global spending recorded on disaster risk management” (disaster risk reduction—DRR)—an average of $100 million per year—which was “quite important given there is a disproportion of DRR allocation in Sub-Saharan Africa in general compared to other regions”.533

349.Dr Death said that while the UK was a significant donor, and had a number of good programmes, its contribution was “meagre and tokenistic, a mere drop in the ocean compared to the scale of the challenge”. The “bottom line” was that the UK needed “to ‘get its own house in order’ in terms of decarbonising the economy”. He said that “progress” on UK decarbonisation would “outweigh any support offered on poverty or sustainable development in Africa, in terms of the direct impact on [greenhouse gas] emissions and the potential for international climate leadership.”534

350.Witnesses considered how UK aid should be used to address climate change in Sub-Saharan Africa. First, “financial … and technical capacity support” for low-carbon development was needed.535

351.Second, the Climate Policy Institute said that while it understood why DfID was “mainstreaming climate change” across its programmes, this did “not negate the need for dedicated projects focussed on climate”.536

352.Third, it called for “innovation in climate action”, particularly for adaptation finance. It recommended that a Sub-Saharan Africa-wide climate innovation lab should be established.537

353.Finally, the APPG for Africa said the UK “should work in partnership with African governments, communities and development partners to urgently design and implement better funding incentives and programmes” to address the destruction of ecosystems in the region.538

354.We welcome the UK’s provision of development assistance to mitigating and adapting to climate change in the region, particularly in support of low-carbon development. The most significant contribution the UK can make, in addition to action to decarbonise its own economy, is to ensure that the COP26 meeting in Glasgow in 2021consolidates and strengthens the Paris agreement on climate change. Support from the UK to enable African countries to ramp up the substitution of renewables in place of oil and coal exports and use would also help combat global emissions, while not disadvantaging African development as it grows.

355.The Government should consider how it can learn from its successful climate programmes, and those of other donors, and deliver them more widely across the region. We urge the Government more actively to employ science and technology in its work to combat the effects of climate change in Sub-Saharan Africa.

CDC Group

356.CDC Group is the UK’s development finance institution (DFI). It is wholly owned by the UK Government. DFIs are specialised development organisations, usually majority owned by national governments, which invest in private sector projects in low- and middle-income countries, with the aim of promoting job creation and sustainable economic growth.539 In 2014, DFI investments represented 16% of foreign direct investment540 and 22% of aid flows into sub-Saharan Africa.541

357.Mr Buckley said CDC Group represented about 8% of the UK’s ODA spend each year.542 It was the only bilateral DFI with more than 50% of its portfolio invested in Africa (£750 million, 70% of its portfolio).543 In the past two years CDC Group has invested £1.5 billion in Africa.544

358.Mr Buckley said CDC Group aimed to have two impacts. The first was generating “poverty reduction through job creation”.545 In 2018, the companies it invested in had employed almost 370,000 people in the region.546 The second was “ increasing and improving market efficiencies.”547 It had “backed over 88 investment funds with local exposure in Africa helping support hundreds of enterprises across the continent”. It was “responsible for over 10 per cent of all capital invested through Africa-focused private equity funds”, acting as “an anchor investor catalysing Africa’s nascent capital markets”.548 The Royal African Society said that CDC Group had a role “as a catalyst and repository of knowledge”.549

359.Mr Buckley said that CDC Group was trying to learn “how our investments affect poverty reduction in ways other than job creation”. He gave the example of CDC Group’s investment in home solar systems for Kenyan smallholder farmers, which had saved them $676 a year on average.550 CDC Group was also investing in renewable energy, such as solar units.551

360.Another area of substantial investment was infrastructure and power to reduce the cost of energy. In Uganda these investments had “reduced the cost of energy on average for all users in the country by about 10%”. It was seeking to change local market dynamics—for example investment in MedAccess which “seeks to reduce the price, and increase the availability, of medical supplies and equipment.552

361.CDC Group said it employed “three broad categories of financial product”. The first was “direct equity”, supporting large businesses. This aimed to create jobs, deliver new products and services and increase economic activity across the firms’ supply chain. In 2019 it invested $180 million in Liquid Telecom, to “support the roll out of better quality internet across Africa”.553

362.The second was “direct debt”, with a similar impact to direct equity investments. In 2019 CDC provided a €90 million 18-year loan to Nachtigal Hydro Power Company.554

363.The third was “intermediated equity”, where investments were “pooled with the capital of other investors and managed by a third-party”. This was used “to channel finance to smaller businesses”. CDC Group had invested via SGI Frontier Capital to support “the first private equity fund focused on Ethiopian SMEs”.555

364.Mr Maila said that CDC Group was working with financial institutions such as banks to provide finance to SMEs.556 It was making direct investments into financial services businesses, such as a 2019 investment in Morocco-based BMCE Bank of Africa.557

365.Mr Buckley said that following the Government’s new strategic approach (see Chapter 2) there had been “a step up” in its activity. In 2018, Theresa May MP, the then Prime Minister, announced that CDC Group would invest £3.5 billion in Africa by 2022. It had been “a significant challenge to us as an organisation to build up the operational ability” to deliver this. CDC Group had opened offices in three additional countries: Kenya, Nigeria and Ethiopia. It had “done a better job of co-operating with the broader HMG effort”, alongside the FCO, the Department for International Trade (DIT) and BEIS.558

