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Aren’t We Forgetting Something? Brexit’s Impact on International Development

Aren’t We Forgetting Something? Brexit’s Impact on International Development

On June 23, 2016, a referendum was held to decide the United Kingdom’s (U.K.) membership to the European Union (E.U.). This resulted in 51.9 percent of voters opting to withdraw from one of the largest political unions in the world. Since then, news headlines, politicians, and analysts alike have vacillated endlessly, existing in a vacuum of uncertainty and doubt as the intricate relationship between the E.U. and U.K. unravels.

Among the countless documents and political statements considering the implications of Brexit, perhaps most notable is the relegated status of international development policy as a priority in Brexit negotiations. While it’s easy to become lost in the widening sea of proposals and policies, we should look beyond the reductionist analysis of the E.U.-U.K. relationship and focus instead on its ramifications for global development.

Forget Article 50: U.K.-E.U. Relations Before Brexit

Before delving into a complete analysis of E.U.-U.K. dynamics, it’s important to examine their past relationship to inform current and future implications of collaboration in the development sphere.

The U.K. is legally obligated to spend at least 0.7 percent of its gross national income in foreign aid. It has done so for the past 5 years, becoming one of the largest major donors in Official Development Assistance* (ODA) terms. In the 2018 U.K. Government report examining the U.K.’s contribution to the E.U., it was estimated that the U.K. channeled $1.9 billion of ODA through E.U. institutions. This amounts to approximately 11 percent of all U.K. aid. These institutions included instruments such as the European Development Fund (EDF), an extrabudgetary apparatus designed to provide development aid to African, Caribbean, Pacific countries (ACP) and additional overseas countries and territories. The U.K. was the third-largest donor to the EDF, making up about 15 percent of the fund. The two main sources of E.U. ODA funding are the E.U. budget and the EDF. Approximately 12 percent of the E.U. ODA budget was from the U.K. 

The E.U. and U.K. have been what Mikaela Gavas, Senior Policy Fellow at the Center for Global Development, called “multipliers for each other’s development policies.” A symbiotic relationship predicated on sharing closely aligned development priorities, the E.U. offered the U.K. access to its extensive global presence—such as in fragile states—while the U.K. created an E.U. “development surplus” through its financial contributions, technical expertise, and experience.

U.K. collaboration with the E.U. considerably reduced transaction costs in implementing aid for the U.K. Department of International Development’s (DFID). Instead of expending resources to develop and administer aid, the U.K. could use the E.U. and its mechanisms to reduce costs and enter regions not always accessible for non-Member States. For example, according to a Bond report by Simon Lightfoot et al., the E.U. is present in all 43 fragile states while DFID only has projects in 11. 

Acting as “economies of scale,” E.U. institutions acted as an effective channel for U.K. aid to influence and achieve development policy objectives. One instance of this is the U.K.’s involvement with the E.U.’s European Civil Protection and Humanitarian Aid Operations (ECHO).

ECHO, the European Commission’s (EC) department for overseeing humanitarian aid and civil protection, is the world’s third-largest humanitarian aid donor. Its global reach includes more than 40 countries, including countries in which DFID has limited field presence in as well as U.K. priority countries, such as Somalia. U.K. financial contributions composed approximately a fifth of ECHO’s budget, enabling the U.K. to wield significant power and influence on one of the world’s leading humanitarian donors.

In examining the relationship in the converse, in which the E.U. funds the U.K., a 2017 Bond report found that the U.K. was the second-largest recipient of E.U. aid to Civil Society Organizations (CSOs). CSOs are organized civil groups that can include entities such as non-government organizations or faith-based organizations. Between 2012 and 2016, E.U. development and humanitarian aid contributions to U.K. CSOs averaged approximately €300 million each year. In 2017, British NGOs received the equivalent of $258.4 million in new grants from ECHO, amounting to about 28 percent of all NGO funding allocations by the E.U. In the wake of Brexit, CSOs will likely face considerable financial shortfalls, limited access to programs in the Least Developed Countries (LDCs) and Highly Indebted Poor Countries (HIPCs), and a diminished ability to influence development policy and participate in partnerships across the 140 countries the E.U. is present in.

