Contents

Summary

• UK Official Development Assistance (ODA) spending has gone to regions of upper-middle-income countries with GDP per capita figures equal to or in excess of those reported in large parts of the UK over the last five years.
• The relatively wealthy regions in receipt of UK foreign aid were in Mexico (Mexico City and Campeche), Malaysia (Kuala Lumpur) and China (Shenzhen, Shanghai, Beijing, Guangzhou and Ordos).
• The richest regional recipient of UK ODA was Ordos in China, with a GDP per capita of £27,500 – on par with Swansea and richer than 69 other regions of the UK.
• Projects in these relatively well-to-do regions involved AI-driven anti-congestion measures for Kuala Lumpur, flood prevention in Mexico City and all-female traditional Chinese opera in Shanghai.
• According to the UN Development Assistance Committee’s (DAC) income-level cut-offs for aid-qualifying countries and territories, a GNI per capita of $13,845 (£10,914) in 2022 determines eligibility for receipt of aid flows in 2024 and 2025.
• Using public choice theory, we argue that civil servants are incentivised to disproportionately focus on the most developed regions of otherwise lower-middle-income countries, leading to a misalignment of personal incentives with the objectives of ODA spending.
• We propose an amendment to the International Development Act 2002 to require ODA spenders to target regions with a regional GDP per capita equal to or below the DAC’s cut-off. This would prevent a recurrence of ‘Robin Hood in reverse’ aid, where UK taxpayers’ money is sent overseas to areas that are richer than their own communities.

The table: From left-behind Britain to Beijing

Introduction

What is ‘foreign aid’? Peacekeeping missions in Mali, arms for Ukraine, and hurricane relief for Caribbean islands – these are three recent examples of UK ‘aid’ that do not qualify as such in terms of meeting the UK’s 0.5% of Gross National Income (GNI) target.

That is because the UK is bound by the OECD’s Development Assistance Committee’s (DAC) definition, which does not recognise military or peacekeeping operations as Official Development Assistance (ODA). Additionally, the DAC stipulates an income-level cut-off, Anguilla, the British Overseas Territory devastated by Hurricane Irma in 2017, exceeds that limit.

Such rules might seem inflexible, potentially preventing civil servants from using the ODA budget sensibly. This critique was made by Tory MP Sir Edward Leigh during the third reading of the International Development (Gender Equality) Act 2014. He argued that regulations on aid spending made it ‘increasingly difficult’ to run government departments: ‘…every time a Minister is getting on with their job, civil servants are coming to them and saying, “you have to tick this box, that box and the other box”’ (Hansard 2014).

On the other hand, such rules disincentivise flagrant misuses of foreign aid, as seen with the 1991 Pergau Dam project in Malaysia. In Thatcher’s final days, Defence Secretary George Younger agreed to an arms deal with Malaysia, promising that 20% of their spending on British weapons would be returned through aid for the Pergau Dam (Perakis, 2012). Engineers from the Overseas Development Agency deemed the project economically unviable, but the Foreign Office ignored their report. In 1991, Foreign Secretary Douglas Hurd authorised the £234 million payment, leading to a 1994 High Court ruling that the project violated the Overseas Development and Co-operation Act 1980, as it did not benefit the Malaysian people or economy. That verdict was arguably a victory for UK taxpayers, who were burdened with funding a useless dam in Malaysia, as well as for Malaysians, who could have benefited from aid that would have actually been poverty-reducing.

What about the rule that brands certain countries and territories as ‘too rich’ to receive aid? While arguably it curtails the use of the ODA budget for strengthening ties with historic allies and potential trade partners, the list of aid-eligible countries is already expansive – containing a total of 139 members, including 40 Commonwealth countries and two Overseas British Territories (OECD, 2024). There is also a compelling logic, supported by the law of diminishing returns, which suggests that – all else being equal – each pound spent has a greater impact when directed towards poorer, more resource-scarce recipients. This theoretical assertion finds support in the Penn Effect, the empirical observation that price levels are generally lower in poorer countries, meaning that the same amount of money can achieve more (Summers and Heston, 1991).

