DfID gets a red light on aid for trade: how will it respond?

Oxfam aid wonk Nicola McIvor explores a highly critical report on one of DfID’s flagship programmesnicola mcivor2

The problem with being committed to independent evaluation and transparency is that you risk being beaten up in public when things go wrong. Oxfam is accustomed to having our own evaluations quoted against us, which is exactly what happened to DFID last week, when the UK’s aid watchdog, the Independent Commission for Aid Impact (ICAI), gave its first overall ‘red’ traffic light rating to DfID’s Trade Development Work in Southern Africa.

The programme was intended to improve Southern Africa’s trade performance and competitiveness, but was marked red because ICAI uncovered serious “deficiencies in governance, financial management, procurement, value for money and transparency of spending” in TradeMark Southern Africa (TMSA).

The findings in the report are damning:

  • The programme merely assumes that it will benefit the poor, but has not linked programme activities to poor people, nor has it mitigated negative impacts, such as increasing food price volatility and unemployment in certain sectors.
  • TMSA misreports its performance and DfID does not check those reports properly e.g. TMSA’s summary management report claims that 83% of targets have been met, whereas ICAI looked at detailed project reports and found it met only 21%;
  • £67 million of TMSA’s budget was placed in a trust account to attract private finance for the North-South Corridor but has not been spent nor attracted additional funds;
  • Excessively high salaries for TMSA staff, with senior TMSA managers receiving higher salaries than UN directors and the Head of TMSA trousering well over £200k per annum;
  • A private company is managing a £30.6 million DfID programme without any formal contract with either the Common Market for Eastern and Southern Africa (COMESA) or DfID;
  • TMSA will have made little impact on trade when DfID’s funding ends in 2014.

tmsa_logoAid sceptics will be quick to seize this as an example of ‘corruption’ or ‘waste’, but if aid is to be well-spent this type of transparency is vital and we can’t be reticent about recognising and responding to failure. The more interesting questions arising are: how did the Secretary of State for International Development and DfID respond, and what are the implications for DfID’s future aid for trade?

So how did Justine Greening and DfID deal with this?

The ICAI team were so concerned with what they saw that they alerted DfID back in May shortly after their fieldwork. DfID not only verified a number of ICAI’s concerns but also discovered payments amounting to £80,000 made to the Government of Zimbabwe – in contravention of UK Government policy. Ahead of the publication of ICAI’s report, Secretary of State Justine Greening announced the closure of TMSA.

Greening and DfID’s Permanent Secretary Mark Lowcock were called to give an account of DfID’s actions before The International Development Select Committee. This gave Greening the opportunity to talk about something she has often joked that she does best…auditing. Greening highlighted how this Government has strengthened DfID’s programme and financial management procedures, and has placed a strong emphasis on value for money.

Greening and Lowcock were adamant that TMSA was a case of ‘mismanagement’ as opposed to ‘corruption’ or ‘fraud’, but the case raises much deeper questions about DFID’s approach to aid. Greening had little to say on one of the key points highlighted in ICAI’s report that “neither DfID nor TMSA is doing enough to understand the potential positive impacts or to mitigate against the potential negative impacts on the poor”. Yet the 2002 Development Act clearly states that development assistance must contribute to poverty reduction.

What are the implications for DfID’s aid for trade?

This Government has made trade central to the UK’s approach to development arguing that “trade is the most important driver of growth” and thataid for unfair tradegrowth will lead to more jobs, higher incomes and a stronger tax base – essential for poverty reduction and ending aid dependency. However, it is clear that in this case, unjustified assumptions were made about how the benefits of trade integration would trickle down and negative impacts were not considered. This tells a cautionary tale about the relentless pursuit of growth and confirms that not all investment is good investment.

With trade high on DfID’s agenda how will the findings from the TMSA case influence future trade programmes and the aid for trade agenda? What steps will DfID take to more seriously consider impacts on the poor rather than merely assuming such benefits will accrue?

Greening recently visited Tanzania with a high-level business delegation and announced a new fund to improve trade competitiveness in East Africa, as part of TradeMark East Africa (TMEA) – an initiative that has received a lot of praise. The report notes that TMEA is structured differently to TMSA, enabling it to be more independent and not donor driven, but how will DfID ensure that this time really is different? What steps has it taken to analyse the impact of this initiative on the poor from the outset and throughout implementation? What analysis has DfID done on the use of trade and poverty linkages to improve learning and make sure that other programmes don’t make the same mistakes?

It is also concerning that £67 million of UK aid has been sitting in a trust fund instead of being used to deliver real results for the poor. This use of trust funds has become increasingly common in development among a range of actors including UN agencies, bilateral donors like DfID and development banks such as the European Investment Bank and the World Bank. Despite DfID’s leadership in aid transparency, it is not clear from DfID’s website how much UK taxpayers’ money is currently in trust funds.