The E.U. is the world’s largest donor, providing about half of all global aid, and is a leader in international development. Because of its collaboration with E.U. development institutions, the U.K. had extensive access to the E.U.’s financial instruments and the opportunity to affect E.U. development policy, programming, and direction. On this, Dr. Sophia Price, Head of Politics and International Relations at Leeds Beckett University, argued that U.K. membership in the E.U. “allowed the U.K. to magnify the impact of its aid and influence E.U. development policy to align with its objectives.” However, despite the mutually beneficial nature of E.U.-U.K. cooperation, the prospects of current or future collaboration remain decidedly undecipherable.

How’s Brexit Going? The E.U.-U.K. Relationship Currently

The deadline for Brexit is currently October 31, 2019. While the E.U. has granted the U.K. a six-month extension, leaders have insisted that the U.K. must choose to ratify the exit treaty, opt for a no-deal Brexit, or cancel its departure. 

Throughout the chaos, the U.K. Government has indicated a continued willingness to collaborate with E.U. aid, whether by a cautious “case-by-case basis” or by partnering with E.U. development and external programs and instruments. According to remarks made to the House of Commons by former Secretary of State for International Development (SSID) Penny Mordaunt MP, the U.K. will continue to contribute funds towards the outstanding E.U. budget for 2020. However, she stated that the U.K. “will stop funding in the way [they] currently do in 2020.” In the most recent publication on a future relationship between the U.K. and the E.U., the U.K. Government proposed a cooperative accord allowing for U.K. participation, including allowing U.K. CSOs access to deliver E.U. programs and apply for funding.

Despite DFID’s keenness to continue collaborating with the E.U., many fear the same fate for U.K. CSOs that happened for Swiss NGOs: being no longer eligible for funding since the U.K. is a non-Member State. With a Brexit deadline approaching and little additional information about their status, NGOs have either stopped or scaled back their bids. In response, DFID has committed to underwriting U.K. NGOs if there’s a no-deal Brexit. This promise applies only to ECHO bids and does not apply to funding through the Development and Cooperation Directorate General (DEVCO), which is responsible for creating international cooperation, development policy, and delivering aid. 

The U.K. has suggested that the E.U. offer flexible aid instruments that are open to non-Member States. However, the E.U. has not indicated a willingness to design such mechanisms. Instead, it has proposed an extensive structural reform of its development instruments and funds for its long-term budget (2012-2017). It has also called for a reconsideration of its partnership with the ACP countries--typically funded by the EDF--as enumerated under the Cotonou  Agreement. The proposed Neighborhood, Development, and International Cooperation Instrument (NDICI) would merge at least nine separate development instruments included in the current budget and incorporate components of the EDF. Proponents argue that this reform would create a more efficient development instrument, avoid the complex tangle of hybrid programs, and replace values-driven development with needs-based policies.

However, critics of the proposal, such as Oxfam, believe the new instrument was designed to “promote the E.U.’s short-term domestic interests in mind…[and] risk[s] undermining long term sustainable development” and collaboration with non-E.U. actors. Countries that usually receive aid from the EDF may experience decreased funding or a change in relations with the E.U. It’s important to note that the NCIDI proposal does include the caveat that various actors from within or outside of the E.U. may have access to the NDICI’s funds and programs. However, there is no reference made to arrangements for non-E.U. countries in the management of those programs.

The current status of U.K. development policy and E.U.-U.K. cooperation remains uncertain. Additionally, the political landscape of the U.K. has drastically changed since the referendum, creating even more confusion. 

Boris Johnson was recently elected as Prime Minister (PM) following the resignation of Theresa May. Though there is doubt regarding the longevity of PM Johnson’s tenure, his appointment makes it likely that ODA spending is likely to be diverted from DFID. Johnson has been an outspoken aid skeptic and critic of U.K. development efforts, espousing that aid should “do more to serve the political and commercial interests of the country.” While using the foreign aid system as a vehicle for geopolitical interests is certainly not a novel concept, Johnson’s statement signals a marked departure from previous positions.

PM Johnson recently named Alok Sharma as the U.K.’s latest Secretary of State for International Development, alleviating concerns that DFID would have been incorporated under the Foreign and Commonwealth Office. Sharma opposed Brexit and is a newcomer to the development world; little is known about his ideological position on U.K. aid beyond his support for the U.K.’s 0.7 percent of GNI commitment.

