Aid for Trade: Using the aid budget to drive economic growth

In an era defined by rapid geopolitical shifts and complex global challenges, it is vital that the UK pursues a coherent foreign affairs strategy that keeps us safe, makes us better-off, while helping those who need it the most.

The Foreign Secretary has been clear that driving economic growth is a central aim of the UK’s limited aid budget. The UK's allocation of £13 million in Official Development Assistance (ODA) to “enable developing economies to participate more effectively in the global trading system” is a positive step towards this. The package backs key World Trade Organization (WTO) initiatives, including the Enhanced Integrated Framework (EIF) and the Accelerate Trade Facilitation Programme. Developing countries are set to benefit as the EIF is designed to promote the inclusion of trade within the development plans of developing countries, while the Trade Facilitation Programme focuses on reducing obstacles to trade.

This announcement matters. It signals that the UK is utilising all the policy levers it can to support the economic development of Global South countries, while upholding a global trading environment and the multilateral institutions which underpin our economic prosperity and global influence. It shows a vote of confidence in keeping global markets free and open, as protectionist pressures mount worldwide.

Evidence is mounting that trade could deliver both development and economic growth. Crucially, though, the how is just as important for success. Independent research from the Trade and Development, Evidence and Innovation Programme, which has examined the Development Countries Trading Scheme (DCTS) introduced by the Government in 2023, has found early signs that the DCTS has encouraged developing countries to make greater use of preferential tariffs. If sustained, this could support developing countries’ development by boosting their trade, and bring benefits to the UK as the cost of importing products could be cheaper. Whether this will lead to poverty reduction remains uncertain, and it is crucial that the Government reviews the DCTS to ensure that poverty alleviation does not get overlooked as an aim of the scheme. There is real potential for aid to drive economic growth. However, regular monitoring needs to be applied to all government programmes as a solid evidence base is critical to judging progress.

Strategically using the aid budget to boost economic growth is an important tool in the UK’s foreign policy arsenal. If deployed effectively, it can strengthen the UK’s diplomatic partnerships with allies that share our vision of what a prosperous and economically secure world looks like.