366.CDC Group expected to invest £2 billion in the next two years. Mr Buckley said that “regardless of the economic headwinds and challenges that Africa might face, CDC will be there as a constant partner in its quest for inclusive growth.”559 Andrew Mitchell MP said that in 50 years’ time the CDC Group, not DfID, would be “the visible symbol of British support for Africa in development”.560

367.Witnesses raised some issues with the way that CDC Group invests. First, Mr Wambu said that there were “limited investment opportunities from CDC between the much needed £500k to £5m ticket size”. This was where there was “the most amount of investment need and opportunity for growth.”561

368.Mr Maila said CDC Group had invested in “several funds that target small and medium enterprises”. It invested in funds with “local knowledge, insight and ability to speak the local language, and connecting the dots so that there is a point of distribution in the market.” Fifty per cent of the CDC Group’s investments in these funds were for less than $5 million.562 Mr Wambu acknowledged that “services from CDC” were “beginning to bridge the gap towards the smaller ticket size”, such as “CDC Plus, a technical assistance and support facility to support under-served sectors”.563

369.Second, CDC’s use of private equity funds has been criticised. By investing in private equity funds—rather than directly—it is harder to see where capital is being invested. Private equity funds often invest via tax havens, which many DFIs say is to make up for shortcomings in the legal systems of the countries in which they invest, but critics say raises transparency concerns and may be motivated by tax avoidance.564 Health Poverty Action referred to a Global Justice Now report which had found that “of the companies and private equity funds in which CDC owns more than 20%, two-thirds are based in a tax haven”.565

370.Mr Buckley said that “without investment funds and banks, we would not be able to reach … small and medium enterprises and micro-enterprises”. The minimum size of direct investment it could make from London was “about $20 million”. Private equity funds were “doing something manifestly different” to this.566

371.Third, Health Poverty Action said CDC Group failed to assess the development impact of its investments. CDC Group’s impact assessment “mostly measures the rate of return and the number of jobs created without a proper analysis of what kind of jobs are created and for who”.567

372.Fifth, Health Poverty Action said that it was concerned by CDC Group’s investment in fossil fuels. It referred to a Global Justice Now report, which cited recent CDC Group investments in companies that operate coal-burning cement factories, own a petroleum pipeline and own a heavy fuel oil-burning power plant.568

373.The UK’s CDC Group is a leading development finance institution in Sub-Saharan Africa. It will be central to scaling up investment in the region.

374.Although we understand and support the objective of providing smaller amounts of funding to SMEs in the region, we remain concerned about CDC Group’s investment in private equity funds. We are not convinced that enough has been done to seek alternative ways to invest in smaller companies.

375.It is essential that CDC Group is able to demonstrate the development impact of its investment in Sub-Saharan Africa, to ensure that it generates jobs which have a meaningful and sustainable impact on economic development.

UK trade with and investment in Sub-Saharan Africa

376.Dr te Velde said there had been “a flatline” in UK trade with and investment in Sub-Saharan Africa. Trade had been at the same level in 2008 and 2018. The stock of UK foreign direct investment was only £2 billion more in 2018 than in 2008.569 The UK was the fourth-largest source of FDI to Africa in 2017, accounting for 6% of FDI stock.570 Box 15 sets out data on the UK’s trade and investment relationship with Sub-Saharan Africa.

Box 15: UK trade and investment relations with Sub-Saharan Africa

377.The Royal African Society said that UK companies had “substantial investments in Africa, particularly in primary resources”, such as BP, Shell, Tallow and Anglo-American.575 UK FDI is focused largely on the extractive sector, with 54% in mining and quarrying.576 Almost 30% of all UK FDI in Africa is in South Africa.577

378.However, the UK had “been falling behind” that of China, India and Turkey “in relative terms”.578 Lord Boateng regretted that Barclays had “withdrawn from what was once a commanding position”, while British Airways had “failed to respond competitively to its Middle Eastern rivals” and “underinvested in some of its most profitable routes and abandoned others”.579

379.Lord Boateng and Mr Wickstead said “opportunities” had been “missed … by large sections of the UK private sector”, which had been “complacent, risk adverse and seemingly lacking in the entrepreneurial ambition of their global rivals.” The UK private sector had “too readily put Africa in the “too risky box” and “not engaged”.580 Mr Wickstead described UK companies as having “an out-of-date historical narrative”, which discouraged investment. For example, there was still a perception of Ethiopia as “as a place where there is drought and famine”, although it had “been the fastest-growing economy in the world over the last 10 years”.581

380.The Royal African Society said that “African leaders complain that British companies are no longer bidding for many of the big contracts”. Many companies were “clearly distracted by Brexit uncertainties”.582

381.Lord Boateng said there were some “notable exceptions”, namely “Unilever, Diageo and the London Stock Exchange”, which had “taken some excellent initiatives and strengthened their engagement with Africa”.583 Box 16 shows African companies and bonds on the London Stock Exchange.

