UK must do more to ensure aid for trade lifts people out of poverty

6 Jun 2023

• Review from the Independent Commission for Aid Impact (ICAI) examines the UK’s aid for trade in developing countries 
• It finds that while many objectives are being met, there is not enough focus on ensuring aid for trade benefits the poor 
• It also highlights risks that the pursuit of direct benefits to the UK may compromise the focus on poverty reduction  

The UK needs to do more to ensure its support for trade in developing countries benefits the poor, a report from the aid watchdog finds today. 

ICAI notes that trade is a major driver of economic growth. However, the poorest countries account for just 1% of global exports. Aid for trade – development assistance that helps countries expand their trade – attempts to address that imbalance.  

ICAI’s latest review assesses how well the UK’s aid for trade has supported countries to trade, and contribute to economic growth and poverty reduction, since 2015. It finds that the UK’s approach broadly reflects the priorities of partner countries and evidence of best practice for increasing trade and promoting economic growth.  

However, it warns that the government must pay more attention to ensuring the benefits are felt by people living in poverty in poorer countries, and it risks focusing too narrowly on short-term UK interests. 

The report also highlights that the effectiveness of UK aid for trade is now at risk due to budget reductions, which have left a portfolio that is more fragmented and thinly spread.  

ICAI was told in Kenya and Ethiopia that UK aid commitments had been substantially reduced mid-year, requiring implementing partners to cancel some programmes and make staff redundant. The UK has suffered some reputational damage, and ICAI’s review underlines the importance of keeping partners updated in a timely and transparent way when funding levels change. 

Commissioner Sir Hugh Bayley, who led the review, said: 

“Trade is a powerful driver of economic growth, but growth doesn’t automatically help poor people. There are winners and losers, so aid for trade needs to focus relentlessly on ensuring that small businesses, smallholder farmers and employees reap some of the value of greater international trade.  

“We saw UK aid helping poor countries to argue their case at the World Trade Organisation. The UK wants everyone to buy into a rules-based international system, so it is important we keep helping poor countries to engage with it even when our aid budget is tight.” 

ICAI makes five recommendations: 

1. The UK government should develop and publish a set of detailed guiding principles for aid programmes to ensure that the pursuit of secondary benefits to the UK does not detract from its primary poverty reduction objective.  
2. FCDO should increase its focus on the international institutions underpinning the rules-based trading system to improve the alignment of the portfolio with the UK’s commitment to the rules-based international system. 
3. The UK should ensure that future programmes are based on clear theories of change linking them to poverty reduction and impacts on the poor and test the assumptions through research, monitoring and evaluation.  
4. The UK government should improve coordination and collaboration between programmes that have the potential to complement each other to achieve greater impact and value for money. 
5. The UK government should inform its partners in a timely and transparent manner when its budgets increase or reduce significantly, and the pace of change should allow partners sufficient time to adjust.  

Barriers to trade faced by developing countries include poor infrastructure, high transport costs and cumbersome border procedures. The landscape has been further disrupted in recent years by trade tensions between the US and China, the COVID-19 pandemic, and the Russian invasion of Ukraine. 

ICAI found that the UK’s aid for trade programming is helping developing countries increase their trade by improving market access, reducing the time and cost of trading across borders, and building the capacity of firms to export.  

However, the report notes that whether increased trade benefits poorer communities depends on a range of factors, such as the capacity of small firms to produce goods of high enough quality and quantity for export, and local people’s ability to benefit from job opportunities created. Further support is often needed – for example to small businesses and farmers – and the report finds some aid programmes are not paying enough attention to whether these measures are in place. 

ICAI finds that UK-funded interventions directly supporting small enterprises and farmers have helped poor and marginalised groups, including women. However, these programmes often faced difficulties in bringing these benefits sustainably to scale and suffered substantial budget reductions during the aid reprioritisation process.  

In addition, citizen engagement research in Africa found examples of positive and negative impacts of interventions, highlighting the importance of managing risks, including safeguarding women and other vulnerable groups. For example, interviewees at Hawassa industrial park in Ethiopia – which receives technical support through the £8.5m Accelerate programme – recorded complaints of sexual harassment and gender-based violence in and outside of the park, which FCDO is now responding to.  

The report notes that recently the UK has shifted its geographical focus in Africa towards larger economies such as Ghana, Kenya, Nigeria and South Africa, where its potential trading opportunities are stronger, at the expense of poorer countries like Malawi and Zambia. ICAI adds that while aid for trade can legitimately deliver secondary benefits for the UK, it found a lack of detailed guidelines on how to incorporate secondary benefits without compromising the primary purpose of overseas aid, which is poverty reduction. 

The review awards an overall amber-red score to the UK’s aid for trade – given questions over how much it contributes to poverty alleviation and the increased focus on short-term UK interests that poses risks to the quality of the programme that it says are not being sufficiently managed. 

The government will respond to ICAI’s review in due course.