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Development partnership with rising powers: opportunities and challenges

21 November 2017

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International development has traditionally been oriented around a ‘North-South’ geography, in which richer, industrialised countries provided foreign aid to poorer countries. The reality was always more complicated, but over the last few years the geographies of poverty, wealth and inequality have become far more polycentric. This raises ethical, political and strategic questions for agencies like the UK’s Department for International Development. India is a classic example – now a powerful economy and an important strategic partner, but which still has very substantial numbers of poor and extremely poor people.

On the 10th of November 2017, the Centre for Science and Policy facilitated a talk by Dr Emma Mawdsley, which addressed this very issue. Her talk highlighted that a number of factors increase the complexity of the issue.


Conflicting Agendas

Recent years have seen a shift in the distribution of poverty and wealth, including a growing share of the world’s poor in “middle income” countries. Over this time, the UK government has been under pressure by certain sections of the media especially, to move official development assistance aid away from emerging powers, such as India and China.

Simultaneously, recent years have also seen increased the geopolitical and geoeconomic incentives for engaging with these rising powers. Official development assistance (‘foreign aid’), as well as other development policies, are a strategically significant resource. They contribute to UK soft power - our ability to exert influence via appeal and attraction - with regard to these rising nations. So there is a paradoxical pull between the pressures to move foreign aid away from increasingly powerful middle income countries (including ‘rising powers’), ongoing poverty, and the soft power and economic relationships that aid can provide to donors. The Indian government has certainly not been a passive actor in these debates, rejecting ‘recipient’ status, and actively negotiating what it wants from changing development relations.

Implications for Poverty Reduction?

For various reasons, and in line with many other (so-called) ‘traditional’ donors, the UK has seen the official development assistance budget increasingly directed towards supporting private sector-led economic growth. Poverty reduction is assumed to follow on from such growth, rather than being the direct and explicit goal of development interventions, as had been more the case under the Millennium Development Goals. This is potentially problematic given that the 2002 International Development Act states that development assistance is conditional upon the "Secretary of State being satisfied that the provision of the assistance is likely to contribute to a reduction in poverty".

These redirections have led to the creation of the Cross-Government Prosperity Fund (aimed at promoting economic growth in developing countries), and the increased funding of the CDC Group plc (the UK’s development finance institution, which is aimed at supporting the building of businesses throughout Africa and South Asia, to create jobs and increase welfare).

Dr Mawdsley warned that the welfare improvements and soft power that are lost from the shift away from poverty reduction might not always be sufficiently offset by those gained from the shift towards economic development.

An exemplary case is the way in which the shift has affected the relationship between the UK and India, which changed substantially in 2015. The transition away from substantial financing of ‘traditional’, large poverty reduction programmes in poor States has the following aims: (i) to partner with India to help global public goods, such as climate change adaptation and mitigation; (ii) to partner with India on its own overseas development projects and financing; and (iii) to build commercial relationships with India for the purposes of mutually beneficial economic growth.

The actual transition itself has not been without difficulties. The decision was taken by the governments of India and the UK, leaving DFID staff in London and Delhi with limited opportunities for consultation about where and what they were exiting. A strategic Emerging Powers group was established in previous years, but folded and did not inform the transition. Displeasure was voiced by several Indian NGOs and State governments, and some felt that the UK undermined its long legacy of development work. Furthermore, whilst the Indian government is certainly open to direct foreign investment, the UK's development institutions are not particularly well suited to this endeavour. Numerous factors, such as the constraints these institutions place on sovereign loans, put other nations, such as Japan, in a better position to capitalise on this opportunity. The UK's Cross-Government Prosperity Fund, for example, a £1.2 billion fund launched in April 2016 to help promote economic growth in developing countries (and financed from the ODA budget), was almost universally reported as bewildering. Dr Mawdsley argued that there is a danger of falling between two stools, being neither the most effective form of export promotion, or of poverty reduction.

However there is some cause for being optimistic about the future of this shift. Firstly, these may simply be teething problems. The Cross-Government Prosperity Fund is still in its infancy, and may find its feet. Secondly, finding ways to work with Indian government and other actors on innovative development partnerships represents a very desirable move away from the donor-recipient hierarchies of the past.

Approaching The Future Donation Agenda Strategically

Dr Mawdsley gave a summary of the facts and questions that should occupy the minds of those who will shape the UK's donor strategy in the future.

Firstly, it should be acknowledged that global shifts in the distribution of wealth, poverty and inequality are placing novel pressures on donors. These pressures are operational (how and where do we do development effectively?), strategic (how do we do development to achieve our own aims, including building important diplomatic and economic relations?) and moral (how do we do development to maximise the amount of good achieved?).

Secondly, regarding India, different parts of the central government, and different State governments, are interested in different forms of financing and development partnership. We need to think careful about the range of outcomes that these different bodies want from development partnerships? Are these outcomes in line with those of the UK? Does the UK have the right institutions to achieve these outcomes in a changing world?

Finally, Dr Mawdsley outlined the best and worst case scenarios for the shift away from poverty reduction. In the best case, this shift will allow the UK to successfully lead out new models of blended finance and private sector-led development, as well as new development partnerships. In the worst case, the UK will lose its poverty reduction impact and soft power, with limited or suboptimal gains strategically or in terms of public relations; and with the worst consequences for the poor, and their local and national champions, in the form of rights-based NGOs.

Banner image: DFID in India