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Prime Minister sees UK aid for Iraq at DFID aid distribution centre. Photo credit: Paul Shaw

Britain’s new aid strategy has important implications, not only for DFID but for international organisations who will either need to adapt or face losing some of their core funding. Here’s why.

The British government recently announced new medium-term spending plans (the first for two decades produced by a Conservative government), which included a Strategic Defence and Security Review  and a new aid strategy.  Perhaps most surprising to many, the UK government remains committed to spending 0.7% of national income on aid, despite the unpopularity of this commitment with voters. With parts of the UK hit by severe flooding, the BBC is reporting that the government now spends more on flood defences abroad than in the UK. But criticism of the aid target has been muted by the announcement that the UK will also meet NATO’s 2% target for spending on defence: the right has now discovered that they support spending targets after all. The UK is now the only big country to meet both the targets for aid and defence spending.

So what is new about the aid strategy? In its overarching goals, not a lot. The four strategic objectives are familiar enough. They are (a) global peace, security and governance; (b) resilience and response to crisis; (c) global prosperity; and (d) tackling extreme poverty.  But there is a notable shift in tone and in detail.

This is very much an aid strategy written in the Treasury, which rather artlessly makes clear that aid will now be used to further Britain’s own interests. The phrase “national interest” is mentioned twelve times, compared to four mentions of the new “global goals”.  This shift is apparent in two ways. First, there is much greater emphasis on using aid to tackle problems which affect Britain directly, such as the present refugee crisis on Europe’s borders.  Second, the government intends to use aid in ways which both contribute to poverty reduction and which help create opportunities for British industries and institutions or help the public finances. A striking example of this dual benefit is the allocation of £85 million a year to the BBC World Service, reversing a decision two years ago which ended all government funding for the service.

The new strategy has some significant implications:

  1. Influenced by the crisis in Syria and Libya, and its effects on migration, there is an even stronger focus on investing in fragile and conflict affected states.  Half of all aid will be spent on these countries – though this new target has been changed to include spending in the region dealing with the effects of conflict, and not only the countries themselves.  DFID says that 85% of bilateral aid is spent in these countries, whereas multilateral agencies and global funds spend much less – more on that below.
     
  2. The share of UK aid managed by DFID will fall from about 86% now to about 70% by the end of the decade – so tripling the aid managed by cross-government funds (conflict, health, prosperity) and by other government departments (foreign office, climate change, environment, health etc).  This is a big change from the tradition (which began in 1961) of British aid being managed mainly under one roof. 
     
  3. More aid will be spent on global public goods, notably research and development (e.g. for neglected tropical diseases) and on climate finance.  Policymakers have been very influenced by Angus Deaton’s remark (in The Great Escape) that donors should spend money for developing countries, but not in developing countries.  The focus on R&D is motivated in part by expectation that this will also benefit British universities, pharmaceutical firms and research labs.
     
  4. The UK will no longer provide general budget support.  This decision reflects the reality that there is now very little GBS, so it won’t change very much in practice. The UK will increase results based aid and it promises greater transparency (both of which are issues dear to our hearts at CGD).
     
  5. Parts of the UK government (perhaps more DFID than Treasury) remain very concerned about no-one left behind and the need to focus aid on the poorest and most marginalised people. As Hans Rosling points out towards the end of his recent BBC TV programme, the poorest countries with the worst human development outcomes receive substantially less aid per person below the poverty line than do middle income countries. There are some in DFID who would like to target more aid on very poor countries (a category which does not overlap completely with fragile and conflict affected states).

It isn’t going to be easy to make these numbers add up. The aid budget won’t grow much over time (since aid will neither fall below 0.7% of national income nor rise significantly above it). Take off the fast growing share being used to ease the pain in other government departments. Within what’s left, the government wants to spend more on global public goods; spend at least half the budget on fragile and conflict affected states; and increase the amount of aid going to the poorest countries and most marginalised people.  

We will know next spring how the Government will square this circle when they publish the results of the Bilateral Aid Review, the Multilateral Aid Review, and the Civil Society Partnership Review.  But we got a clear signal in the evidence given the other day by Mark Lowcock, DFID’s most senior civil servant, to the House of Commons International Development Committee.  He told the Committee that core funding of multilateral agencies and global funds would be likely to fall, given how little of their spending is allocated to the UK’s core priorities of fragile and conflict affected states and the poorest countries.  While he acknowledged the importance of effective multilateral institutions, he also said they need to adapt to today’s development agenda if they want continuing support from the UK. 

The UK is by far the world's biggest contributor of multilateral aid providing 50% more in absolute terms than the next biggest donor (which is the United States).  So international institutions - especially those with replenishments coming up next year - should pay attention to the message now being sent by UK officials.    

It is striking that this is an “aid strategy” rather than a “development strategy”. It has a box on “beyond aid” which rightly highlights the UK’s good performance in CGD’s Commitment to Development Index. But the only policy that is discussed in the box is a pledge to increase aid to help developing countries collect more tax. There is no commitment to reform any other policy – such as to tackle illicit financial flows, reform intellectual property rules, enable more students to come from the developing world, or to limit arms sales to undemocratic countries.  More worryingly, the section headed “A Cross-Government Approach” is entirely about how the rest of government will spend the aid budget, with nothing at all about how the rest of government will adapt its policies to achieve the government’s broader goal of shared, sustainable prosperity and poverty reduction. (The UK’s envoy for the new global goals told CGD in a recent podcast that government departments have been asked how they will implement them: let’s hope departments all understand that aid alone will not enough.)