Assuming one accepts that aid spending is relatively more effective in its ultimate goal of poverty reduction – as stipulated by the International Development Act 2002 – when concentrated on the most resource-deprived regions of the world, it does not necessarily follow that decision-makers will direct it towards this end (UK Parliament 2002). According to public choice theory, government actors and aid project implementers (ranging from academics to NGO staff) have their own preferences beyond strictly achieving poverty reduction. These factors may include job satisfaction, pay and professional esteem. This confluence of factors can reasonably be assumed to lead in some cases to a bias towards concentrating projects in the most metropolitan, well-connected parts of upper-middle-income countries, where there are ample amenities to be enjoyed during downtime, as well as a concentration of academic and governmental power centres that make liaising with local authorities and experts easier.

In search of evidence of such a phenomenon, we looked through the UK government’s Development Tracker website and the UK Research and Innovation (UKRI) portal. Our focus was on projects underway at any point over the past five years (2019 to 2024) that involved the disbursement of UK ODA funds in upper-middle-income countries, specifically in regions with a GDP per capita equal to or greater than the UK’s poorest region, Ards and North Down, which has a GDP per capita of £17,635.

Findings

The aid projects

Mexico

Two regions of Mexico with regional GDP figures above those of some of the UK’s poorer regions received funding from the UK aid budget between 2019 and 2024. Those regions were Campeche and Mexico City.

With a GDP per capita of £24,994¹ in 2021, Campeche’s income approximates most closely in the UK the region of North Nottinghamshire (£24,909)² Mexico City, with a GDP per capita £19,292³ is on par with the region of Ards and North Down (£17,635). While Ards and North Down is the poorest region in the UK as measured by GDP per capita, North Nottinghamshire ranks 36th. We identified two UK aid projects over the five-year lookback period that disbursed funds in the aforementioned regions of Mexico.

The first project, led by the University of Edinburgh with a budget of £332,783 between 2019 and 2022, aimed to develop ‘smart city solutions’ for climate change adaptation in Mexico City’s Peñón neighbourhood. This initiative focused on using ‘interactive networking smart-technology’ and fostering community collaboration to monitor and mitigate the risks associated with flooding in this area (UKRI, n.d.-a).

Additionally, as part of the Prosperity Fund Mexico Programme, which was allocated a total of £60 million from 2017 to 2023, various projects were implemented in affluent regions, including Mexico City and Campeche. One initiative involved recommending a temporary cycle lane in Mexico City be made permanent. Another, entitled ‘Caravana FinTech’, sought to educate people in Campeche about crowdfunding, online banking and how to choose insurance products (Unidad de Comunicación Social, 2020) (FCDO, 2019).

Malaysia

Kuala Lumpur, Malaysia, had a regional GDP per capita of £21,199 in 2022⁴, which aligns closely with that of Sefton (£21,264), the sixth poorest region in the UK by this measure.

Two aid projects involving Kuala Lumpur were identified within the search timeframe:

1. The ‘Personalised Service Assistant for Journey Planner’ project was carried out by CIP Technology Ltd with a grant of £244,061 from Innovate UK. Running from April 2018 to December 2020, the project aimed to alleviate traffic congestion in Kuala Lumpur by improving public transport utilisation. It developed an intelligent service assistant for the national commission of land transport (SPAD), employing advanced networking, computing and artificial intelligence technologies to provide personalised journey planning, route optimisation and user feedback mechanisms (UKRI, n.d.-b).
2. The ‘Entrepreneurial Resilience & Recovery During and After COVID-19 Crisis’ project, led by Imperial College London and funded by the Global Challenges Research Fund (GCRF) with £305,225, focused on the role of entrepreneurs in fostering economic resilience and recovery during crises like COVID-19. Conducted from August 2020 to March 2022, the project involved collaboration with a number of institutions, including the Asia School of Business in Kuala Lumpur. It undertook 20–25 longitudinal case studies to create models of entrepreneurial resilience and to inform relevant policy and practices, examining the responses of firms and communities in Asia’s lower- and upper-middle-income economies during the pandemic (UKRI, n.d.-c).