Box 16: African companies and bonds on the London Stock Exchange

Source: Written evidence from the London Stock Exchange Group (ZAF0049)

Opportunities

382.Lord Boateng said there were opportunities for financial and legal services.584 Considering African countries’ focus on manufacturing, Mr Pengelly said that “we need to think through how finance, legal and professional services can boost industrialisation in Africa indirectly”, a point also made by Dr te Velde.585

383.Lord Boateng and Dr Westcott both identified opportunities in UK education.586 Dr Westcott said that while it was “not high-value investment”, it was “high-benefit”. He saw opportunities for students to come to UK universities and in “building up African higher education institutions”.587 Baroness Amos thought that support for the region’s universities and “promoting partnerships between UK universities and those universities” was “ critical”, a point also made by David Lammy MP.588

384.The Royal Africa Society said that the cultural industries were an “area where existing British links with Africa are strong”; the Government “should be doing more to encourage these”, for example “through support to festivals” and “the activities of the British Council in cooperation with the private sector”. These activities “will have knock on benefits to the African economies of origin”.589

385.The Royal African Society identified a possible UK competitive advantage in “sustainable investment that addresses the climate agenda”.590 The Climate Policy Initiative identified opportunities in green buildings and electric vehicles.591 Ms Palmer said the Government was “thinking hard about the nexus between prosperity and climate—that is, how the two intersect and how we can make Africa a better offer, as well as support it in moving forward quickly in its transition to new fuels”. This had been part of the UK–Africa Investment Summit.592 Lord Boateng highlighted opportunities in health, and food and beverages.593

386.Lord Boateng said there was demand from African governments for UK investment in infrastructure. Since Theresa May’s 2018 visit African leaders had “been singularly disappointed by the uptake”, particularly in infrastructure investment. Civil engineering firms had “been slow to come forward”.594

Government support for trade and investment

Box 17: The UK Trade Commissioner for Africa

Source: HM Government, ‘HM Trade Commissioner: Emma Wade-Smith OBE’: https://www.gov.uk/government/people/emma-wade-smith [accessed 24 June 2020]

Staffing and resources

387.The role of the Trade Commissioner for Africa was established in 2018 (see Box 17). Mr Pengelly said that the role was welcome, but the APPG for Trade out of Poverty had two concerns. First, there were not enough staff supporting her work. For example, DfID’s Kenya office had more staff than were allocated to trade promotion work across Africa.595

388.A second issue concerned the job description. This should have been different to those for Trade Commissioners to other regions, to encompass diplomacy, aid and development. A more senior appointment should have been made—such as a former cabinet minister—”who could regularly talk with Presidents and heads of state in Africa” and exercise real influence in Whitehall.596

389.On 16 June, the Prime Minister announced that in order to “align … British assets overseas”, “trade commissioners … will come under the authority of the UK ambassador, bringing more coherence to our international presence”.597

Trade and investment strategy and targets

390.Mr Pengelly said that “successive Ministers and Secretaries of State at the DIT and DfID” had the “intention and willingness … to do more for Africa and more on trade for development”. However, “the delivery has not really come through”. In 2017 there had been a White Paper598 and in January 2018 the Secretaries of State for International Development and International Trade announced that they would “launch a new, integrated, comprehensive package on trade and development for developing countries”. This had not been delivered. He said that “other competing priorities, particularly to do with Brexit, were taking up Ministers’ bandwidth”. It was “easy for Africa to get pushed down the list of priorities, and then it falls off”599 (also see Chapter 2).

391.The Royal African Society said the private sector had “received less systematic support”; UK policy had “focussed heavily around the twin pillars of aid and security”. It called for a “change” of approach on “driving prosperity”, “to stimulate greater awareness of opportunities” among firms and “more willingness to manage the risks of operating there”.600

392.Theresa May’s 2018 commitment for the UK to become the top G7 investor in Africa by 2022, and the subsequent revision of that target, is discussed in Chapter 2.

393.The ODI said that the UK lacked “a coherent, over-arching medium-term economic partnership framework with Africa”. Other major economies, including the US, China, Germany and France, had such a framework.601

The UK–Africa Investment Summit

394.The UK–Africa Investment Summit was hosted by the Prime Minister, Boris Johnson MP, in London in January 2020. The responsible minister was Alok Sharma MP, then Secretary of State for International Development. A range of government departments were engaged at a senior level.602 The main outcomes are set out in Box 18.

