How to end poverty has been one of the great challenges of politics and economics, throughout history. The success of liberal free-market capitalism has provided a strong answer: sustained, job-creating growth has played an essential role in lifting huge numbers of people out of grinding poverty.
International aid policy, when executed responsibly, has contributed to this success. The U.K. is one of the biggest international aid donors, and largely has a track record of which we can be proud. However, post-Brexit, the U.K. will also become one of the biggest players in international trade. This offers enormous opportunities.
Development and trade strategies can be co-ordinated to support investment and job creation across the developing world – in manufacturing, infrastructure, energy and commercial agriculture.
There is no better demonstration of the need for this, than Nigeria – whose newly re-elected President, Muhammadu Buhari, will be sworn in shortly for a new four-year term, Nigeria is a country with geo-economic, and geo-strategic importance on the African continent. It is also a country that is emblematic of all of the opportunities and challenges that exist in the fight against poverty. In a new paper A New Path for Nigeria, we argue that Nigeria can show the way ahead for Africa and much of the developing world – and how post-Brexit UK aid and trade policies can help.
Nigeria is one of the largest recipients of Overseas Development Assistance provided by governments. It is eighth in the world, and second in Africa. This aid comes primarily from the U.S. and the U.K. However, Nigeria is a laggard on core issues like the rule of law, which is holding the country back. Nigeria is the 4th most corrupt country in West Africa and 136th overall out of 176 globally. In terms of transparency and accountability it ranks 85th out of 102 overall on the Open Budget Survey. In the World Bank’s Ease of Doing Business Index it stands 146th. It trails on indexes of economic freedom such as Fraser at 118th and Heritage at 111th.
This negative direction could be reversed, with key economic and social reforms such as a more open trading regime, genuinely competitive markets and better property rights protection. Married to this are fundamentals such as the rule of law and a good investment environment, which must not be eroded by government incompetence or corruption. Why should we care about Nigerian domestic regulation? Because British taxpayers are asked to pay higher taxes to improve the lives of the poor around the world: that money must achieve real impact, and not be wasted through bad policy choices in the recipient country.
There is a better model for UK development policy, to achieve this aim. In the U.S., the Millennium Challenge Corporation is one of the rare successes of development policy. Money is granted for specific projects with a local Board empowered to ensure that they are finished on time and on budget, and critically the grant is conditional on good governance principles such as transparency and the rule of law. They are also related to the country’s economic policy choices. If an MCC recipient – such as Nigeria – starts to damage investors’ rights or embarks on a trade policy that increases barriers, then its funding can be withdrawn.
The MCC is a model for the UK’s post-Brexit development policy (though we may need a new acronym, to avoid constant cricket puns). Aligning our international aid budget with trade strategy and our broader national interest – such as helping to preserve the liberal rules-based order – will benefit British interests at home and abroad.
Nigeria offers a concrete example of how this could work: U.K. development policy can encourage Nigeria to avoid unforced errors such as the recent increase of local content regulation, and the promotion of import substitution economics. These restrictions will undermine local growth and job-creation.
Similarly, we must ensure that all recipient countries respect and abide by the rule of law, and anti-corruption. The erosion of Nigeria’s commitment to the rule of law is highly worrying. Currently, Nigeria is a defendant in multiple investor disputes, including with telecoms firm MTN; an energy project with P&ID; and a hydroelectric contract with Sunrise Power. In the P&ID case, Nigeria owes the company over $9bn, due to Nigeria’s failure to honour a gas supply contract. Resolving these disputes expeditiously will be essential to reassure both private investors and foreign aid donors that Nigeria is serious about respecting courts and upholding the rule of law.
The U.K.’s national interest is best-served by an open system that encourages free trade, protects property rights, and upholds the rule of law. Our development strategy and our independent trade policy post-Brexit can be harnessed to ensure maximum value for the British taxpayer. A British version of the Millennium Challenge Corporation would be an excellent first step for Global Britain.