UK’s FCDO says committed to poverty reduction via aid for trade amid calls for higher efficiency

UK’s FCDO says committed to poverty reduction via aid for trade amid calls for higher efficiency

On July 20, 2023, Britain’s Foreign, Commonwealth and Development Office (FCDO) published an official response to a recent review of UK Aid for Trade (AfT) by the Independent Commission on Aid Impact, the UK aid watchdog, agreeing that boosting trade can bring transformative benefits to developing countries. However, it did acknowledge that global challenges have had a negative impact on AfT efforts since 2015.

The original report from the Independent Commission on Aid Impact (ICAI) noted that, since 2015, the British government has shifted its official development assistance (ODA) focus towards trade and economic growth, known as “aid for trade,” with a strong emphasis on supporting developing countries to increase their exports to the UK. ICAI called for more efforts to ensure that aid for trade benefited the poor and expressed concern that by focusing on direct benefits for the UK, the strategy might shift away from its goal of poverty reduction.

In response, the FCDO noted that it spent a total of £638 million (compared to more than £3 billion spent annually on total ODA) between 2015 and 2021 to support “aid for trade” via programs aimed at reducing trade barriers, implementing trade agreements, promoting the role of women in business, and taking advantage of benefits of Britain’s membership in the World Trade Organization (WTO). Furthermore, the FCDO said that it “demonstrated agility and responsiveness to the needs of the poor,” while simultaneously admitting it was “learning lessons”, particularly concerning the support for women and young people in trade as well as support for climate-friendly trade.

Recommendation 1 – Detailed Guiding Principles

ICAI’s first recommendation was that the FCDO develop and publish a set of detailed guiding principles for all ODA programs to ensure that the pursuit of benefits for UK businesses “does not detract” from the goal of poverty reduction.

The FCDO responded by saying that poverty reduction is and always will be the primary focus of ODA programs, however, identifying benefits for UK businesses is a “legitimate” aim because it is “required” in order for the FCDO to meet its legislative obligations. The FCDO did acknowledge, however, that existing guidance could be “further strengthened” in order to ensure that poverty reduction is the primary focus of ODA.

Nonetheless, the FCDO declared that creating a new set of guidelines is not advisable and that simply “strengthening” existing operating frameworks is a more effective solution.

Recommendation 2 – Increased Focus on International Institutions

ICAI’s second recommendation was that the FCDO should increase its focus on international institutions in order to “improve the alignment” of Aid for Trade with global programs.

The FCDO responded by noting that a speech given by Foreign Secretary James Cleverly on June 29, 2023, delivered ample evidence that the UK is committed to an “effective” World Trade Organization, although it did cede the fact that changes need to be made in the WTO in order to respond to challenges such as climate change. The FCDO further added that it presumes to play a “leading role” in arguing for reforms to the WTO at the next WTO Ministerial Conference in February 2024.

The ICAI’s concern was that the UK has decreased funding for multilateral institutions and, by increasingly working alone, is at risk of no longer benefiting from economies of scale by working on trade projects that are also funded by other donors. Yet, the FCDO believes that its plan to create a “Trade Center of Expertise” (CoE) will somehow strengthen international collaboration, without giving any details.

Recommendation 3 – Ensure Trade Programs are Based on Clear Theories of Poverty Reduction

ICAI’s third recommendation was that assumptions and guesses about the impact of trade programs on poverty reduction need to be tested through research, monitoring and evaluation. Furthermore, the ICAI charged that the UK is not taking steps to mitigate risks to vulnerable groups with its Aid for Trade programs.

The FCDO accepted this recommendation from the ICAI, however, it reiterated the fact that all ODA programs (not just Trade for Aid) are required to produce a Theory of Change (ToC) or narrative about the long-term impacts of projects. Therefore, all current and past Trade for Aid programs were formally evaluated according to this standard.

Nonetheless, the FCDO declared that it would redouble its efforts to measure and monitor the impact of Trade for Aid programs, relying on the “forthcoming launch” of the Trade CoE to help the government “work more closely” with civil society, academic, and research centers to test links and assumptions about the poverty reduction impacts of its projects.

Recommendation 4 – Improved Coordination on Projects to Achieve Greater Value for Money

The ICAI noted that there is a complete lack of systemic coordination and collaboration between Trade for Aid programs, including those that had the potential to complement each other. Furthermore, the ICAI noted that reductions in ODA spend have led to a Trade for Aid portfolio that is more fragmented and that government officials could work together better in order to identify new trading opportunities with developing countries.

While accepting this recommendation from ICAI, the FCDO noted that its Program Operating Framework (PrOF) Guide to Business Cases already follows a “best practice approach” to ensure that all of its Trade for Aid projects were coherent and “greater than the sum of their parts”.

The FCDO also noted that its recent merger (the former Department for International Development with the Foreign and Commonwealth Office) provided itself with a platform for a more consistent approach to project delivery. This is because the FCDO created a specific Trade for Development (TFD) Department that is a subsidiary of the FCDO’s Business and Trade unit, thus “ensuring coherence” across all Aid for Trade projects.

The TFD will be in charge of running the future Trade CoE and will become a “one-stop shop” for communicating between the FCDO and British embassies overseas, multilateral partners, bilateral partners, and local stakeholders. Furthermore, additional oversight over the CoE will be provided by a cross-HMG Steering Board, and the FCDO firmly believes that this additional layer of bureaucracy will result in improved coordination across all ODA projects, including Trade for Aid.

Recommendation 5 – The Government Should Inform Partners When Making Budget Cuts in a Timely Manner

Perhaps the most important recommendation from the ICAI was for the British government to communicate changes in ODA spending (especially cuts) in a more transparent and timely manner, noting that the steep reductions in ODA spend in recent years have damaged Britain’s previously strong reputation as a “trusted, reliable, transparent, and predictable partner” on Aid for Trade projects as well as ODA, in general.

Furthermore, the ICAI noted that abrupt cuts in spending have forced some partners to cancel contracts and incur fees and penalties and that the unpredictableness of the British government has negatively impacted the ability of aid partners to plan.

The FCDO acknowledged that implementing partners are “critical” for achieving ODA objectives, however, it said that there are times when “wider fiscal reasons” will result in last-minute warnings.

The FCDO also admitted that all of the recent cuts to existing ODA programs in 2022-2023 were due to “unexpected costs” that were incurred by choosing to support the people of Ukraine and Afghanistan and other countries finding refuge in the UK.

The FCDO added though that it will try to do its best to “consider any lessons learned” during the process of “recent ODA reductions.”

See also: Britain announces bold plan to increase ODA spending in 2024

The FCDO concluded its response to the ICAI recommendations by saying that the “pace of change will need to be managed in the context of overall in-year flexibility to changing contexts and wider cross-governmental pressures on ODA budgets,” effectively warning its partners that future disruptions in spending and continued unreliability are to be expected.

The Independent Commission for Aid Impact (ICAI) is an organization that operates independently of government and reports directly to the British Parliament via the House of Commons’ International Development Committee (IDC). The ICAI’s formal remit is to provide independent evaluation and scrutiny of the impact and value for money of all UK government ODA.