China

Shenzhen

Shenzhen, with a GDP per capita of £21,512⁵, closely aligns with Southend-on-Sea, which has a GDP per capita of £21,520.

We identified three foreign aid projects involving Shenzhen.

1. Craft China: (Re)making ethnic heritage in China’s creative economy – This project, led by University College London and funded with £202,340, ran from November 2018 to February 2021 in collaboration with the V&A exhibition in Shenzhen. It aimed to integrate traditional ethnic heritage crafts with modern urban economic strategies, focusing on the commercialisation of rural crafts within city economies. The project facilitated exhibitions and workshops to foster dialogue among local craftsmen, museum professionals and designers (UKRI, n.d.-d).
2. SustaInable Mobility and Equality in mega-ciTy RegIons (SIMETRI) – Managed by University College London with a funding of £303,411, this project from April 2019 to July 2023 focused on the Pearl River Delta Greater Bay Area, including Shenzhen. It aims to develop a governance platform integrating inequality indicators with land use and transport models from Europe and China to address urban challenges such as social segregation and income inequalities through advanced simulation models and big data (UKRI, n.d.-e).
3. The Financialisation of Urban Development and Associated Financial Risks in China – This research, also managed by University College London and funded with £329,374, explored the impact of modern financial mechanisms on urban development in China from February 2017 to February 2021. Focusing on cities including Shenzhen, it examined the transformation of housing, land and infrastructure into complex investment opportunities, assessing the risks and implications for local governments, enterprises and households (UKRI, n.d.-f).

Shanghai

Shanghai boasts a GDP per capita of £19,520⁶, most closely comparable to Redbridge and Waltham Forest, which has a GDP per capita of £20,572. Our research identified the following four projects in Shanghai that received UK ODA funding.

1. Fostering Creative Citizens in China through Co-design and Public Makerspaces – Funded by the Department for Business, Energy & Industrial Strategy with a budget of £202,323 and executed by Brunel University London, this project aimed to foster creativity in Chinese communities through the use of co-design and ‘public makerspaces.’ The project, which concluded on 30 September 2021, developed a prototype makerspace in Shanghai’s Yangpu District and provided resources like a design case study bank and co-design toolkits to support creative activities (DevTracker, n.d.-a).
2. Mechanisms of Intergenerational Nutritional Programming of Non-communicable Diseases – This project, part of the Healthy Life Trajectories Initiative (HeLTI) and funded by the Department for Business, Energy and Industrial Strategy with £24,361, focused on the impact of early nutritional factors on long-term health, particularly non-communicable diseases such as heart disease and diabetes. Conducted from October 2019 to August 2020, the project included studies in Shanghai among other global locations to explore nutritional interventions from pre-pregnancy through early childhood (DevTracker, n.d.-b).
3. Repositioning Graphic Heritage – Led by Loughborough University and funded with £202,384 from the Newton Fund, this initiative ran from October 2018 to February 2021. It aimed to enhance public engagement with urban heritage through graphic design, with activities in both the UK and Shanghai. The project developed a ‘taxonomy of urban graphic heritage’, explored through field visits, and concluded with the creation of graphic prototypes to improve heritage communication across multiple languages and cultural perspectives (DevTracker, n.d.-c).
4. Popular Performance for New Urban Audiences – This project, implemented by the University of Leeds with a budget of £200,165 from the Newton Fund, focused on reintroducing the traditional Shanghai All-Female Yue Opera to modern urban audiences through digital media at the ‘M50’, a contemporary art district in Shanghai. Running until February 2022, the project sought to merge historical cultural forms with contemporary artistic expressions in Shanghai for both cultural and economic development (DevTracker, n.d.-d).