Finally, this is not the first time that ICAI has voiced concern over DfID’s management and capacity for oversight. ICAI’s report on DfID’s use of contractors also flagged problems with DfID’s management of programmes’ lifecycles, DfID staff turnover and ability to capture learning. Whilst there are of course pros and cons for a more arms length approach, the key to a successful programme is ensuring a focus on what impact it will have on the poorest and taking action to mitigate any negative impact. ICAI recommend that as a prerequisite of any future trade development programme, DfID should undertake comprehensive analysis of the impact on poor people.

This story has, in many ways, shown the system working as it should: ICAI is proving its value; the Development Select Committee quickly supported ICAI; and the initial response from DfID has been swift, decisive and open. But DfID must now address the wider questions this report raises.

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7 Responses to “DfID gets a red light on aid for trade: how will it respond?”
  1. There is a more general problem that most DFID and EC Aid for Trade is not assessed against its poverty impact – see the Traidcraft/CAFOD report “Aid for Trade: Reviewing EC and DFID Monitoring and Evaluation Practices”, at http://bit.ly/TqT5vL . ICAI is now doing a more general review of DFID’s approach to the private sector, and it will be interesting to see whether the same concern emerges.

  2. It really does feel like the ‘trickle down’ theory is coming back in full force but this time applied to aid to the private sector rather than just to economic approaches. It certainly seems to be the case with the growing amounts of aid channelled to private health care actors too.

    Assumptions that aid to the private sector benefit poor people are not good enough. Programmes need to be designed from the outset with a poverty and equity focus. Failure to even monitor for poverty impact are entirely at odds with the ‘value for money’ and transparency agenda.

  3. Matti Kohonen

    Also the use of trust accounts is runs against previous commitment made at the G8 summit in Lough Erne this year, the point 3:

    “Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.”

    So the use of trusts is inconsistent with the G8 commitment, and opaque structures have absolutely no place in developmetn co-operation as the ultimate beneficial owners are not known (settlor, trustees, beneficiaries). They have no place in deelopmetn co-operation, and are mainly vehicles for tax evasion globally.

    If money is used for supporting the private sector actors the poverty reduction impact must be measured and be positive, and they structures must be fully transparent.

  4. gawain

    I’ve always been skeptical of the “aid for trade” channel of ODA. It always felt like denial in the form of aid, or worse, hush money: Since many economic modeling excercises actually show results that increased trade liberalization actually produces negative benefits for the poorest countries.

    The thesis that trade is good has never held up. Trade can be good. Trade has been good. But even when good, trade produces winners and losers. The same models show that the winners are the most competitive firms and producers. The channel by which poor people become these competitive firms and producers was always very mysterious.

    It’s great that some of this mountain of assumptions and hope may be excavated and leveled. There’s certainly some “aid for trade” that is worthy and can deliver on poverty and development goals. But the field needs a lot more scrutiny to have any confidence and deserve these levels of attention and investment.

  5. William Finseth

    Aid for Trade is not a bad concept but in the hands of people who do not understand economic development, trade and investment in the context of the specific needs of the Southern African region it can be a huge waste of money. The fact is that the 67 million Pounds Sterling is money that could be put to great use to build a durable North-South transport corridor running from Johannesburg South Africa, north up through the heart of the African continent, with perpendicular feeder transportation branches connecting with countries on either side of the north-south corridor. The fact that the TMSA was cancelled was a lost opportunity to do something great for Southern Africa which has been the dream of all of the COMESA and SADC member countries. I assumed the reason that it failed was because of poor leadership at the head of the TMSA. The should not have cancelled the TMSA. Greening should have found a competent leader who knew how to make things happen in the region. And truth is, if the North-South Southern African corridor had been built it would have dramatically improved regional trade and been a benefit to all countries in the region.

    One fails to understand that the building of a North-South Transport Corridor could have been linked up with a new transportation linked that would have seen the creation of a new, multimodal sea-port at Walvis Bay, which would have been connected overland with an existing railway in Botswana. This would have established a new transport hub in Gabarone, Botswana that would have dramatically opened up trade development in the region because a port at Walvis Bay, Namibia would have dramatically reduced transport times and costs for all goods coming from all trading partners in North America, Europe, Latin and South America as well as North West Africa plus it would reduce time and cost for export sales from the northern regions of Southern Africa. This represents a huge savings where importers and exporters are shipping most goods through the Port of Durban, South Africa. Whoever is heading DFID’s Southern Africa Development Program should be sacked. They should have clearly understood the importance of developing this initiative. It represents the cornerstone of the future for Southern Africa. The bottom-line is that it would have had a significant impact on reducing poverty in the region.

  6. Cornelius Chipoma

    TMSA is a good example of what I like to call lazy development. From design to implementation and monitoring, people were not just doing their jobs. No project design should go forward without an outcome result. Outcomes keep us honest and accountable.

  7. Andrew Rowell

    Thanks for this – VERY relevant to the aid landscape in Australia where our incoming government has revealed very few policy directions for aid so far, apart from major cuts, reabsorption of the aid agency into the Department of Foreign Affairs and Trade, and an “aid for trade” orientation. It will be interesting to see how this last rolls out, and the experience of DFID in this sphere may be informative and influential!

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