Box 18: The UK–Africa Investment Summit

Source: HM Government, UK Government Statement: UK-Africa Investment Summit 2020 (20 January 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/859314/2020_01_20_AIS_-_UK_Government_Statement_-_Final_Version.pdf [accessed 24 June 2020]

395.The Minister said that the event had combined “an African summit, bringing together all the leaders and stating very clearly, building on the work that Theresa May had done as part of her Africa visit, that we were interested in and passionate about the continent”, and “an investment summit”.603

396.Mr Pengelly said the summit had been long overdue—countries such as the US, Japan, Germany, France and China already held such events.604

397.The Minister said that the “biggest impact” had been “on the perception of British commitment and interest”. There was now “an awareness of and a greater expectation” from African foreign and finance ministers of “what the UK, particularly DIT, is doing across the board”.605 Ms Palmer said that, in addition to “27 deals worth more than £6.5 billion”, “one of the other really exciting things about the summit was the focus on partnerships” between governments, local investors and UK investors.606

398.Mr Pengelly said representation at the summit had been good: small-scale entrepreneurs and manufacturers had been present, and representatives “from a wide range of countries”.607 Professor Faal however said there had been an “almost total absence of diaspora finance, investment and enterprise themes and/or practitioners at the formal proceedings”.608 Mr Wambu said that a “limited number of diaspora entrepreneurs” had participated, which “represented a missed opportunity”.609 Professor Faal said this “occurred despite the fact that the government engaged with the UK diaspora investment sector in the preparatory phase”. The “lack of diaspora prominence” contrasted with “the demonstrable fact that the UK diaspora makes huge investments in the African social economy”.610 The role of the diaspora is discussed later in this chapter.

399.Mr Pengelly said while there had been announcements of new investments (see Box 18), some had already been in the pipeline. Follow up to the event would be important, and he regretted that a framework for next steps had not yet emerged.611

Trade policy

400.Trade policy with external countries, including those in Sub-Saharan Africa, is an exclusive EU competence. The UK will be a member of the EU’s customs union until the end of the Brexit transition period on 31 December 2020.612

401.A summary of the EU’s trade arrangements with Sub-Saharan African countries is in Box 19.

Box 19: The EU’s trade arrangements with Sub-Saharan African countries

402.Many witnesses were critical of the EU’s Economic Partnership Agreements (EPAs) with Sub-Saharan African countries.619 Lord Boateng described EPAs as “contentious, unequal and far from universally welcomed on the continent”. He said that “the EU and its member states … tend to be protectionist in relation to agriculture and both the manufacturing and service sectors at the expense of Africa’s producers”, a point also made by David Lammy MP.620 Andrew Mitchell MP said that it was “obscene that … the richest bloc in the world, the EU” was “putting up barriers against the one thing that a poor country can often produce, which is its agriculture”.621

403.Dr Stephen Hurt, Reader in International Relations, Oxford Brookes University, said that EPAs had “served to weaken the collective bargaining power of both the [African, Caribbean and Pacific]622 group of states as a whole and the unity of Sub-Saharan African states within this bloc”. EPA negotiating groups in Africa “often contain both LDCs and non-LDC” countries, which further complicated negotiations.623

404.The Africa Trade Policy Centre of UNECA said that EPAs did not match regional economic community membership (see Chapter 3). The process had also “not evolved with Africa’s industrialisation and development objectives”, and the “fragmented approach” of the EPAs had “created obstacles for regional value chain development in Africa”. The existence of several cumulation regimes624 “as well as the difficulties linked to the administrative cooperation requirements” had “constrained opportunities for value chain development between countries in different EPA blocs”.625

Post-Brexit arrangements

405.The Minister said there had been “a bit of confusion over what [Brexit] would mean for Africa”, but now “particularly on the trade side there is a feeling of refreshing bilateral relations”.626 Witnesses said Brexit was an opportunity to “reboot the trade relationship”627 and to “reflect on the lessons of the EU’s Economic Partnership Agreements”.628

406.Lord Boateng said the UK was better placed than the EU to “be seen as a friend” focused on development that supports the poor and to develop “a more equitable relationship”.629 Dr Westcott said “countries in the region saw Brexit “as a great opportunity to get a better deal with the UK than they have had with the EU.”630

407.From 1 January 2021 the UK will apply the UK Global Tariff, which will replace the EU Common External Tariff.631 The new UK GSP “will continue to provide trade preferences to the same countries as the EU’s GSP” from 1 January 2021.632 The UK has negotiated trade continuity agreements with Eastern and Southern Africa, and the Southern Africa Customs Union and Mozambique. It is in discussions with Cameroon, the East African Community and Ghana.633 The Minister said that the UK needed a trade deal to cover Kenya, “either as part of the East African Community or bilaterally, to protect some key flows”.634

408.Mr Pengelly said that it was “great that there will not be sudden disruption”, but it was “unlikely that continuing that system will in itself lead to a big increase in trade flows”.635

409.Witnesses considered the options. Dr Hurt said that, in the short-term, “the UK could create a unilateral preference scheme for Sub-Saharan African countries that improves on the terms of the EU’s EBA arrangement with LDCs”. One “viable proposal” would be “an extension of duty-free, quota-free access to the UK market to non-LDCs deemed economically vulnerable”. This “could be made compatible with” WTO rules by “using the Enabling Clause”.636 The UK should also use its independent WTO seat after Brexit to “advocate for rules that allow greater scope for non-reciprocity for developing countries when negotiating FTAs”.637

410.Dr te Velde thought that the UK could “sweep up all the African countries” in its post-Brexit Generalised System of Preferences. This “would be a win-win situation”.638

411.Dr Westcott said the key countries for the UK to negotiate with were “middle-income countries that are emerging as prosperous ones”—South Africa, Kenya and Nigeria. He said EPAs had been the “most contentious” in these countries. The UK needed to “to listen to the African objections to them and respond to those concerns”.639