Beijing

Beijing, with a GDP per capita of £20,712⁷, is nearly equivalent to Torbay, which has a GDP per capita of £20,669. There are three other regions in the UK with a lower GDP per capita than Beijing: Ards and North Down, Redbridge and Waltham Forest, and Walsall.

We found one aid project targeting Beijing: ‘Identifying the Mechanisms for the Effects of Air Pollution on Cardiopulmonary Disease in Beijing, China’, which was led by Imperial College London and funded by the Natural Environment Research Council (NERC) with £149,701. Conducted from June 2020 to March 2021, it aimed to delve into the biological mechanisms through which air pollution affects cardiopulmonary diseases. The research sought to provide insights that could help shape effective policy interventions and technological solutions to mitigate the health impacts of air pollution (UKRI, n.d.-f).

Guangzhou

Guangzhou has a GDP per capita of £17,938⁸, slightly higher than that of Ards and North Down (£17,635), the poorest region in the UK.

Our research uncovered one aid project in Guangzhou over the studied time period. The project sought to measure the levels of nitrophenols in Guangzhou in the summer and winter. It was led by the University of York, funded with £223,659 and aimed at improving air quality in the Chinese megacity (DevTracker, n.d.-e).

Ordos

Lastly, Ordos has a GDP per capita of £27,500⁹. That puts it on par with Swansea (£27,525) and above 69 regions of the UK.

The ‘Pan-participatory Assessment and Governance of Earthquake Risks in the Ordos Area’ (PAGER-O) project ran from 2016 to 2019 (putting it just inside our five-year search

timeframe) and was led by the University of Oxford and funded by NERC. It was funded with £258,630 from the NERC and aimed to bridge the gap between scientific understanding and community knowledge of earthquake risks in the Ordos region (UKRI n.d.-g).

ODA eligibility criteria

ODA was first defined in 1969 by the OECD’s DAC. Since then, the term has undergone several redefinitions by the same organisation. The term is used for reporting purposes and forms the basis of the UK government’s target to spend 0.5% of GNI on foreign aid. ODA, as defined by the DAC, prevents military aid, most peacekeeping missions, and anti-terrorism operations from being classified as aid expenses. It also stipulates that ‘one-off tours by donor country artists or sportsmen, and activities to promote the donors’ image’ are not considered ODA, along with the conditions and concessions that must apply to loans for them to count as ODA (OECD, n.d.).

Most relevant for this paper is how the DAC defines which countries and territories qualify for aid. Every three years, the DAC publishes a revised list of aid-eligible countries (OECD, 2024). This consists of all low- and middle-income countries based on GNI per capita, as published by the World Bank, with the exception of G8 members, EU members and countries with a firm date for entry into the EU. The list also includes all Least Developed Countries (LDCs) as defined by the United Nations (UN).

For the reporting period 2024–2025, the cut-off is a GNI per capita of $13,845 (£10,914¹⁰) in 2022. Countries and territories with a GNI per capita below this threshold but above $4,466 (£3,520) are defined as upper-middle-income; 59 countries and regions worldwide qualify for inclusion. Meanwhile, there are 80 countries and territories classified as lower-middle income and least developed (OECD, 2024).

GNI per capita is a crude metric as it fails to account for intra-country differences in income. For example, while Mexico has areas of extreme deprivation, like Chiapas, where the regional GDP per capita is £2,940¹¹, it also has areas with outsized-earning capacity, like Campeche, where the GDP per capita is £24,994, surpassing that of 36 areas in the UK.

It is possible that, despite the greater neediness of a region like Chiapas, the cultural influence and connectedness of relatively affluent areas such as Campeche and Mexico City attract civil servants, academics and NGOs to focus a disproportionate amount of their attention there. This tendency can be understood through the lens of public choice theory, which suggests that public servants and other stakeholders act as rational actors motivated by personal interests. As a result, better infrastructure, more established networks and greater personal and professional connections in these more developed regions lead to a distribution of resources and efforts that may not align with the areas of greatest need.

