What could DFID tell us about the UK’s impact on developing countries beyond aid spending?

DFID’s Annual Report sets out what it has achieved over the year, providing statistics on everything from the number of people reached with humanitarian assistance, lives saved through immunisation and people supported to access clean water. But the UK has a much wider impact on developing countries than its aid spending, and is committed to a range of other policies that affect those countries.

Under the International Development (Reporting and Transparency) Act 2006) DFID needs to report the effect of these policies. It should report the ‘“effects of policies… pursued by government departments on sustainable development … and reduction of poverty”. Whatever the policy priorities of a new government, reporting this information is important to support coherent policy making. DFID’s annual reports do provide some information but could tell us more about the progress being made on policies beyond aid.

Four policies which could be worth billions of pounds to developing countries

To illustrate what DFID’s report could say more about, consider the impact of policies beyond aid spending on one country, Nigeria.

Nigeria is Africa’s biggest country by population and its second largest economy. Despite significant natural resources, about 94 million people – roughly half Nigeria’s population – live in extreme poverty, according to estimates from the World Data Lab’s Poverty ClockDFID recognises that Nigeria faces a number of challenges to its future growth and development and says that the UK is focused on helping Nigeria overcome its challenges. 

The examples below illustrate the relevance of policies beyond aid spending for Nigeria:

  • Anti-money laundering. Over $800 million of Nigerian government funds were transferred by JP Morgan from a London account to a company controlled by a former Nigerian oil minister convicted of money laundering.
  • Stolen asset recovery. Nigeria’s anti-corruption chief has said they suspect at least $37bn (£25.6bn) in stolen money from Nigeria was routed through London during 2014-2015.
  • Promoting responsible environmental management by UK based multinationals. Oil spills in the Niger Delta by the Nigerian subsidiary of UK-list Shell have had a disastrous environmental impact, with clean-up costs of at least $1bn, according a UN report.
  • Reducing migrant remittance costs. Reducing the average cost of sending remittances from the UK to Nigeria, to the SDG target of 3% could save nearly £100m a year.

These examples suggests that, in total, implementation of effective policies (beyond aid spending) could be worth many billions of pounds to developing countries.

Anti-money laundering 

DFID’s report sets out the actions it is taking to deliver its UK Anti-Corruption Strategy 2017 commitments, including “supporting the National Crime Agency (NCA) and Crown Prosecution Service to reduce incentives for corrupt individuals in developing countries to use the UK to launder money or for UK business and UK nationals to use bribes in developing countries.” 

Why UK policies are important for Nigeria

In its country profile on Nigeria, DFID recognises that the Nigerian government struggles with corruption and says it will support it in tackling corruption.

Corrupt money is sometimes laundered via the UK, so one way the UK can help tackle corruption is in ensuring it has an effective anti-money laundering regime.

For example, documents filed in a major corruption case show that JP Morgan Chase Bank transferred over $800 million of Nigerian government funds from a London account to a company controlled by a former Nigerian oil minister who had been convicted of money laundering. The bank says that it ‘received consent’ from the Serious Organised Crime Agency (SOCA, now part of NCA) before making the payments.

What more could DFID’s report tell us

The transfers in the above case were made in 2011 and 2013. Then in 2017 the Government committed to reform the Suspicious Activity Reports (SARs) regime, which banks and other organisations use to alert the NCA of potential cases of money laundering. A group of anti-corruption NGOs have called for greater transparency and accountability on the impact of modifications to the SARs regime.  

So, as well as telling us that DFID is supporting the National Crime Agency (NCA) and Crown Prosecution Service, the report could also tell us what progress has been made in improving the UK’s anti money laundering regime and reducing incentives for corrupt individuals in developing countries to use the UK to launder money. 

Stolen asset recovery 

In relation to assets stolen from developing countries, DFID says “From 2006 to the end of 2018, £783.2 million of assets were restrained, confiscated or returned to developing countries, including £57.3 million returned to the Government of Nigeria through our support”.

Why UK policies are important for Nigeria

At the 2016 anti-corruption corruption conference hosted in London, Nigeria’s president called for the return of assetswhich had been taken out of Nigeria via London. His anti-corruption chief said they suspected at least $37bn (£25.6bn) in stolen money from Nigeria was routed through London during 2014-2015.  Following the summit, in September 2016, the UK signed an agreement with Nigeria on returning stolen criminal assets to Nigeria.