412.UK interests were better access for the UK’s education, financial and legal services. Dr Westcott said there would “be some tensions in negotiating these trade deals”: there was demand for UK “expertise”, alongside “a great deal of protectionist pressure”.640 On the other side of the negotiation, many African states would “would like to reduce conditionality” on human rights and governance, compared to EU EPAs. He said that as an EU member state, the UK had had “the cover of collective negotiation”; the UK was now “exposed and we will have to make these trade-offs”.641

413.Many witnesses highlighted the need to ensure that external partners did not undermine African efforts to integrate (as set out in Agenda 2063 and the plans for the AfCFTA).642 The APPG for Africa said that “we need to ensure any trade agreements made post-Brexit between the UK and African states respect African priorities, such as the AfCFTA … as well as our own, in particular the desire and ability of African countries to industrialise.”643 Dr Hurt said that there was “a danger that the nature of Africa’s external trade arrangements may stifle the integrationist aspirations of ‘Agenda 2063’”.644 Trade agreements with external partners could “play a major role in shaping the parameters of what is possible” for African governments to achieve in terms of industrialisation.645 The UK should “allow real policy space for African countries to industrialise and build value adding supply chains between African countries”.646

414.The African Trade Policy Centre of UNECA said that, as the AU was creating a single market through the AfCFTA, and “the continent’s trading partners—including the UK—should aim to negotiate with Africa as one single market.” Ensuring that UK trade policy was consistent with the development of the AfCFTA was in the UK’s own interest. The AfCFTA would benefit the UK by addressing key challenges facing UK companies, such as non-tariff barriers, harmonisation and customs cooperation, and “make it easier to engage with African countries on designing trans-boundary investment projects”,647 as discussed in Chapter 4.

415.Leaving the EU provides an opportunity for the UK to re-cast its trade relationships with African countries and remedy some of the defects in the EU’s Economic Partnership Agreements. We were surprised to hear that no detailed work had yet been done to identify ways in which the UK could offer better access to African exporters than was possible when the UK was in the EU. This gap needs to be filled in the UK government action plan on Africa for which we have called in paragraph 84.

416.There is appetite within Sub-Saharan Africa to improve trade with the UK; the UK should explore these opportunities with countries in the region. African partners are working to develop the AfCFTA and are likely to seek new agreements which are consistent with this planned continental agreement.

417.In its post-Brexit trade policy, the UK should explore ways of giving better access to Africa’s agricultural exports and supporting the processing in Africa of a greater proportion of its agricultural products.

Actions for the Government to increase trade with and investment in Sub-Saharan Africa

418.We heard of several ways in which the Government can increase trade with and investment in the region.

419.First, the Government should communicate to businesses “that there are real opportunities to invest in Africa”.648 The Africa Investment Summit was one such initiative.

420.Second, Lord Boateng said that “active government support” was needed. For example, “concessionary finance and insurance guarantee systems” would be needed if interest from civil engineering firms in Africa was to be increased.649

421.Third, Dr Death said the UK’s should consider the coherence of its ODA and trade support work. He said that its climate-focused ODA contributions (discussed above) were “completely undercut by apparently ‘higher’ priorities”, including “investment opportunities for firms.” The UK’s “credibility and good faith” was “jeopardised by continued funding and encouragement for oil and gas infrastructure”.650

422.He gave the example of the UK–Africa Investment Summit in January 2020 (see Box 18). More than 90% of the £2 billion of energy deals announced were in fossil fuels, in spite of the commitment to “support African countries in their transition to cleaner energy”.651 The Climate Policy Institute had been “concerned” by this preponderance of fossil fuel investments.652

423.The Prime Minister had said that the UK would end all direct support for overseas coal mining and power plants but would help African countries to extract and use oil and gas (via export credits). Dr Death said that the “perception” was that “any talk of climate policy or sustainable development evaporates, and is little more than ‘hot air’, when lucrative opportunities to promote UK companies investing in oil and gas infrastructure are spotted”.653

424.Fourth, as discussed in Chapter 2, some witnesses said that the UK’s immigration policy was an impediment to trade and investment. The APPG for Africa said that the policy meant that “many Africans and companies working in Africa are deciding to take their business elsewhere, often to other European countries”.654

425.This was a particular issue for the higher education sector. Dr Johnstone said there was “frustration at the difficulty that African students have had in gaining student visas to study in the UK”.655 The Minister said the approval rate for study visas increased from 81% in 2018 to 85% in 2019.656

426.Delegates on the British Group Inter-Parliamentary Union visit to Liberia in February 2020 heard concerns about UK requirements for recipients of Chevening and Commonwealth scholarships to travel to other countries in the region to take English language tests. For example, Liberian students had to travel to Ghana.657

427.The Minister said that if there was no test centre in that country, the FCO would pay Chevening candidates’ travel costs or arrange for an invigilator to deliver tests in the home country. There was not a requirement for Commonwealth scholarship candidates to complete an in-country English language test.658

428.The Minister said that, in light of the COVID-19 pandemic, “we have removed the language requirement for the Chevening scholarship for 2020–21”.659 Ms Mathews said that the Government was “talking to the British Council about more online testing, so that people can do their qualifications remotely”. The COVID-19 pandemic provided “an imperative to speed up that process”.660

429.Finally, Dr Vines and Mr Dewar said that “sharper HMG focus” was needed on “supporting higher education, youth engagement and quality English-language training through the British Council”, including extending its operations beyond Anglophone countries.661

430.UK trade with and investment in Sub-Saharan Africa has flatlined over the last decade. The appetite of UK businesses is uncertain, and a concerted effort will be needed by the Government if it is to deliver on its goal significantly to increase trade with and investment in the region.

