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Less Aid Money, Less Influence: Brexit’s Likely Hit To The UK’s Development Role

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Friday, July 8th, 2016
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The fall in value of the pound has wiped £1bn off the UK’s annual aid budget. Photograph: Rajat Gupta/EPA
The fall in value of the pound has wiped £1bn off the UK’s annual aid budget.
Photograph: Rajat Gupta/EPA

Despite the many imponderables transfixing domestic politics, it already seems clear that Brexit will have a mainly detrimental effect on Britain’s international role, certainly in the short term. The UK is likely to have less aid money and less influence, while the success of the leave campaign could also signal a more inward-looking agenda.

The devil will be in the detail of whatever deal is eventually brokered with the EU. But as far as aid money goes, damage has already been done.

Currency traders have hammered sterling: the pound dropped 10% after the vote, wiping £1bn off the UK’s nearly £12bn annual aid budget. Many analysts believe sterling’s downward trend will continue. Currency weakness has an immediate effect on Britian’s prospects for growth, and on the value of the UK’s commitment to spend 0.7% of its gross national income on aid.

“If the UK loses one percentage point a year in growth, which is roughly in line with most of the forecasts, that does have implications for the value of the 0.7% commitment, which will in turn have a knock-on effect for financing for the SDGs [sustainable development goals],” said Kevin Watkins, executive director of the Overseas Development Institute. “If you factor in the likely devaluation of sterling against the dollar, the real value of UK transfers to the World Bank and global health funds, such as Gavi [the Global Alliance for Vaccines and Immunisation] and the Global Fund, could fall over time.”

So even without any change in policy – which could also conceivably be on the cards – the aid budget will take a financial hit, not to mention the economic fallout for Britain’s trading partners from any decline in bilateral trade.

Among the countries that could feel the pinch most are Ethiopia – the largest country recipient of UK bilateral official development assistance in 2014 – India, Pakistan and Sierra Leone. The UK is also the second largest bilateral donor to the Syria crisis, according to 2014 figures.

If a new government is elected in the coming months, there is some concern about whether the 0.7% commitment is sufficiently ringfenced, especially if a post-Brexit economic slump piles more pressure on public finances.

The international development secretary, Justine Greening, reiterated the government’s commitment to the target in parliament five days after the vote, saying: “We legislated for it, and we stand by that.” Asked what effect Brexit would have on the €2bn euros of UK aid that is channelled through the EU, she said: “Part of our work has been through the European Development Fund, so work is now under way to understand where the end point of Brexit is and, critically, the transition plan in the meantime. That work is under way, but I emphasise that overwhelmingly our work is not through the EDF, and that, of course, is unaffected.”

The UK makes up nearly 15% – around $585m (£454m) – of contributions to the EDF, which is one of the world’s largest providers of multilateral concessional aid.

The first signs of the Department for International Development’s immediate priorities may come in the outcomes of the bilateral and multilateral spending reviews, which Greening told parliament should be released “in the early summer”.

An EU spokesperson said it was too early to speculate on how Brexit would affect Britain’s role in the international aid community. “That will be addressed in due course, once negotiations with the UK begin on its withdrawal agreement as well as on the agreement concerning its future relationship with the EU. For the time being, nothing changes.”

Some in the aid community would disagree. Writing for the Huffington Post, Toby Porter, CEO of HelpAge International, said many UK-registered charities would no longer be able to apply for the majority of the funding they received from the EU. While bigger organisations might be able to work around this, using their non-UK European members, smaller charities would suffer – but so would the EU.

Aside from questions of the size of Britain’s aid budget and where it will go, Brexit has also placed a question mark over the UK’s global influence. “The opportunities for the UK to position itself as a leader will be more constrained so it would take greater effort to do the same amount of lifting,” said Andrew Norton, director of the International Institute for Environment and Development, adding that lengthy Brexit talks would also be likely to devour government resources and bandwidth for other issues.

Watkins says the deeper risk is that British politics becomes more inward-looking, with some politicians interpreting the leave vote as a sign that the UK should be less engaged with the international community as a whole. “On the other side of the equation, there is an awareness, certainly on the part of some of the candidates in the Conservative leadership race, that many of the most pressing challenges the UK is facing – whether you are talking about security, or climate change, or migration – can’t be credibly addressed on an inward-looking, Little England basis … the idea that you can tackle the issues posed by the collapse of Syria and mass displacement without other European and global donors is fanciful,” he said.

“It is surely not beyond the ingenuity of Brussels and DfID and the FCO [Foreign Office] to come up with mechanisms through which the UK can support initiatives that are in the national interest and in the European interest,” he added, citing peace-building initiatives in Mali and the Sahel and anti-piracy action off the coast of Somalia.

Britain’s leadership role in tackling climate change may also be threatened, with implications for last year’s landmark Paris climate change agreement.

“There is again the concern about focus and bandwidth,” said Norton. “There is also a degree of disruption to the European arrangements. Obviously, the INDC [Intended Nationally Determined Contributions] that was submitted was a Europe-wide one so there is a need to disaggregate that and pull the UK out,” he said. “There is no reason in principle [why] the UK could not continue to be a leader on climate, and we would very strongly urge the UK to do that, but I think it’s going to take a while to see how it falls out.”

For Watkins, the question of Britain’s future role in international development relates closely to how the country now views itself. “The dust is still settling on the referendum and the danger … is it will settle in a way that leaves us as a more inward-looking country and actually this isn’t necessarily a vote for weaker engagement with Europe or for a withdrawal from thinking about Britain’s place in the world and how we manage our interdependence. If it were to take that slant, it would be absolutely disastrous for security, trade and the economy, and for our role as an international leader in development – but it doesn’t have to go that way.”

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