Global Vantage: What does the abolition of the DFID mean for UK Companies abroad?

In June 2020, Prime Minister Boris Johnson announced the merger of the Department for International Development (‘DFID’) and the Foreign & Commonwealth Office (‘FCO’). The combined entity, known as the Foreign, Commonwealth & Development Office (‘FCDO’), was formally inaugurated on 2 September 2020.

Whilst some have criticised what appears to be a move towards linking foreign aid to the UK’s trade goals, for British businesses operating abroad, the FCDO could provide significant opportunities for growth.

Established in 1997, the DFID was the ministerial department responsible for the administration of UK aid overseas. Whilst the DFID’s primary mandate was defined as poverty reduction, it sought to tackle a range of other global challenges, such as immigration and disease. Key to the DFID’s mission was ensuring that the UK’s target of 0.7% GDP spending on foreign aid was achieved each year. Under the DFID’s reign, the UK met this goal for the first time in 2013, and the milestone was subsequently enshrined into law via the International Development (Official Development Assistance Target) Act in 2015.

In contrast to the DFID, the FCO has traditionally played a much more ‘diplomatic’ role in foreign affairs, with its focus being on working towards promoting the UK’s interests abroad and protecting its citizens and businesses globally. Amongst the ways in which the FCO sought to achieve these aims was through the exploit of the UK ‘brand’ overseas, and by providing support to domestic exporters.

In light of the above, the combined entity will inevitably hold a great deal of responsibility with regard to the UK’s activities abroad. The general consensus amongst commentators is that the FCO’s involvement is likely to mean a reprioritisation of aid, with spending set to become more aligned with the Government’s foreign policy objectives – political, economic or otherwise. Indeed, when announcing the newly merged entity to Parliament, the Prime Minister noted that “[t]he British taxpayer has the right to expect that we achieve the maximum value with every pound we spend”, a statement which seems to suggest a more ‘targeted’ approach to aid, bringing to an end the era of the ‘golden taps’ of the DFID.

Yet despite the Prime Minister’s apparent enthusiasm for the merger, the move has prompted widespread criticism, particularly from those in the charities sector. The departments have a history of mergers and splits, and many have pointed out that failings in the previously combined institution were a significant reason why the DFID was established as an entity independent from the FCO in the late 1990s. Perhaps most prominent amongst such failures was the ‘Pergau Dam scandal’, which saw millions of pounds of UK aid granted to Malaysia in relation to a dam-building project which was ultimately deemed unlawful. The UK’s support, provided against the advice of civil servants, had been tied to a major arms deal.

However, it is difficult to argue against the suggestion that the FCDO will bring a welcome level of co-ordination to the UK’s efforts overseas. Whilst similar mergers in Canada and Australia in recent years have seen mixed results, by combining the expertise and experience of those within the DFID and the FCO, the FCDO will be able to call upon a wealth of knowledge as it seeks to establish itself as a “super department” on the international stage. Given the FCO’s involvement, promotion of British business is likely to be one of the key proponents of the FCDO’s strategy, which could in turn bring greater opportunities to those looking to expand their operations overseas.

Therefore, despite the criticism that the newly-formed institution has received, we are cautiously optimistic about the impact that the FCDO will have on British businesses abroad. It will be interesting to monitor how the department develops amidst the disruption caused by the coronavirus crisis, and the role that the FCDO will play in advancing the UK’s post-Brexit foreign policy.