The World Bank’s Stolen Asset recovery initiative estimated in 2007 that developing countries lose between $20 billion and $40 billion each year to bribery, embezzlement, and other corrupt practices.

What more could DFID’s report tell us

The figures quoted by DFID are total values for a 12 year period. The report could tell us what has been achieved over the last year and how significant these amounts are compared to estimates of the overall level of stolen criminal assets from developing countries. For example, it could clarify how much has been returned to Nigeria since the September 2016 agreement on asset recovery. 

A number of anti-corruption NGOs called for improved transparency and accountability in the asset recovery process in their 2018 report on UK compliance with the UN Convention against Corruption. The UK co-hosted Global Forum on Asset Recovery (GFAR) has established principles on transparency and accountability in asset return process, including that ‘information on the transfer and administration of returned assets should be made public and be available to the people in both the transferring and receiving country.’

Data on asset recovery cases is available on the Stolen Asset Recovery Initiative database. As at November 2019, the most recent UK asset recovery on this database was started in 2014.

Promoting responsible environmental management by UK based multinationals

DFID’s report tells us about many environmental programmes that the government invested in to mitigate and adapt to climate change and prevent environmental degradation. 

For example, DFID and Defra pledged up to £250 million to the Global Environment Facility (GEF), a mechanism for developing countries to address environmental challenges such as biodiversity loss, land degradation, international waters and chemicals and waste. 

Why UK policies are important for Nigeria

Oil spills by the Nigerian subsidiary of UK-listed Shell have had a disastrous environmental impact on the Niger Delta, according a United Nations report. The UN estimated that cleaning up the area will cost at least $1bn and take up to 30 years.  Shell’s subsidiary, which produces 39% of the country’s oilhas accepted that oil spills in 2008 resulted from the failure of old and poorly maintained pipelines. Other spills continue which Shell says are mostly caused by sabotage. Communities affected by oil spills have for years sought legal redress in UK courts. One community received an out of court settlement of £55m in 2015. Shell has sought to block another claim.

What more could DFID’s report tell us

DFID’s report could tell us about the effect of current policies towards companies listed and headquartered in the UK whose operations risk impacting the environment in developing countries.

For example, the report could tell us about the effectiveness of the UK’s ‘National Contact Point’ for the OECD’s guidelines for multinational enterprises. This aims to raise awareness of voluntary guidelines for responsible business conduct, which include environmental and human rights issues. Complaints can be lodged against businesses for breaching the guidelines and investigated by a ‘national contact point’ within the Department for International Trade, which can result in non-binding recommendations for the company.

The effectiveness of voluntary guidelines has been challenged by a group of civil society organisations who are calling for a law requiring UK companies to take action to prevent environmental harm, human rights and other abuses in their global operations and supply chains.

Reducing migrant remittance costs 

Remittances from migrants in the UK to Africa have been conservatively estimated at £4.1 billion in 2015, similar to the value of UK aid to Africa. However, the high costs of sending money to developing countries remains a challenge and the UK has committed to reduce the cost of sending remittances. The Sustainable Development Goals (SDGs) have a target (10c) to the reduce transaction costs for migrant remittances to less than 3% by 2030 and to eliminate remittance corridors with costs higher than 5%. As at September 2019, the global average for remittance costs is around 7%.

DFID last provided an update on remittance costs in its 2016/17 annual report. That report stated the UK’s commitment to reduce costs and actions taken during the year, although it did not provide information on the level of remittance costs between the UK and developing countries. DFID’s 2018/19 annual report did not provide information on remittance transaction costs.

Why UK policies are important for Nigeria

World Bank estimates show that Nigeria was the biggest destination for UK remittances, worth around £2.9bn in 2018, and ten times larger than UK bilateral aid to Nigeria (£297m). The UK was the second largest source of remittances to Nigeria, after the USA. In 2018, the average cost of sending remittances from the UK to Nigeria was 6.3%, so reducing costs to the SDG target of 3% could save around £95m a year.

What more could DFID’s report tell us

The report could provide an update on implementation of The UK National Remittance Plan and the impact of this, specifically changes in the cost of sending remittances form the UK to developing countries, including major destinations like Nigeria.

