Clues to DFID's economic plans emerge with post-Brexit trade

The U.K. government unveiled plans over the weekend to replicate current European Union-negotiated trade terms with the poorest 48 countries after it leaves the bloc, signaling the first major milestone for Secretary of State for International Development Priti Patel’s pledge to put post-Brexit trade at the center of her department’s new economic development strategy.

The announcement commits to maintaining the current quota-free, duty-free trade access to the British market currently enjoyed by the poorest 48 countries through the EU. The government also announced it intends to maintain current trade advantages for other developing countries and, in some cases, to “explore options to expand relationships,” although specific terms can only be announced after bilateral negotiations.

The news falls in line with the Department for International Development's new economic development strategy, released in January, as well as its cross-government strategy, which commits to spending 30 percent of U.K. aid through departments other than DFID by 2020. It will likely mean a greater emphasis on some of the work DFID is doing around trade facilitation and through the CDC, the U.K.’s development finance institution, a DFID official told Devex.

Rachel Turner, director-general of economic development at DFID, said the primary objective behind the announcement is to provide continuity for current and potential investors in the region. She emphasized some of the new strategies DFID is considering to promote better access to global markets. About 20 billion pounds ($25 billion) worth of goods are exported to the U.K. from developing countries every year, according to government statistics. 

“We were specifically clear that we will be continuing the preferential ‘everything but arms’ agreement for the 48 least developed countries. We think it’s an important announcement for investors particularly, to give investors that sense of stability in the trading environment with the U.K.,” Turner told Devex after taking part in a panel discussion at the Overseas Development Institute about entrepreneurship and industrialization in Africa.

She named TradeMark East Africa, a nonprofit working on trade facilitation in East Africa, as one organization that is setting the benchmark for the kind of work the agency hopes to do more of.

Turner said DFID is also hoping to bring CDC into more sector-specific and job-creating programs. But one challenge it hopes to tackle in the meantime is enabling development finance institutions, including the CDC, to work more collaboratively together in-country.

“Something that we’re very focused on is how CDC can move into this sector, but also how we can really as shareholders in many DFIs, including the multilateral ones, really try to mobilize and encourage them to work collaboratively and systematically, particularly at country level,” she said.

The CDC was recapitalized last year, tripling the amount of official development assistance DFID can invest in the institution to 6 billion pounds ($7.6 billion). The investment breathed new life into the small but innovative instrument and refocused its geographic mandate to sub-Saharan Africa and Southeast Asia, where the investments are likely to be riskier but with higher development impact.

Dirk Willem te Velde, head of the international economic development group at the Overseas Development Institute, said that “the offer is worth about 323 million pounds ($410 million) per year in terms of avoided duties in the U.K.,” easing entry into the British and global markets.

“Of course there’s more that can be done for other African LDCs, but this is an important step forward.”

Te Velde told Devex that even though future trade agreements for other lower and lower-middle income countries is still uncertain, the commitment to find beneficial terms for all developing countries — as well as to ease anxieties about the Brexit process — seems clear.

Turner explained that DFID is heeding the economic evidence that broader “enabling investment environment” programs don’t work, and is moving toward more sector-focused programs, namely in industries that export internationally and create the most jobs. CDC, she said, will also play a key role in measuring job creation, often a difficult task for DFID as it tries to pin down value for money.

“We’ve tried specifically to take one step back and not do the generic business environment work, but actually to try to pick up the specific regulatory and policy challenges raised by investors and begin to work with African governments to address those,” she said.

“One of the things we’re thinking about doing … we’ve tried in Ethiopia, we’ve tried to play a brokering role to bring buyers and investors together, and we think that’s worked well,” she said.

Turner added that her team believes it could be useful to establish “some sort of buying platform, either here in the U.K. or somewhere else” to facilitate this work in job-creating sectors, similar to a project initiated by the government of the Netherlands.

As DFID looks to increase the capacity of the CDC, Turner also said the agency “will be investing in more longitudinal work to really find and track who is getting employed and what then happens to them. For someone who’s worked on a construction site, for example, it’s often assumed they’re able to continue with successful employment,” she explained. “We really want to get a stronger sense of tracing employment, so we’re just beginning to draft the terms of reference for that.”

Asked how the commitment to maintain preferential trade agreements with LDCs could affect the work of her team, Turner said for the moment not much will change at the agency.

“We work very closely with the Department for International Trade already,” she said.

DFID staff have been moved to the department to facilitate shared learning as part of the cross-government strategy, which will see ODA spent across departments, including International Trade and the Foreign & Commonwealth Office.

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