Why British aid for trade deals after Brexit will not be so simple

How will aid spending change after Brexit? Defence Images © Crown Copyright, CC BY-NC

For Priti Patel, aid money is clearly a tool that can be used to win favours in the new post-Brexit landscape. Speaking to the BBC on a trip to Kenya in her first visit to Africa as secretary of state for international development, she said British aid funding through multilateral agencies could be cut unless it provided “value for money” and that she wanted to use aid to pave the way for new British trade deals.

Three years before she was appointed in the post-Brexit reshuffle, Patel said the Department for International Development (DfID) was a low priority and spoke of replacing it with a Department for International Trade and Development. Brexit, for which she volubly campaigned, has already brought an International Trade department into being.

So far, Patel has displayed a predictable tendency to play to the gallery of the right wing press, talking up fears of waste at DfID without being able to substantiate her points. She nonetheless risked Daily Mail readers’ ire by reiterating the Conservative manifesto commitment to spending 0.7% of UK GDP on overseas aid.

Nonetheless, Brexit arguably poses more opportunities and fewer challenges for Patel’s new department than for elsewhere in Whitehall. For a start, there is the windfall of the £1.4 billion of aid spending currently channeled through the EU to reallocate.

Windfall up for grabs?

But of this sum, set at £11.8 billion for 2016-17, some 13.5% is spent by other Whitehall departments, a figure set to rise to around 22% by 2019-20. This is a trend Patel is unlikely to resist and may well accelerate, which might mean that much of the £1.4 billion to be repatriated is up for grabs elsewhere in government.

This is assuming that all of the £1.4 billion does in the end come back to Whitehall – still very much a moot point. Leaks have suggested that the government is thinking of using it towards buying continuing access to the single market for parts of the UK economy, in the unlikely event that such arrangements can be negotiated.

Even if the £1.4 billion is not reallocated in this way, there is no guarantee that DfID will get all or even most of this sum. For instance, the Home Office could claim an increasing share of money that is spent on refugees in the UK as part of the aid budget. EU rules already allow member states to allocate the housing costs of refugees during their first two years in the country to the aid budget, but post-Brexit other refugee costs in the UK could also be attributed to this source.

The Foreign Office has long sought a greater slice of the aid budget for development diplomacy. As Patel hinted in Kenya, other parts of the £1.4 billion could be sought by the International Trade Department on the pretext that promoting trade deals with lower-income countries should be badged as aid.

Funding has already been shifted to headline-chasing initiatives in the Middle East from other regions, such as Kenya, where the largest refugee complex in the world at Dadaab is now under threat of closure. The other problem is that at present DfID only works directly in 28 countries, relatively few of which are major sources of refugees and migrants. It is largely through multilateral aid with the EU that British aid policy engages with countries around the fringes of Europe, such as Libya, where political instability and human rights abuses prompt flight. Patel will publish a review soon on the way British aid is spent by multilateral agencies.

To tackle the resulting problems of refugees, trafficking and international criminality – all of which are likely to continue to impact on Britain – some DfID civil servants probably favour continuing UK involvement in EU multilateral aid. Some continuation of part of these activities, such as the €97m a year which currently goes towards containing migration through Turkey, might well be rational in both policy and political terms, but that does not make it likely.

Aid as a bargaining chip

Patel’s interests seem to lie more in linking aid to trade. A paper by former DfID director-general of policy and global issues, Michael Anderson, argued that there are a number of quick wins in this area – policies that would help the poorest countries serve British interests and help the UK’s negotiating position over Brexit. For instance, the suggestion that Britain should announce early that it will unilaterally continue the EU’s “Everything But Arms” initiative, whereby imports from 49 low-income countries are duty-free and quota-free except for armaments, would be a useful, if small gesture.

Such measures, however, would only have limited effects, given that developing countries only export 0.5% of their GDP to Britain.

Priti Patel: out to get her own department. Stefan Rousseau/PA Wire

In any case, Patel seems more interested in using aid to boost UK trade rather than the other way round. UK aid, however, is not a good tool to achieve her aim. Few of Britain’s major aid recipients are heavily dependent on the UK in terms of trade. Of those which are, with the exception of Bangladesh, most are very small economies.

Opportunities ahead

There is, however, another possibility. Brexit will include UK withdrawal from the European Development Bank. Over the past decade the bank has invested some £42 billion in Britain. During the same period it has invested a similar amount in developing economies, with a particular focus on African infrastructure. The repatriation of the UK’s 16% shareholding could be added to the £3 billion of taxpayers’ funds managed by the former Commonwealth Development Corporation. However, this is mandated only to assist the private sector in developing countries.

The government could, nonetheless, change its mandate to try to direct its funding more to serve UK trade interests – at the risk of producing another scandal like the Pergau dam, in which British funding for a hydro-electric dam in Malaysia was linked to arms sales in the mid 1990s.

Alternatively, the government could develop a new UK development bank. Like the European Development Bank, this could focus on infrastructure, renewable energy and other areas where British companies may have comparative advantages. Anderson’s paper also suggests that the UK could fund research networks with low-income countries, which might possibly produce some of the benefits for British business that Patel appears to be focused upon.

Though small gains, such ideas should help marginally to boost low-income countries’ trade and might make a material difference to that small group of countries where British aid matters to their economies. There are not, however, quick wins in this field. British aid does not matter enough to most recipients to provide much leverage on their tendency to import British goods.

The risk therefore, is that Patel is talking up aid for trade, not only to appeal to her friends in the right-wing press, but also to set up DfID to fail to deliver the boost to British exports which she is now using as the sole yardstick to measure the effectiveness of aid spending. In the process, she is likely to give spurious credibility to the criticisms she has levelled in the past at the department she now heads.