Corporate report

FCDO response to the Independent Commission on Aid Impact’s review of UK aid for trade, June 2023

Published 20 July 2023

Summary

The Government welcomes the ICAI review of UK Aid for Trade (AfT) from 2015 which shares our view that boosting trade can bring transformative development benefits to developing countries. The review provides reassurance that the UK’s approach is relevant and credible, broadly reflecting the priorities of partner countries and the evidence on ‘what works’ in increasing trade and promoting economic growth.

Aid for Trade is an area of development assistance that helps countries expand their trade. Given the concentration of extreme poverty and the weak per capita growth in focus countries over the last decade, the establishment of high long-term export growth is a critical prerequisite for the achievement of broader development. To this end, the UK contributed over £638 million of funding over the period 2015 to 2021 to support developing countries to:

• reduce barriers to trade and promote trade facilitation
• increase their exports globally and promote the role of women in trade
• negotiate and implement trade agreements
• benefit from the multilateral trading system including at the World Trade Organisation (WTO)

As the review notes, global challenges have had an impact on our AfT work over the latter stages of the review period. These unprecedented pressures have seen increased competition for official development assistance (ODA) across the UK’s development priorities. The reduction in ODA has meant we have had to rigorously prioritise our AfT portfolio. We have based these decisions on research and evidence of what works and applied strong risk management approaches to minimise as far as possible the negative potential impacts identified in the review.

Despite these challenges, our portfolio has been able to demonstrate agility and responsiveness to the needs of the poor by evaluating and prioritising critical needs. The review cites our research and analysis support to assess the trade-related impacts of COVID-19, the action we took to contain its impact on supply chains and to maintain continuity of our technical assistance.

The government accepts all of the Commission’s recommendations. These cover issues that the government has already identified as requiring improvement and has made progress in addressing.

In addition to the five recommendations, we value the review’s reflections on other elements of our AfT, some of which have already influenced our future work plans. For example, we are learning lessons from our leadership on supporting women in trade to cover other excluded groups such as young people. We have also identified opportunities to support climate-friendly trade.

Our new HMG coordinated approach to delivering AfT, announced in the International Development Strategy, will be delivered through the creation of our Trade Centre of Expertise (CoE). This will bring about efficiency savings, improved impact on poverty reduction, better utilisation of global and British expertise (academia, research institutions, civil society) and strengthened international collaboration. We note the review’s endorsement of our Trade CoE and the potential it holds for achieving the types of improvements recommended by the review.

Response to recommendations

Recommendation 1

The UK government should develop and publish a set of detailed guiding principles for aid programmes to ensure that the pursuit of secondary benefits to the UK does not detract from its primary poverty reduction objective.

Response: accept

Poverty reduction must and will always be the primary purpose of ODA programmes (although identifying and delivering secondary benefits of ODA is legitimate). This is central to the UK meeting its development objectives and is required to meet our legislative obligations. We agree that existing guidance could be further strengthened to ensure that poverty reduction is at the forefront of considerations throughout ODA programme development and delivery.

We believe it will be more effective to strengthen the Business Case template and the associated FCDO Programme Operating Framework (PrOF) Guide to Business Cases, rather than creating a new set of guiding principles, given that mandatory PrOF Rules already reflect these requirements. FCDO teams are required to prioritise poverty reduction in all potential ODA programme delivery options. Changes to guidance will emphasise that secondary benefits, including through Aid for Trade programmes, must only be sought if decision makers are assured that poverty reduction will remain the programme’s primary purpose. The revised guidance will be published.

Recommendation 2

FCDO should increase its focus on the international institutions underpinning the rules-based trading system to improve the alignment of the aid for trade portfolio with the UK’s commitment to the rules-based international system.

Response: accept

The Foreign Secretary’s speech at Chatham House on 29 June 2023 underlined the UK’s commitment to an effective WTO at the centre of the multilateral trading system, whilst recognising the need for it to respond to future global challenges such as climate change and the increasing digitalisation of global trade. We will play a lead role in arguing for reform of the WTO in the run up to the 13th WTO Ministerial Conference in February 2024. Central to this is ensuring it is an accessible organization that works for all members, and supporting the integration of developing countries – which make up two thirds of the membership – and particularly the 43 Least Developed Countries (LDCs) that are either members or acceding, to maximise the benefits to them from global trade.

The UK’s Development Minister has been appointed Governor to the 5 major trade-financing multilateral development banks, including the World Bank and the African Development Bank.

The UK remains one of the leading donors to the multilateral system and is committed to maintaining our influence with these partners through our Aid for Trade portfolio. Over the period of the review, we have provided significant Aid for Trade: supporting developing countries’ WTO accession negotiations and their access to the trade dispute settlement mechanisms among other things. The UK is also a key supporter of the Enhanced Integrated Framework (EIF), the only multilateral partnership dedicated exclusively to assisting LDCs’ use of trade as an engine for sustainable development. The UK has been the biggest donor to the current phase of the EIF and is currently acting as donor coordinator and Board member to help to design and leverage new funding for the next phase of the programme.