My take

Here’s my take on all this:

  1. I am open to being convinced about the benefits a whole of government approach, engaging departments other than DFID in the development agenda; but it should be a two-way street. If those departments are going to get part of the aid budget to spend, they should also be obliged to at least consider adjusting their policies where necessary to have a better impact on developing countries. For example, we need to do more than provide technical assistance for revenue collection in developing countries (important though that is): we also need to change the international tax rules.
     
  2. To make a success of having multiple government agencies managing aid, the UK will need to learn the hard lessons from other countries in which aid is spread across many government departments, notably the US. This kind of fragmentation has invariably been detrimental to aid effectiveness.  That isn't to say the UK can't make it work but doing so will require not only properly-aligned development policies, but also shared reporting, performance metrics, lesson learning, evaluation, accountability and transparency.
     
  3. The increase in spending on global public goods is excellent (and seems to move the UK towards what my boss, Nancy Birdsall, recently recommended for the US). Spending on global public goods can be very good value for money and yet the development system as a whole under-invests in it (as is usual with public goods).  It will be important to implement this in a way that doesn’t turn in to a corporatist bung for British universities and companies – preferably by linking the investment to results (such as through Advance Market Commitments or Development Impact Bonds.)
     
  4. There is nothing new, nor particularly shocking, about a government wanting its choices about how and where to reduce poverty to reflect its broader strategic and commercial interests. But in the past the pursuit of national interest has been more artfully downplayed in the presentation of policy.  We will all need to be vigilant against the significant risk that paying more attention to the national interest will result in less effective aid.  (For example, insisting that everything that DFID funds is clearly labelled as “UK Aid”, which may be in the national interest, tends to inhibit joint working with other donors and so increases duplication, costs more, and reduces aid’s impact on poverty.  Likewise, allocating research funding to mainly British institutions may produce fewer research breakthroughs than if the same money were channelled to centres of excellence elsewhere in the world. How much aid effectiveness should we be willing to give up to demonstrate that aid is in our national interest?)
     
  5. It is a shame that DFID and H M Treasury have missed this golden opportunity to conspire together on a broader agenda of policy reform.  The two most economically-literate government departments should be allies in taking on a wide variety of vested interests at home and abroad. DFID and HMT should be working together to promote more open markets, reduce subsidies, protect public revenues, insure against disasters, price externalities, encourage labour mobility, improve investment, improve financial stability, tackle corruption, and improve international institutions.  The fact that the strategy touched on none of this suggests that this once-powerful Whitehall alliance needs resuscitation.
     
  6. I admire the government's determination to focus aid on the poorest and most fragile countries, even if it is partly motivated by the desire to reduce pressures on migration.  But let’s be clear: these are riskier environments in which it is harder, and more expensive, to achieve results. The strategy missed an opportunity to warn readers of the costs and risks, as well as the benefits, of focusing more of our aid effort on those countries. Furthermore, the government should be wary of swinging the pendulum too far in response to the latest crisis, which is dealing with refugees and asylum seekers.  Is the government already losing interest in growth and economic development, which were until recently the new priorities?
     
  7. DFID is right to push the multilateral system to shift its resource allocation to these difficult places and problems.  Multilaterals have been less willing than the UK to sacrifice some performance to focus on need.  If DFID is going to hit its target for spending money in fragile and conflict-affected states, while maintaining a decent programme in non-fragile but very poor countries like Zambia and Malawi, it will have to shift money across from core funding of multilaterals to the bilteral programme.  Somewhere in East Kilbride, the team responsible for the Multilateral Aid Review is hastily titivating its analysis: it will have to put less emphasis on the need to demonstrate "results" (which are inevitably harder and more expensive to achieve in fragile and conflict affected states) and put more emphasis on aid allocation. But it will be a pity if aid shifts markedly from multilateral to bilateral aid: the world needs effective, well-funded multilateral institutions, some of which are much more effective than most bilateral aid agencies. The UK should use the MAR to cut its contributions to poor performing multilaterals, but we should be increasing core funding for the best, and we should be wary of moving the goalposts too readily from one MAR to the next. (It is striking how little mention there is in the aid strategy of partnerships with other countries and international organisations – again, this is indicative of a document written primarily in the Treasury.)
     
  8. I am sorry to see the end of general budget support. But whether or not you agree with this decision, there is a lesson for DFID here. I remember a time, not that long ago, when the UK would mock and scorn countries who were sceptical about budget support. We would cajole other governments (such as the US) and bribe international organistions (such as the World Bank and the EU) to discourage the use of aid projects, which we regarded as inefficient and which we criticised as undermining domestic accountability. As the UK now steps away from its hobby horse, we should have more humility about our latest views on how to make aid more effective.  (One of the advantages of multilateral aid agencies is that they are less suceptible than bilateral agencies to these kinds of mood swings.)
     
  9. Aid advocates should be careful what they wish for. If you advocate for an input target like 0.7%, you don’t have have a leg to stand on when the government hits the target but uses the money for whatever it can get away with within the rules.