DFID has provided funding for the World Bank’s Remittance Prices Worldwide database to include additional UK remittance corridors, and data from this could be used to show what progress is being made on reducing remittance costs. 

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What are the biggest reported flows between the UK and developing countries?

Development Monitor has crunched public data on trade, aid, remittances and investment to investigate which developing countries send and receive the most from the UK.  

Here is a taste of what our new dashboard can tell us about the UK’s interactions with low-income countries in 2017.

The World Bank classified 34 countries as ‘low-income’ in 2017.[i]  They are around 50 times poorer than the UK, with per capita incomes averaging around £1.60 per day in 2017. [ii] Many low-income countries are in sub Saharan Africa but also include Afghanistan, Nepal and Yemen.

For these low-income countries:

  • Their biggest reported outflows to the UK are payments for UK services. Seven low income countries spend 1-2% of their GDP on services from the UK, such as management consulting, financial services, engineering services. They are: Zimbabwe, Sierra Leone, Afghanistan, Liberia, Senegal, Mozambique, The Gambia. As noted in our earlier article, these payments are sometimes worth much more than the bilateral aid they receive from the UK, e.g. Zimbabwe (£279m versus £93m), Senegal (£160m v £1.4m).
  • Remittances are more significant than aid for some countries. UK remittances are estimated to be a bigger inflow than UK bilateral aid to Uganda (£289m v £140m), The Gambia (£28m v £15m) and Nepal (£111m v £100m). UK remittances to Uganda are estimated to be larger than bilateral aid flows to any low-income country other than Ethiopia.
  • Ethiopia has top spot (though it depends how you look at it). UK bilateral aid to Ethiopia was £326m, exports to the UK were worth £350m, bigger than other reported flows between the UK and low-income countries. Ethiopia was also the largest importer of goods from the UK (£220m). But Ethiopia is the biggest low-income country, by population and by GDP, so we get a different picture taking that into account. UK bilateral aid as a percentage of GDP is lower for Ethiopia (0.5%) than for many other low-income countries, for example UK bilateral aid to Somalia is worth 4.9% of its GDP.

Top reported financial flows between the UK and Low-income countries (2017)

Ranked by % of developing country GDP

Try out the dashboard to see all the data and investigate trends for other income groups, Least Developed Countries and Commonwealth countries.


[i] World Bank threshold for low income countries was $995 or less GNI per capita  (Atlas method) in 2017 https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups Comoros, Senegal and Zimbabwe were classified as low income in 2017, but moved to low-middle income in 2018.

[ii] Average GNI per capita in low income countries in 2017 was $752; UK $40,580 GNI per capita; Atlas method (current US$) https://data.worldbank.org/indicator/NY.GNP.PCAP.Cd?end=2017&start=2016  USD-GBP exchange rate in 2017 = 1.29 https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/

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World’s poorest countries spent £2.5 billion on UK services in 2017

Analysis by Development Monitor shows that the UK exported £2.5 billion of services – such as management consulting and financial services – to Least Developed Countries (LDCs) in 2017, up from £2.0 billion in 2016. The UN defines LDCs as low-income countries that face severe impediments to sustainable development. The UK also imported £0.7bn worth of services from these countries in 2017, unchanged from 2016.

The value of UK services provided to LDCs was almost as much as the UK’s bilateral, country-specific aid spending on those countries, which amounted to £2.6bn in 2017.

Several LDCs spent more on UK services in 2017 than they received in UK bilateral aid, including:

  • Afghanistan: UK service exports £241m, UK bilateral aid £227m
  • Bangladesh: UK service exports £352m, UK bilateral aid £176m
  • Mozambique: UK service exports £114m, UK bilateral aid £58m
  • Zambia: UK service exports £72m, UK bilateral aid £53m.

The Solomon Islands spent the highest proportion of its income on UK services, worth 4.74% of their GDP in 2017, and equivalent to around half their spending on education.

On average LDCs spent a greater proportion of their national income on UK services than richer developing countries. In 2017, imports of UK services exports were on average worth:

  • 0.31% of GDP for Least Developed Countries
  • 0.12% of GDP for Upper Middle Income countries (such as Brazil and China)

More trends and analysis can be found on Development Monitor’s financial flows dashboard.