431.The UK–Africa Investment Summit was a high-profile beginning to this initiative, but concerted follow-up will be required. The Government should set out the steps it is taking in this regard.

432.The Government must ensure that its provision of export credits is consistent with its commitments to tackling climate change. It should match its announcement at the UK–Africa Investment Summit that it will no longer invest in new coalmining or power production projects with similar commitments on gas and oil.

433.Education is an important UK sector for UK–Sub-Saharan African trade The visa regime for potential students from the region is unduly onerous and requires reform.

434.We welcome the decision to suspend English language tests for visas for Chevening scholars. We recommend that the Government should: move away entirely from English language tests for visas for both Chevening and Commonwealth scholars; expand both of these schemes; and, where English language tests may be required for visas for undergraduate and post-graduate students, they should be carried out in the student’s country of residence, or online.

The diaspora, and remittances from the UK to Sub-Saharan Africa

435.Remittances provide “hard currency to poor countries”.662 In 2019, $49 billion in remittances (from all countries) was sent to Sub-Saharan Africa.663 In Nigeria in 2018, the amount officially remitted through financial systems from all countries, $25.08 billion, slightly exceeded the entire federal budget for that year, $25.06 billion.664

436.Box 20 details remittances from the UK to Africa.

Box 20: Remittances to Africa from the UK

437.The Minister said remittances from the UK to the region were “massive”.669 Professor Faal and David Lammy MP said that, at around £6 billion, they were larger than all UK ODA and charitable donations to Africa.670

438.Mr Wambu said that diaspora investment was “relatively informal and ad hoc”.671 Professor Faal said that remittances were sent in three main ways: via banks and money transfer companies—90% of remittances from the UK to the region were cash-to-cash transfers, through organisations like Western Union;672 through unregistered companies; and through informal money transfers—for example carried by a visiting friend or relative. Professor Faal said there were also “’in kind’ remittances”, where money was transferred indirectly. The figures for remittances included only official transfers.673

439.A 2018 World Bank report found that the average fee for an international money transfer was 9.4% in Sub-Saharan Africa674 (compared with 7% globally).675 It called for global efforts to reduce the cost of transferring money to below 3%, consistent with SDG 10c, which commits to “reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent” by 2030.676

Benefits of remittances

440.Witnesses set out the benefits of remittances. First, they go “almost directly to the beneficiary—to the target group—with no unnecessary intermediation”,677 supporting “individual livelihoods and [the] welfare of relatives”.678

441.Second, they “stimulate other activities”.679 Remittances “indirectly” support “millions of jobs in the educational, healthcare, water [and] power sectors, as well as … funerals and wedding ceremonies”.680 Professor Faal said that the biggest remittances related to property and building homes, and the resulting “construction boom” had a “multiplier effect”, with “a multifaceted positive impact”.681

442.Third, Mr Wambu said that, “as well as seeking a financial return, diaspora-led business and investment initiatives” were “frequently driven by the need for broader social impact through contributing to the development of their countries of heritage”.682

443.Fourth, remittances provided funding for a small and micro enterprises. AFFORD has estimated that around 25% of remittances are spent on starting family businesses and other enterprises—“micro, small and medium enterprise”—and real estate.683 Mr Wambu said that this was valuable because “in all developing economies, it is the SME sector that provides over 80 per cent of the jobs”.684 Professor Faal said that “decent jobs are the answer to the route out of poverty”.685

444.Fifth, Professor Faal said that remittances were “more sustainable than all the main forms of development finance”. In the event of political instability, FDI would fall, but “remittances go up because families in the diaspora are worried about their family and they give more”. If an economy was “picking up and doing well” then ODA would not increase, but remittances might.686 Professor Faal and Mr Wambu said that remittances were therefore “countercyclical”.687

445.Mr Wambu said that in the context of the COVID-19 pandemic, ensuring remittances could be sent was especially important.688 On 21 April 2020 the Government amended the Health Protection (Coronavirus, Restrictions) Regulations 2020 to include money transfer organisations as essential service providers, allowing them to operate during the lockdown.689

446.The Minister said that the World Bank expected that remittance flows to low- and middle-income countries would decline by around 20% in 2020 as a result of the COVID-19 pandemic. The UK and Swiss governments, supported by partners including the World Bank. had launched “a global Call to Action”, calling for “policymakers, regulators and remittance service providers to take action to keep remittances flowing during the crisis” on 22 May 2020.690

447.Remittances from the UK to Sub-Saharan Africa are given too little profile in the narrative of the UK’s economic relationship with the region. Remittances from the UK exceed aid and charitable giving to Sub-Saharan Africa, and provide essential economic support.