In the final section of this briefing paper, we will suggest a measure the UK government could adopt to ensure that aid does not go to the highest-income regions of developing countries.

How to stop it

ODA spending in the UK is governed by four sources: the DAC’s definition of ODA and three Acts of Parliament that specify the goals of aid spending, how much should be spent and the standards for reporting (see Table 1 below for details).

Table 1: Sources of governance of UK ODA spending

Modified version of a table that appeared in a blog for the Center for Global Development¹²

‘Robin Hood in reverse’ aid, whereby relatively rich regions of upper-middle-income countries receive ODA funds, is arguably against the spirit of the International Development Act 2002, which states that poverty reduction must be central to all activities (see column 2 of Table 1).

On the other hand, it does not fall foul of the DAC’s definition of ODA, as long as the regional recipient is in a country with a GNI per capita below $13,845 in 2022 (for 2024 and 2025 spending).

To ensure the ODA budget effectively maximises its goal of poverty reduction, an amendment to the 2002 Act could stipulate that the DAC’s income-level cut-offs be applied in a two-step procedure: first at the country level and then at the regional level. This would ensure that upper-middle-income countries receive funds specifically for their most disadvantaged regions, preventing spending from being ‘captured’ by the allure of Tiger Economies’ vibrant metropolitan hubs.

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About the Author

Mark Tovey is a freelance researcher and the author of the IEA discussion papers Is There a Doctor in the House (2021) and Nanny State on Tour (2020). He works as a data journalist for a boutique news agency and as a financial writer for various websites. He holds a first-class degree in economics from the University of Sussex.

References

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DevTracker (n.d.-d) Popular performance for new urban audiences: reconnecting M50 creative cluster with Shanghai All-Female Yue Opera. Accessed 22 June 2024 (https://devtracker.fcdo.gov.uk/programme/GB-GOV-13-FUND–Newton-AH_S003304_1/summary).

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Footnotes

1. GDP per capita data accessed from Mexico’s Instituto Nacional de Estadística y Geografía (www.inegi.org.mx/datos/?t=0190#Areas_geograficas) calculated at 1 peso = 0.048 GBP.
2. All regional UK GDP data accessed from ONS (2024), 1998 to 2022, with the most recent figures used.
3. INEGI site, ‘Ciudad de México’, converted at 1 peso = 0.048 GBP.
4. Kuala Lumpur’s GDP per capita was found on Malaysia’s Ministry of Economy site (https://www.dosm.gov.my/portal-main/release-content/gross-domestic-product-gdp-by-state) calculated at 1 MYR = 0.168 GBP.
5. GDP per capita for Shenzhen was taken from a Tencent News (腾讯) article, where the dollar value was converted at 1 USD = 0.79 GBP (https://tinyurl.com/ycky4evb).
6. Shanghai’s GDP per capita for 2022 was taken from a different article on Tencent News, and the value was converted from yuan to pounds at a rate of 1 yuan = 0.11 GBP (https://tinyurl.com/2de3y7wy).
7. 190,300 yuan converted to pounds at an exchange rate of 1 yuan = 0.11 GBP (https://tinyurl.com/2de3y7wy).
8. The GDP per capita figure for Guangzhou was reported in the same Tencent News article containing the estimate for Shenzhen; it was converted from USD at a rate of $1 = 0.79 GBP (https://tinyurl.com/ycky4evb).
9. Converted 256,908 yuan to pounds at an exchange rate of 1 yuan = 0.11.
10. Converted to pounds at an exchange rate of 1 USD = 0.79 GBP.
11. Mexico’s Instituto Nacional de Estadística y Geografía (www.inegi.org.mx/datos/?t=0190#Areas_geograficas).
12. https://www.cgdev.org/blog/what-does-uk-law-say-aid-how-new-development-secretary-mordaunt-can-meet-her-aid-effectiveness (accessed 22/06/2024).