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UK investment in Least Development Countries shows 30% fall

Data released by the Office for National Statistics, following a request from Development Monitor, shows that:

  • The UK’s outward Foreign Direct Investment (FDI) position in Least Development Countries (LDCs) fell 29.5% from 2014 to 2015
  • There was a net disinvestment of £2.7 billion by UK companies in those countries 2015
  • UK FDI in LDCs accounted for less than 1% of the UK’s total outward FDI position in 2015

Over the same period, the UK’s total outward FDI positions (in all countries) fell slightly (2.5%) from £1,078.7 billion in 2014 to £1,052.1 billion in 2015.

Find out more about the UK’s interactions with Least Developed Countries using our financial flows and trade dashboards.

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Explore UK trade relations with developing countries

Development Monitor has launched a new trade dashboard which explores the UK’s trade with developing countries and shows the importance of this trade for both the UK and people in developing countries.

The dashboard supports Development Monitor’s submission to the All-Party Parliamentary Group (APPG) Trade out of Poverty inquiry on Commonwealth countries and its submission to the International Trade Committee inquiry into trade with developing countries.

The dashboard helps to answer questions like:

  • Which developing countries are most dependent on the UK as an export market?
  • How important is trade with the UK for Commonwealth developing countries?
  • What are the top developing country markets for UK goods and services exports?
  • Do developing countries that have signed up to an Economic Partnership Agreement export more to the UK than those that haven’t?

If you find the dashboard useful, or have suggestions for new features, please get in contact.

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Even more information on UK interactions with developing countries

We are bringing more data sources to our data dashboard to give you an even richer view of interactions between the UK and developing countries. You can now get a preview of what we plan to offer, including:

  • A breakdown of trade by commodity type so that you can see what is driving changes in trade patterns, e.g. oil and minerals versus agricultural products or machinery (currently only for Nigeria in the preview).
  • An overview of the UK’s outward investment position in developing countries, split between direct investments in developing country companies (usually at least a 10% stake), equity investment (e.g. shares) and debt securities.
  • Investments made by CDC, the UK’s Development Finance Institution (DFI), whose aim is to provide capital to businesses and entrepreneurs in Africa and South Asia.
  • Activity of UK foreign affiliates – companies in developing countries that are ultimately controlled by a UK company – including their turnover and employment.
  • Payments by UK registered companies to developing countries for natural resources, with details on the company and payment type (e.g. taxes and royalties).
  • Licences for exports of arms and other controlled goods approved by the government’s Export Control Organisation.

This is just a demonstration so the data has not yet been verified or documented, and only offers a simple country by country view. But we plan to provide full documentation (as we do for our current dashboard) as well as new tools for analysis and interpretation.

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Upgraded tool available for analysing financial flows between the UK and developing countries

Our data dashboard has been upgraded to allow you to analyse trends in financial flows between the UK and groups of developing countries.

You can explore trends in financial flows for different regions – for example South Asia, Sub-Saharan Africa; different income levels – for example all low income countries; or other categories such as Least Developed Countries, or the top 20 recipients of UK aid.

This means you can easily answer questions such as what are the trends in financial flows between the UK and Sub-Saharan Africa? 

 

If you then want to explore UK imports from Sub-Saharan Africa in more detail, Development Monitor can immediately show how imports have varied by country over the last few years and map out imports for a year of choice.

Alternatively you can answer quickly questions about trends in flows between the UK and different categories of countries, such as what are the trends in remittances from the UK to the Least Developed Countries?

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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.

Pakistan:

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.

Ethiopia:

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.

Nigeria:

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.

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Development Monitor launches financial flows dashboard

Development Monitor has launched the initial version of its dashboard showing financials flows between the UK and developing countries. The dashboard is the first step in Development Monitor’s work to monitor interactions between the UK and developing countries, with the aim of improving accountability for policies (beyond aid spending) that affect developing countries.

The initial version includes bilateral flows for remittances, Official Development Assistance (ODA), trade in goods and Foreign Direct Investment, with trends shown over the five years 2010-2015.  The data currently covers all developing countries classed as low income and lower middle income by the World Bank.

The dashboard is currently being developed and tested so please contact(Replace this parenthesis with the @ sign)developmentmonitor.org.uk with your feedback and suggestions. Over the coming weeks and months we will be introducing new ways to explore the data, adding more datasets (such as investment positions, CDC investments flows and payments for natural resources), as well as looking at what the data can tell us.

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