Government support for remittances and diaspora financing

448.Witnesses said that the potential of remittances had not been fully realised.691 They set out ways in which the Government could support remittances and diaspora financing.

449.First, the cost of remitting money from the UK should be addressed. The Minister agreed that it cost “far too much” and said that “anything” to reduce this “has to be good”.692 Dr Okonjo-Iweala said this was particularly important in the context of the COVID-19 pandemic.693

450.Professor Faal said that the EU Payments Services Directive694 imposed “heavy regulation” on the small money transfer companies used for remittances. He said these rules, which focused on terrorist financing and anti-money laundering, were “a red herring as far as remittances are concerned”. The companies used for remittances were “not being used for terrorist violence”.695 He said that “A Brexit UK should champion those points”.696

451.Professor Faal and Andrew Mitchell MP said that competition was needed to reduce the cost charged by companies to remit money.697 Some progress had been made: the Minister said that money transfers were “less monopolistic now than … in the past”, when there had been a reliance on a limited number of banks in each country.698 Professor Faal said that restrictive rules that Western Union had signed with many countries had been removed.699

452.Andrew Mitchell MP said “the key thing about the middle-man cost is that there should be competition”. For example, Barclays had withdrawn from Somaliland—”partly because of the anti-terrorist legislation in Britain”—which had left “only one remittance maker into Somaliland”.700 Without competition, costs had gone up.701

453.Professor Faal said there was “no stimulation for new players”.702 Mr Wambu said the UK should seek to identify incentives which could “encourage remittances services providers to lower cost of sending remittances”.703 The Minister said that there was an opportunity to “utilise end-to-end electronic systems”, using mobile telephony, which was widespread.704

454.Second, there was an opportunity for the UK to consider how it could utilise and support remittances. Lord Boateng proposed “further study” by HM Treasury and DfID to “explore the potential for development bonds and other forms of innovative financing.”705 Andrew Mitchell MP thought “we have not done enough on the remittancing point”; for example, establishing “structures that mean that that money is not necessarily used for immediate consumption but can be invested in local activity is the way we could do better”.706

455.Mr Wambu said that the UK could help to “improve the infrastructure for domestic and cross-border payments”—for example via fintech, work with African countries on regulations and financial inclusion, and undertaking research to assess the major obstacles to sending remittances and identifying solutions. Efforts “to reduce or avoid exclusive agreements, taxation measures on remittances including high exchange rates” would also be helpful.707

456.Finally, there were opportunities for the Government to utilise diaspora financing. Mr Wambu cited the Diaspora Finance Initiative (DFI),708 which was funded by Comic Relief and UK aid through the Common Ground Initiative, and run by AFFORD.709 This was the “largest scale diaspora finance programme yet launched”, at £2.9 million. The DFI involved “diaspora capital mobilisation and investment”, by “increasing and diversifying diaspora SME investment in Africa to create jobs; strengthening diaspora business networks and knowledge exchange”. A pilot structured diaspora bond instrument had been launched, to invest in affordable housing in Rwanda.710

457.Mr Wambu said the beneficiaries were “people in Africa who get decent jobs directly through social enterprise investments; or indirectly through growth of businesses that supply and trade with the diaspora enterprises”.711 Mr Wambu said that the Common Ground Initiative was “currently in abeyance”; the Government should “renew and expand” it.712

458.Professor Faal said that the AU was looking at ways to make remittances “regenerative” and highlighted the new AU framework for the African Diaspora Finance Corporation (ADFC).713 This included a remittance-matching scheme. He said the UK should endorse the AU framework for the ADFC and provide “strategic, partnership, technical and financial support as appropriate”.714 Diaspora bonds were the “lowest-hanging fruit”. The UK diaspora saved “£2 billion a year”, which could be invested in diaspora bonds; “African governments have become prolific bond issuers in the London and international markets”.715

459.We welcome the Minister’s acknowledgement of the importance of remittances from the UK to Sub-Saharan Africa and the May 2020 UK-Swiss ‘global Call to Action’ on remittances, to address the projected fall in remittances as a result of the COVID-19 crisis. We would welcome more information on the actions the Government is taking to facilitate the sending of remittances to Africa from the UK diaspora through this initiative and to avoid disruption, and whether it is exploring the possibility of remittance matching.

460.The Government should work to lower the cost of remitting money to the region, including the use of its powers over competition policy, consistent with the SDGs. It should review the application of the EU Payment Services Directive after the EU transition period ends and consider how it could support greater competition in the market for money transfer companies in Sub-Saharan Africa.

461.The Government should explore co-funding and support for the AU’s new African Diaspora Finance Corporation.

Engagement with the Sub-Saharan African diaspora in the UK

462.Box 21 gives figures on the African diaspora in the UK.

