Brexit and the USA Elections: Likely impacts on Nigeria’s aid sector
Britain voted in a referendum on June 23 to leave the European Union. The outcome of the ‘leave’ vote no doubt has had, is having and will continue to have far-reaching consequences across key economies of the world. Capital, as well as Money markets responded swiftly to the outcome of the votes. Global stock, according to The Telegraph1, lost $2trillion in a Brexit shock before daybreak on 24th June. For the Aid Industry, losses in the sector may not be as spontaneous as that of the markets but will take its beating in due course. The United States of America also voted in a general election that produced Mr. Donald Trump as President-Elect on November 8, 2016. The outcomes of these decisions have direct consequences on humanitarian relief programmes and development aid overseas.
The global aid industry is hugely boosted by the contributions of the United Kingdom and United States of America. The UK and US foreign aid budget are 0.7% and about 1% of Gross National Income (GNI) respectively. UK foreign aid budget for 2016 is £12.24billion2 and that of the US is $50.3billionfor 2016.3 GNI is the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) not included in output, plus income received from abroad such as employee compensation and property income.4So, a change in Gross Domestic Product (GDP) will lead to a corresponding change in the volume of foreign aid all things being equal. If UK output is affected negatively when Brexit is triggered, then aid volume will shrink.
For the US, there are palpable concerns that there might be a policy change by the incoming administration. The government had promised the people that charity would be at home with Americans i.e. America’s money will not be given away abroad while Americans go hungry at home. This will mean tighter budget allocation for foreign aid. Specifically, the impact of Brexit and result of the US election will be felt in a number of ways; few of which are analysed here.
Aid Projects from the UK to countries are – as expected – based on the priorities and interests of the government of the United Kingdom. Nigeria is the third highest recipient of UK foreign aid and has received approximately £1billion over the past five years (see chart; amounts in million). Aid budget to Nigeria for 2016 is £253.5m or 2% of total UK foreign aid. The “EU and other multilateral organisations receive 42% of the total yearly budget (Devex Report, February 2016).”
With Brexit, there are growing concerns as to the future of aid projects in Nigeria. If we correctly second-guess a delayed activation of ‘Leave EU’, certainly the future looks bleak for new contracts. Bluntly put, there may not be new projects in the short and medium terms.
The arrays of ongoing aid projects supported by UK DFID in Nigeria are meant to have a social and economic impact on the poor. This is because a number of the projects are designed to catalyse enterprise development amongst everyday people.
There is also a justified apprehension over Brexit causing a likely decline in funding for conflict management projects that target fragile states especially at this time of renewed social distortions in the Niger Delta and palpable hunger in the North East region of the country as a result of the activities of Boko Haram.
Reforms at UKAID are imminent; in fact ongoing. These reforms undoubtedly will tilt the institution’s foreign focus. The consequences of such reforms will mean the alteration in foreign aid budget and if substantial, a number of projects may be stalled and new proposals may not be called for. The foreign aid budget even if not reduced will certainly be tweaked to favour UK Charities because, as they say, charity begins at home. As a member of the EU, “UK Charities have had unfettered access to grants from European Funds like the European Social Fund and the European Regional Development Fund.” These funds have been described as the lifeblood of UK Charities but with Brexit, these Charities will lose access and therefore would look back home. The ‘Stay’ campaigners had also argued that Charities will lose £200million” and if this figure is founded, then your guess is as good as mine that It will look inward into the pie hitherto shared abroad to countries like Nigeria.
About “54% of UK’s £3 trillion stock market is foreign owned (Rosemary, Director of Finance and Resources, Cause4Opinion).” Of this number, a higher percentage are owned by Europeans motivated by the existence of free trade and movement within Europe. Common trade and immigration are cardinal principles of EU. Brexit is anti-immigration and this is already showing in street display of anti-immigrant graffiti’s and comments that point (in my opinion) to a likely xenophobic business environment if a full-blown Brexit is operationalized. If this happens and businesses take flight, then, mathematically, the 0.7% of GNI for foreign aid will shrink in the proportion of shrinking GNI. Nigeria’s 2% will fall as well. Training opportunities are embedded in development projects. EU membership supports the assembling of requisite skills needed to execute development projects from member states. Instances abound where DFID-funded projects draw technical skills from all parts of the EU. UK funded projects in Nigeria benefit from these reservoirs and at the end of a project, Nigerian programme officers gain invaluable skills from the partnerships. Brexit might limit the span of staff sourcing thus impact the quality of knowledge transfer.
Grants for social investment are a source of foreign exchange (FX) inflow into the country. In fact, this essay holds the view that grant funds are more stable inflows than Direct Foreign Investment (DFI) and Portfolio Investments (PI) because such inflows are usually not repatriated and as such the CBN is not left panting for Pounds. With Brexit, the quantum of these inflows may decline. Examples of projects that bring in huge FX inflows into the country include HIV/AIDS, FAMADA project, DFID Market Projects, etc.
Brexit might force the UK to give greater attention to Commonwealth countries where as Commander-in-Chief her lordship is not in doubt and also not shared with Brussel or traded-off for free market and/or immigration. Brexit might therefore, push the UK back to strengthening weakening Commonwealth ties from which Nigeria will benefit from. EU has a population of 508million people with a market size of 500million Euros.5 Commonwealth on the other hand “has a population of 2.3billion people with a market size of $4trillion per annum and most of the countries are net importers.
Thematic redistribution of UKAid to Nigeria in 2016 is such that Governance & Inclusion received the highest allocation (see UKAID budget allocation for Nigeria). Ironically, it turns out that UK herself is now being excluded from Europe hence Brexit. If UK could not stay to be included in European Union, seven months after the World voted at COP21 in Paris that no one should be left behind, it’s uncertain whether it can have money to fund Governance and Inclusion in Nigeria. Why? ODI’s GlobalDevBrexit estimated a 10% devaluation of the Pounds during the one-week raid on the currency that started in the early hours of June 24 after the ‘leave vote.’ The research hotbed said “the devaluation will reduce the value of aid by roughly $1.9billion and cause a 3% decline in UK GDP.” Straightaway, there will be redistribution of projects across thematic areas and across sectors for the funds that may be available. So it may not necessary matter where the need is mostly felt but where the grantees interest will be most protected as aid to countries is not free from the interest of its funders.
The stability that characterised aid flow to Nigeria may change. The anticipated instability should trigger innovations in the social sector. Therefore development practitioners in Nigeria need coordinated strategy to continue to attract aid funds. NGOs must develop Brexit coping strategies, better resource utilisation, staff skill enhancement, deepened relationships with other donors outside UKAID and USAID and advocate Nigeria government on the need for power remapping since there is a direct relationship between power and aid.