One of the four pillars of our new Trade CoE will be dedicated to maximising the impact of our engagement with multilateral organisations, reflecting the importance we attach to this work.

We will continue to aim for a portfolio that includes both bilateral and multilateral programming. Future decisions on the relative balance between multilateral and bilateral spend within the AfT programme portfolio will depend on a range of considerations, including strategic alignment with HMG’s AfT priorities, ensuring greatest impact and value for money, and affordability.

Recommendation 3

The UK should ensure that future aid for trade programmes are based on clear theories of change linking them to poverty reduction and impacts on the poor, and that the links and assumptions are tested through research, monitoring and evaluation.

Response: accept

All ODA programmes are required to produce a Theory of Change (ToC) which provides a narrative of how programme activities will deliver outcomes and longer-term impact. The ToC is based on a problem statement informed by research and evidence and is regularly (at least annually) reviewed and updated to keep pace with broader contextual changes.

Whilst the report recognises that benefits further along the results chain are hard to measure and attribute to UK interventions, the government remains committed to improving its approach to monitoring, reporting, and evaluating ODA programmes. The forthcoming launch of the Trade CoE will enable the government to work more closely with civil society, academia, and research centres which will help us to test the links and assumptions on how our programmes are reducing poverty and benefitting the poor.

The FCDO commissions policy-relevant research and evidence syntheses related to the role of trade in driving inclusive growth and will continue to ensure that this evidence is shared widely and used in programme design. The creation of a dedicated Monitoring and Evaluation role in the Trade CoE will ensure closer collaboration with the FCDO’s Research and Evidence Directorate to strengthen this process.

Recommendation 4

The UK government should improve coordination and collaboration between programmes that have the potential to complement each other to achieve greater impact and value for money.

Response: accept

The UK Government delivers ODA programming at global, regional, and country level. The FCDO’s internal PrOF sets out a best practice approach to ensure programmes are coherent and ‘greater than the sum of their parts.’  The PrOF was endorsed by ICAI in its Rapid Review earlier this year.

The FCDO merger has provided a platform for a more consistent and joined up approach to programme delivery. The Trade for Development (TFD) Department was established as the FCDO/Department for Business and Trade joint unit responsible for ensuring coherence across the UK’s Aid for Trade. TFD will run the Trade CoE, ensuring it becomes a ‘one stop shop’ for channelling technical expertise, learning and policy advice from the FCDO centre to British Embassies and High Commissions overseas, multilateral and bilateral partners and local stakeholders. The governance of the CoE – through a cross-HMG Steering Board - will improve coordination. As noted above, the CoE will also have dedicated monitoring and evaluation resource to strengthen learning across our programmes.

Recommendation 5

The UK government should inform its partners in a timely and transparent manner when its budgets increase or reduce significantly, and the pace of change should allow partners sufficient time to adjust.

Response: accept

Delivery partners are critical to achieving the FCDO’s development objectives, including in Aid for Trade programmes. While we agree with the principle of this recommendation, there are times when for wider fiscal reasons the FCDO can offer delivery partners only limited notice of budgetary changes.

The FCDO’s ODA budgets take account of financial commitments across all the FCDO’s programme portfolio. FCDO programme teams work closely with their delivery partners to ensure that annual workplans can be delivered within their agreed budgets, and to consider any changes that might be needed. The PrOF guidance on early closure of programmes sets out expectations on responsible closure, including engaging partners as early as possible and working closely with them to manage risk and minimise any negative impact on outcomes and value for money.

The government recognises the particular challenges faced by our partners due to the changing ODA landscape. In 2021 the ODA budget was reduced to 0.5% of GNI until the fiscal situation allowed a return to 0.7% GNI. In 2022 to 2023, the FCDO’s overall ODA budget was reduced in-year in the context of significant and unexpected ODA-eligible costs incurred to support the people of Ukraine and Afghanistan find refuge in the UK, and others seeking asylum. Difficult decisions needed to be made about how to revise the FCDO’s programme portfolio to achieve the required savings. These decisions were communicated to partners as quickly and transparently as possible and changes to programmes were made in line with the terms of FCDO agreements, which are designed to be flexible to changing contexts.

The FCDO will continue this close working relationship with partners worldwide, including considering any lessons that can be learned from the process of recent ODA reductions. In line with the PrOF, we always want to make sure that partners are informed as early as possible when budgets change so they can adjust. The FCDO has now set two year budget allocations up to 2024 to 2025 across the department. While these remain subject to change, having forward allocations in place allows timely communication and planning with partners. However, 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.