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

December 17, 2013

     By Duncan Green     

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.

December 17, 2013
Duncan Green