New UK Economic Development Strategy Puts Emphasis on Trade and the World’s Poorest Economies

8 February 2017

Trade and investment will occupy a strengthened, pivotal place in the UK’s development policy, indicates UK’s Department for International Development (DFID) in its “first ever economic development strategy”. The document, released last week, details how DFID intends to work across government departments through an approach that integrates trade, investment, and aid policies to foster economic development and drive poverty reduction.

“DFID’s first Economic Development Strategy sets out how investment in economic development will help developing nations speed up their rate of economic growth, trade more and industrialise faster, and ultimately lift themselves out of poverty,” reads a press release jointly issued by DFID and its Secretary of State for International Development Priti Patel.

While DFID’s focus on economic development is not new, the document attempts to build on previous efforts and “bring them together into something that is more actionable, and more coherent,” according to Stefan Dercon, the department’s chief economist.

Through this strategy, which is presented as a “vital part” of the new “Global Britain” doctrine, DFID vows to put a particular emphasis on the world’s poorest countries, many of which are to be found in Africa. At a time when demographic trends on the African continent are expected to result in hundreds of millions of young people entering the job market in the next decades, the document stresses the importance of building African economies’ capacity to create jobs and absorb these new entrants.

Last summer, UK citizens’ vote to leave the EU had left many observers wondering what impact a so-called “Brexit” would have on the UK’s aid, economic development, and trade policies, in particular towards African countries. While some experts had underlined potential risks for African partners, others had stressed that the referendum could open a new promising chapter in the UK’s trade and development cooperation relations with the continent (see Bridges Africa, 21 July 2016).

“With dramatic increases in population across Africa and Asia, developing nations must act fast to create jobs and investment, which is why Global Britain is leading a more open, more modern approach to development through our economic development to help the world’s poorest countries stand on their own two feet,” said Patel according to the press release.
 

Focus on trade

The first among the eleven key messages of the strategy is a pledge to focus on “trade as an engine for poverty reduction.” In July 2016, following her appointment as Secretary of State for International Development, Patel had already spelled out her conception of a development policy that integrates trade and poverty reduction.

“We will continue to tackle the great challenges of our time: poverty, disease and the causes of mass migration, while helping to create millions of jobs in countries across the developing world - our trading partners of the future,” she declared.

In line with this vision, the strategy’s announced goal is to strengthen developing countries’ ability to trade more with external partners, including the UK, and integrate into global value chains. In that regard, DFID considers that the UK’s exit from the EU will provide a propitious opportunity to develop a more holistic approach that brings together trade policy, aid that tackles barriers to trade, and investment promotion.

“Just as Britain is resetting its international relationships, it is a really good moment to also reset our relationships with poor countries, and work with them around linking trade, economic opportunities, and development for their benefit,” said Stefan Dercon in its presentation of the strategy.

In order to do so, DFID intends to work in close collaboration with the Department for International Trade to develop and strengthen the UK’s trade and economic relationships with developing countries, including by continuing to open its market and provide export opportunities to the world’s poorest countries that “need it most.”

The strategy also mentions explicitly the World Trade Organization, indicating that the UK will also push at the multilateral level for global trade rules that better serve developing countries’ needs.

 “Using our voice in the World Trade Organization, we will argue for better and fairer trading rules for developing countries and strengthen our approach to ‘aid for trade’,” reads the document.

Part of the department’s trade-related work should also be conducted through DFID’s Trade and Investment Advocacy Fund, which provides support to developing countries in their efforts to participate in and benefit from trade and investment agreements.

While DFID underlines that its approach to trade will be focused on reducing poverty, which Patel defines as the most urgent task, the strategy makes clear that it will also serve the British national interest. As such, DFID’s approach will help build new trade partners that will support British national prosperity in the future through mutually beneficial economic cooperation, while keeping migration pressures in check by providing more decent job opportunities in the developing world.
 

Private investment, “innovative” financing mechanisms

The economic development strategy will be marked by an increased role for DFID’s private investment arm, the CDC, which will be “at the heart” of the new approach. Along with UK’s exit from the EU, the recapitalisation of the CDC has been identified by some observers as one of the big shifts that will shape DFID’s future work.

However, the strategy should not affect the total amount of financial resources spent by DFID on economic development – which currently stands at around £1.8 billion per year.

“DFID will increasingly use Development Capital to create jobs, catalyse private sector investment and build markets in challenging settings,” reads the strategy.

“Right now there is a desperate shortage of private and public investment in the world’s poorest countries, despite the significant opportunities. The UK will catalyse investment by using innovative financing approaches, as well as helping countries to improve their investment climate,” indicates Patel in the foreword of the document.

The strategy thus aims at ensuring that more investment is channelled to developing economies through financial markets and institutions. In this regard, DFID indicate it will work with the City of London so that it becomes “a leading financial centre for the developing world,” promoting economic development and decreasing developing countries’ need for aid.

The document also identifies sectors that are key to unlocking growth and structural transformation in developing economies – including energy, infrastructure, urban planning, manufacturing, commercial agriculture, and financial services – and which will be at the centre of DFID’s development work.
 

ICTSD reporting; “DFID releases its first economic development strategy,” DEVEX, 31 January 2017.

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