Box 21: The African diaspora in the United Kingdom

463.Many witnesses said that the Government should engage in a more coherent and consistent way with the diaspora community.720 Lord Boateng said there was “wisdom to be gained from wider and sustained contact and consultation.”721 David Lammy MP said that diaspora communities would “tell you what they are funding back in the villages and towns they come from, why they are funding particular schools in particular ways, why they are funding relatives’ start-ups in particular ways”.722

464.Mr Wambu said that “skills and knowledge transfer” from the diaspora were “at the cutting edge of many technological and other developments taking place on the continent.” These helped to create new jobs, as well as providing expertise to protect existing jobs and livelihoods.723

Government engagement with the diaspora

465.Professor Faal said that the size of remittances from the UK (discussed above) was “significant enough to deserve serious policy and engagement”.724

466.However, Yemisi Mokuolu, Director, Hatch Africa, said the diaspora was “seriously untapped”,725 and Professor Faal said that consultation was “periodic and erratic.”726 Mr Wambu said that the relationship between the Government and diaspora organisations was not institutionalised, and there were “no long term guarantees” of engagement. This meant that “Under resourced diaspora organisations have to re-engage with rapid policy changes, which can feel like constantly rebuilding the foundations to a house that is never completed.” There were “few, if any, continuous channels for diaspora businesses—especially SMEs—to share their knowledge with the UK government on an ongoing basis”.727

467.Professor Faal said that “public officials adopt a minimalist approach, seeking to deal with just one or two African diaspora organisations, as ‘representatives’”. This might “be convenient or expedient for management and bureaucratic reasons”, but it “stifles the possible benefits that come with diversity and plurality”.728 The division of responsibilities between the FCO, the DIT and DfID made it more difficult for diaspora groups to engage effectively.729

468.On diaspora engagement with DfID specifically, Andrew Mitchell MP said that DfID was “pretty well wired into … diaspora communities”. He said that “if you are trying to help incubate entrepreneurs or do something to enhance the role of women in a country, you need to understand what is happening there, and a lot of that information comes through representatives of the diaspora”.730

469.Mr Wambu regretted that that DfID “in most cases excludes diaspora contributions from its strategic funding”. Its IMPACT Programme731 had “historically relied heavily on CDC, Palladium and PWC”, and had “not included the deep level of intelligence and experience offered by diaspora led organisations who have intimate knowledge of development finance for economic development”. The organisations managing and advising on the Impact Fund had “attempted to gain knowledge on the diaspora”; AFFORD had worked with them, but questioned DfID’s “lack of recognition of the need to fund diaspora directly to support their economic development initiatives”.732

470.Witnesses outlined actions for the Government to improve its engagement with the diaspora. First, the diaspora should be integrated into “formal policy processes on Africa, development, migration and related matters.” The Government should “articulate long term strategic and partnership commitment to UK diaspora-development organisations, and initiate a 10-year funding and financing programme, in line with the remaining 10 years of the SDGs”.733

471.Second, the Government should engage with and utilise diaspora representatives in national, regional and international forums.734 For example, it should co-host “side and consultative events” with diaspora representatives at events, and include diaspora representatives in official UK delegations.735 Diaspora representatives should be given “more opportunities through the British Council, FCO and DfID to take part in relationship building on behalf of the UK in African nations”. UK posts in Sub-Saharan Africa should be “encouraged to provide networking support to [visiting] UK based diaspora entrepreneurs”.736

472.Third, the Government should “enhance support” to “the few exemplar diaspora-development organisations”. These groups had maintained engagement with the Government for more than two decades.737

473.Fourth, it should raise awareness “within government and at global platforms” of the fact that “the billions of pounds of annual diaspora remittances and investment to Africa are an integral part of the UK’s contribution to international sustainable development”.738

474.Fifth, the Government should provide support for diaspora investments and businesses. This could include: match funding; investment guarantees; grants; and investment.739 Mr Wambu said that UK DFIs (CDC Group and PIDG)740 should “partner with and invest in innovative diaspora investment and enterprise schemes”.741

475.Sixth, DfID’s IMPACT Programme could be “optimised” by investment from the diaspora.742

476.Finally, Professor Faal said that, in the context of the COVID-19 pandemic, the UK should “expand collaboration with diaspora organisations that manage small grant schemes reflecting the unexpected needs, challenges and opportunities arising”. The diaspora had “experience of providing enterprise and livelihood support to Ebola affected countries”.743

The diaspora in UK business

477.Lord Boateng said UK businesses had “way to go” in including the diaspora in leadership roles. They suffered from “a lack of ethnic diversity and a degree of myopia when it comes to Africa that has damaged the advancement of our national interests”. This was now “changing in the legal and financial service sector … there are a number of highly influential diaspora Brits of Nigerian and Ghanaian origin in particular but also from the significant East African Asian community”. The value they brought was “increasingly evident.”744

478.We heard that the UK’s Sub-Saharan African diaspora is not consulted and engaged in a consistent manner. Representatives of the diaspora are an essential resource in delivering the Government’s plan to increase trade and investment with the countries of Sub-Saharan Africa. The Government should embed consultation with the diaspora into policy making towards Sub-Saharan Africa, in particular with regard to trade and investment.

479.The Government should give consideration to how and in what ways it could better encourage diversity on UK boards. It should work proactively with diaspora communities to make progress in this regard.

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