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Greening’s challenge

Can the new Development Secretary convince Cameron to take down the aid ‘ringfence’?

5 January 2013

9:00 AM

5 January 2013

9:00 AM

At first glance, it looked like very good news when David Cameron appointed Justine Greening as Secretary of State for International Development in his September 2012 reshuffle. Greening is an experienced accountant, an alumna of Price Waterhouse Cooper, GlaxoSmithKline and Centrica, with zero tolerance for waste.

She already proved herself an advocate of fiscal retrenchment in her first government post, as Economic Secretary to the Treasury, setting out the government’s case with clarity and zest. ‘There was a time when the Labour party had something relevant to say on the economy,’ she declared to the House of Commons. ‘That time has now passed.’

So when she told last year’s Tory party conference that she was going to examine her department’s expenditure ‘line by line’, she deserved to be taken seriously — and after only a few months she proved to be a woman of her word.

First, to the consternation of many an NGO director, she reached an agreement with the Indian government to phase out Britain’s aid programme there by 2015. A few weeks later, she suspended the UK’s bilateral grants to the corrupt government of Uganda. Then, in November, she announced that Britain is to withhold its bilateral aid to Rwanda, whose government (according to ‘credible and compelling reports’) has been supporting the M23 rebels in the Democratic Republic of the Congo.

If she carries on like this, cutting aid to middle income countries, and ensuring that UK money does not end up in the Swiss bank accounts of African politicians or international arms dealers, Greening will deserve to be taken very seriously indeed.

Nevertheless, however stringent she is, Greening is up against a perhaps unsolvable problem — the one Jonathan Foreman identifies in this magazine. How can she save money overall when the coalition government has promised to increase expenditure on international development, apparently regardless of the consequences? Or to put the matter in Greening’s own terms, what is the point of going through DFID expenditure line by line, when the bottom line must always, as a matter of policy, add up to 0.7 per cent of gross national income?

A month or so ago, I was asked to interview Justine Greening for The Spectator, and I assumed that I would be able to find out for myself how this fiscal hardliner feels about running the only department in Whitehall in which spending must always go up. But what with the snappy rebuff that my overtures provoked from her staff, and the unmistakable signs of evasion and delay which followed, I quickly got the impression that the minister wasn’t particularly keen to talk. And this caginess increased my suspicion that, for all her energy and brains, Greening finds herself in an extremely awkward position.

Greening was reported to have reacted furiously when the Prime Minister offered to move her to DFID, letting him know in single syllables that she disapproves of ring-fencing the international aid budget. Officials deny this, but it makes sense. Greening can hardly have relished the prospect of handing out large sums of money in the middle of a protracted economic crisis to people who cannot vote in British elections.

It is not only that she must now justify the government’s spending priorities to a cynical public — explaining, for example, why foreign aid is increasing when accident and emergency departments are being closed across the UK, and police and military manpower is being cut. Rather, and just as seriously, the government’s emphasis on expenditure, rather than results, is likely to exacerbate the economic, political and social problems of recipient states. Greening has described herself as being on a ‘vertical learning curve’ in her new job. But one thing she will surely have grasped is that the world’s poorest countries are not easy places in which to spend large amounts of money without causing harm.

Not only are such countries wide open to political violence and corruption, but the use of large amounts of western cash to purchase the local currency unavoidably drives up its exchange rate value, damaging the recipient country’s export industries and so choking off the one tried-and-tested means by which poor societies have actually become richer over the past half-century. Overseas development aid also tends to stoke inflation, forcing recipient governments to raise interest rates, which is bad for local businesses, and particularly bad for people with debts and little income. Aid contributes to political instability, coups, rebellions and civil war, providing a casus belli and handsome personal rewards to anyone who can seize power. It is also an important source of war revenue: the Oxford economist Paul Collier estimates that as much as 40 per cent of military expenditure in Africa is financed by overseas aid.

Moreover, as the Zambian economist Dambisa Moyo has argued, western aid not only entrenches a culture of corruption and freeloading in the military, political and business elites of poor countries, but, by providing even the most incompetent government with a guaranteed source of revenue, it excludes the taxpaying middle class from political influence and strengthens the tyrants’ hold on power.

Greening does not have to agree with Moyo but, as secretary of state, she must face up to the narrower, but politically critical point that the government’s determination to spend 0.7 per cent of GDP on foreign aid makes it all but impossible to adjust her department’s approach to take account of legitimate concerns. The supply-side pressure within DFID to spend money distorts priorities and raises the chances of ultimate failure ‘in the field’. And the more Greening (rightly) insists on withholding payments from corrupt, unstable or failed states, the more money she will have to funnel into an ever-diminishing number of aid partners — so subjecting them, in turn, to dangerous economic and political stress.

So Greening’s in a bind, but for a politician as ambitious and single-minded as she is, there is an extraordinary opportunity here. If she can only persuade her colleagues in the Cabinet to ditch the spending target, she can achieve large savings while actually improving the quality and impact of DFID’s work. Such a move would enrage supporters of the status quo, but it would earn Greening the gratitude not just of voters in the UK, but of millions of ordinary citizens across the developing world.

J.M. Shaw’s novel Ten Weeks in Africa is published by Sceptre.

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