What are the Alternatives?

Many have suggested proposals for post-Brexit cooperation that seek to limit the losses on both sides. One of these is the notion of joint programming, which is when the E.U. works with external development partners to create and implement programs. This would allow the U.K. to leverage the expertise of the E.U. and Member-States while also effectively mitigating the financial and technical expertise shortfalls the E.U. would be experiencing. However, this would increase the U.K.’s cost of administering bilateral funds and the U.K. would only have status as a third-party country, wielding a significantly lower degree of influence.

Another option is for the U.K. to pursue the E.U. aid delivery mechanism called delegated cooperation. This is a process in which the E.U. entrusts funds to a Member-State or third-party donor that has special geographical or technical expertise. They would be then allowed to lead and implement a project. Again, this would increase the U.K.’s administrative and implementation costs and diminish its influence on overall E.U. development policy.

Some have supported the Norway or Swiss model of cooperation with the E.U. Both are non-Member States but are part of the European Economic Area (EEA) and benefit from structural funding. However, a caveat that withers in the face of political realities makes this an almost impossible option: the U.K. would be required to be a member of the European Free Trade Agreement (EFTA). Alternatively, it must negotiate an amalgam of complex agreements with the E.U. similar to Switzerland.

An EEA membership means that the U.K. would be able to make substantial contributions to the E.U. budget. However, it would be required to follow certain E.U. rules and laws, such as the essential “four freedoms”: unrestricted movement of individuals, goods, services, and capital. This is likely not politically maneuverable in the U.K., as distaste for such commitments contributed to Brexit in the first place.

The Future for Development Under Brexit 

In examining Brexit’s implications for DFID, former SSID Rory Stewart suggested that there would have to be careful consideration of what to do with the 11 percent of U.K. ODA—“Brexit dividends”—that was previously allocated through European mechanisms. As Lightfoot et al. anticipates, aid allocation could follow an alternative pattern, moving through the private sector and to organizations with less experience in the development field. As predicted by a study commissioned by the European Parliament, U.K. aid previously channeled through E.U. institutions would likely only be dedicated to British bilateral programs and economic infrastructures, negatively affecting social infrastructure and humanitarian development. Both predictions would follow a pattern paralleling Johnson’s statements.

Depending on the political landscape, U.K. development policies could either be completely internalized to promote more domestic-oriented goals or follow a “European-like” pattern, in which aid follows the same distribution methods pre-Brexit. The latter is unlikely, as Johnson’s new cabinet houses numerous outspoken critics of aid, such as new foreign secretary Dominic Raab and new House leader Jacob Rees-Mogg.

On the challenges of Brexit, the European Parliament found that it’s likely that the secession could either force the E.U. to wield more localized regional influence or hinder its path in becoming a global leader. Unless the E.U. compensates—both quantitatively and qualitatively—for the loss of Britain’s contribution to E.U. aid, it risks cutting 1 percent to 4 percent of ODA in countries throughout Eastern Europe and Northern Africa. Perhaps most importantly, global aid may decrease by up to 3 percent as both the E.U. and U.K. experience considerable reductions in funding and expertise.

Simon Maxwell, chair of the European Think Tanks Group, observed that E.U. development policy is likely to be “less poverty-focused” post-Brexit. A majority of the E.U. budget is spent addressing the needs of middle-income countries (MICs) while lower-income countries (LICs) are typically funded by the EDF. If the 2021-2027 budget incorporates parts of the EDF while pivoting to geographical development instruments over thematic ones, more aid money will likely be spent in MICs instead without the U.K.’s voice in policy decisions.  

Recommendations

U.K. aid and influence in the development sphere would have been most effective in the context of the E.U. Because reentering the E.U. is unlikely, recommendations must instead focus on the best strategies for U.K. development efforts post-Brexit.  

The U.K. should not withdraw from the E.U. without an agreement in place.

With the current political climate swirling around empty statements and puzzled MPs, it’s in the U.K.’s best interest to establish new economic and political alliances beyond Europe. While it’s important to maintain financial commitments to E.U. aid programs and instruments, the U.K. should focus on alternative multilateral institutions to channel their ODA, such as through the World Bank. The U.K. has signed several continuity agreements attempting to replicate preferential access in the case of a no-deal Brexit. Countries such as Ghana and Cote D’Ivoire, however, have not signed agreements. The U.K. should continue these efforts to mitigate the costs Brexit will entail for the U.K. and other countries.  

