A first look at UK-Developing country financial flows

Development Monitor has published bilateral financial flows between the UK and developing countries, but what can the data tell us?

To give a flavour of the insights on offer I had an initial look at five developing countries: Pakistan, Ethiopia, Nigeria, Sierra Leone and South Sudan. These countries were the UK’s largest recipients of bilateral Official Development Assistance (ODA) in 2015, receiving a total £1.4bn. First, there are a few things to remember about the data:

  • Remittance figures are World Bank estimates. The World Bank estimates bilateral remittances by allocating remittances received by each developing country among the countries of destination of its migrant nationals, weighted by various factors including number of migrants and incomes (the World Bank provides its full methodology here). Official UK figures relating to remittances are not split out by destination country.
  • Foreign Direct Investment (FDI) data is incomplete. Prior to 2013, UK FDI figures covered a very limited number of developing countries. For 2013-2015, ONS has produced more comprehensive FDI datasets. However, these are still incomplete because ONS considers that releasing the data for many countries would be ‘disclosive’, i.e. the data could be identified with an individual business.  According to ONS, fixing this in future releases would require them to change the sample size for the business survey on which the FDI data is based. In addition, it is helpful to see these FDI flows in the context of FDI positions, for example the stock of UK direct investments in Pakistan. Data on FDI positions will be included in a future update of Development Monitor’s data dashboard.
  • Take care when comparing different types of flows.  Some flows are transfers – for example remittances and (some kinds of) ODA, whilst others are commercial and associated with a corresponding transfer of resources – for example traded goods or, in the case of FDI, acquisition of equity in a foreign subsidiary.

All the flows we report and data sources used are explained here.


Remittances and trade dominate

The two biggest financial flows from the UK to Pakistan (for which data is available and published on Development Monitor) have consistently been  payments for UK imports from Pakistan and remittances.

The value of goods imported by the UK from Pakistan was around twice the value of UK exports to Pakistan in 2015 (£1069m versus £516m). The size of this difference has increased as UK imports from Pakistan have grown faster than UK exports to Pakistan. Although not yet published on Development Monitor, trade in services between the UK and Pakistan is also significant.

Remittances fell twice as much as aid increased in 2013

From 2010 to 2015, with the exception of 2013, estimated remittances were around three times as large as bilateral ODA. The estimated £309m (32%) drop in remittances in 2013 was more than twice the £149m (79%) increase in bilateral aid spending in the same year.


Aid is important, but trade is increasing

Bilateral ODA is the biggest financial flow (for which data is published on Development Monitor) from the UK to Ethiopia, and has been around £300m since 2010. Remittances are very low in comparison, only reaching £11m in 2015.

UK imports from Ethiopia increased significantly in 2015 to £147m, more than double what they were in 2010 (£61m), but the UK still exports more to Ethiopia than it imports.  At the moment, there are no official figures available for UK FDI into Ethiopia.


Remittances are far larger than aid flows

Nigeria is the third largest recipient of UK bilateral ODA (£263m in 2015). However, ODA flows are small compared to remittances from the UK to Nigeria, which are consistently around ten times higher, for example £2.5bn in 2015.

UK imports from Nigeria fell by £2.5bn between 2012 and 2015

The value of goods imported by the UK from Nigeria has varied significantly over the last five years. Imports peaked in 2012 at £4bn and then fell £2.5bn (158%) over 3 years to £1.5bn in 2015. Over the same time, UK exports to Nigeria declined gradually from £1.6bn in 2012 to £1.1bn in 2015. FDI flows into Nigeria from the UK have increased significantly from a disinvestment of £875m in 2013, to an investment inflow of over £3bn in 2015.

In addition, illicit financial flows from Nigeria to the UK could be very large and outweigh all other flows, although these are clearly challenging to estimate with any accuracy.

Sierra Leone:

Mainly aid

Like Ethiopia, the largest financial inflow (for which data is available and published on Development Monitor) to Sierra Leone from the UK is bilateral ODA, which increased significantly after 2013 (£70m) to over £200m in 2014 and 2015. Remittances and the value of UK imports from Sierra Leone were much lower, consistently less than £15m each.

Trade mostly involves the UK exporting to Sierra Leone

The UK imports very little from Sierra Leone, with the value of imports dropping to just £1m in 2015, from ‘highs’ of £14m in 2011 and 2013. The value of goods exported from the UK to Sierra Leone fell by over 50% from 2013 to 2015, nonetheless over the years 2011-2013 the value of these exports matched or exceeded the value of bilateral ODA.

At the moment, there are no official figures available for UK FDI into Sierra Leone.

South Sudan:

Nearly entirely aid

Bilateral ODA flows quadrupled over the period 2011-2015, increasing from £52m to £208m. There is little or no recorded trade between the UK and South Sudan and zero remittances according to World Bank estimates. There are no official figures available for UK FDI into South Sudan.