For decades, there have been accusations that our foreign policy should be more joined up. Trade hasn’t aligned with strategic direction, critics say – our cultural and soft power outreach has been squabbled over by various departments – and our aid has been directionless and scatter-gun.
The creation of the Foreign, Commonwealth and Development Office offers the opportunity to champion a new strategic direction for the UK’s foreign affairs – not least in the area of Overseas Development Assistance. UKAID can play a key role in the delivery of the Sustainable Development Goals, promote UK Soft Power and level the playing field for British Headquartered aid delivery companies.
The UK is one of the world’s most open, liberal economies. As a result, the UK subsidiaries of many companies working in international development with principle headquarters, associations and often privileged government support overseas, also benefit from access to UK government contracts, as well as UK Government trade and exports support. In addition, over 70% of UK Official Development Assistance (ODA) is dispersed via multilateral agencies which contract global suppliers.
This in many respects is a net positive for the UK economy in terms of competitiveness. However, it also creates challenges; in particular, for wholly or majority British owned and headquartered companies, particularly those with strong brand and historical toots in the UK. If the full soft power potential of the UK’s international development capabilities is to be captured, our uniquely open economy demands a number of measures to ensure a genuinely level playing field for home grown success stories.
Three distortions arise with the current arrangements. First, the UK subsidiaries of internationally headquartered companies can benefit from tied aid contracts being awarded to their overseas parent. This allows them to accept lower margins in the UK than their wholly UK owned competitors, putting the latter at a considerable disadvantage.
Second, the soft power value of British companies is not considered in tendering or when HMG offers commercial support overseas. HMG can at times favour companies which bolster the soft power of the UK’s competitors, whilst ascribing no additional value to supporting companies which actively contribute to the UK’s international relationships.
Finally, the significant sums of ODA disbursed via multilateral agencies often fail to deliver the quality assurance, transparency, accountability or value for money that come from partnering with UK headquartered companies. This isn’t about protectionism – but exporting British expertise in a way that is accountable, efficient and beneficial to all.
Taken together, these distortions create an uneven playing field tilted against UK headquartered and wholly or majority UK owned companies active in international development. Not only is this counterproductive to our soft power, but, as the pandemic, weak pound and fall in ODA combine, the survival of an indigenous UK international development supplier sector is increasingly uncertain. This in turn risks eroding certain bespoke services and technical capabilities upon which the FCDO draws.
The challenge is to address these distortions in a manner which preserves the wider benefits of encouraging foreign and global companies to establish and succeed in the UK. One solution might be a requirement when considering HMG commercial support to companies bidding internationally to account for their ability and intent to project UK soft power and values. Similarly, it would be effective to move towards a more progressive value approach that places weight on the wider technical and non-technical qualities of bids.
Ascribing more value to the utilisation of UK based small and medium sized enterprises’ (SMEs) within the bidders supply chain would incentivise British expertise to continue to play a central role in UK ODA. Adopting such measures should not aim to exclude international companies, but to ensure that the contribution of British businesses to our soft power is properly valued in tenders and commercial support.
This approach would have the twin virtues of supporting UK based SMEs, whilst boosting the soft power value of UK development spending. By levelling the playing field for UK based companies working in the international development sector, the UK’s global influence as a whole will be strengthened. As the world becomes an ever more hostile and competitive arena, the UK needs to start punching with all the tools at its disposal. Our private sector international development expertise provides powerful national capabilities it would be self harming to lose, especially now. It will be one more key test of Global Britain whether there really is the will and strategic awareness to maintain, and indeed build upon our national capabilities in support of international development and prosperity, both at home and abroad.