A no-deal Brexit could cause a weakened U.K. general import regime, devaluation in the British pound, and a decrease in GDP compared to current levels. Uncertainty in the economic system already endangers key development initiatives in LICs and will crystallize if a no-deal Brexit occurs. The government should revise its recently announced temporary tariff schedule in the event of a no-deal Brexit. The current schedule will lower tariffs for a larger pool of countries, injecting competition in developing markets and endangering the preferential access that some countries enjoyed.

E.U. funds for Asia, Northern Africa, Eastern Europe, and Latin America are what is at stake in Brexit negotiations. DFID should work to ensure that U.K. CSOs are eligible as direct contractors and can participate in the creation and administration of E.U. development programs beyond LDCs and HIPCs. DFID should strengthen its promise to underwrite contracts for both ECHO and DEVCO in the event of a no-deal Brexit. If unable to do so, the inability for CSOs to continue to bid or participate in development programs endangers global humanitarian efforts.

There remains uncertainty regarding ACP-E.U. relations and the 2021-2027 Multiannual Financial Framework (MFF), which would create the NCIDI. Because of what the E.U. has categorized as  “institutional evolution and a continuous shift in the balance of powers,” simple renewal of ACP-E.U. relations is not an option. The E.U. is seeking to shift focus away from the ACP and EDF, creating a significant opportunity the U.K. should take advantage of. The U.K. should circumvent ACP-E.U. collaboration and instead reform its relationship with African, Caribbean, and Pacific countries and other overseas countries and territories.

Boris Johnson’s shift towards bilateral aid programs narrowly framed under commercial agreements that focus only on economic sectors and infrastructure is a poor policy decision. It’s a position that endangers current and future initiatives that attempt to address the diversity of global issues inherent in international development. This policy approach should not be adopted nor should it guide U.K. development objectives. 

Perhaps most significantly, the U.K. should not relinquish its influence in determining the trajectory of the E.U. for the next several years. Instead of abstaining from important policy decisions, the U.K. should increase its presence. While domestic and international political realities limit the U.K., it should work to insulate itself from the instability that Brexit poses. Instead of adopting a diminished role in the debate on the E.U.’s MFF and renegotiations for the ACP-E.U. partnership, the U.K. should leverage its influence to create an environment conducive to its development objectives post-Brexit. If they are unable to do so—or refuse to do so—they risk finding themselves to be what former Chair of the European Parliament Development Committee Linda McAvan characterized as “outsiders and another kind of lobbyist out here.”

Conclusion

Brexit poses substantial ramifications for international development—ones that have been largely ignored in debates. Besides working outside of E.U. mechanisms to mitigate the costs of Brexit in development terms, it’s important to recognize that the E.U. is the largest major donor in the world. Even if there was an option to circumvent the organization, doing so would be incredibly detrimental to the U.K.’s impact in development, whether through programming, expertise, or influence.

When considering cooperation with the E.U. in international development, the U.K. should attempt to foster the softest Brexit deal, adopting strategies mentioned previously. This should include a series of agreements between the E.U.-U.K. that will perhaps be more complicated than its present relationship already is. Simply put, when it comes to international development, there is no alternative.

*The Organization of Economic Cooperation and Development defines Official Development Assistance as financial flows that are undertaken by the official sector (state and local governments, including their agencies). These efforts must have the main objective of promoting economic development and welfare. The financing terms must be concessional, such as the World Bank providing a loan below market financial terms or incorporating a grant element.


Note: This article only examines the dynamics of the E.U.-U.K. in the development sphere and the best ways to mitigate the costs of Brexit. As such, it does not seek to analyze the impact and nuances of development practices or policy. It consequently does not comment on the ethical or political considerations of international development and aid. For example, some criticize foreign aid regimes as an extension of neoliberal policies (see Margaret Thatcher’s infamous quote referred to in this article: “There is no alternative”) that lead to the crystallization of inequality while maintaining neocolonialist tendencies. That is a subject in and of itself and one that cannot fully be addressed in the context of this article.

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