TheCityUK response to the House of Commons International Development Committee inquiry into the philosophy and culture of aid

  1. TheCityUK represents the UK-based financial and related professional services (FRPS) industry – an industry that contributes nearly 10% of the UK’s total economic output and employs over 2.3 million people, with two-thirds of these jobs and half the exports coming from outside London. It is the UK’s largest taxpayer and biggest exporting industry and generates a trade surplus greater than all other UK net exporting industries combined. In order to retain its position as a global financial centre, it is vital that the UK continues to support the development of financial centres in emerging markets, introducing our world class regulatory regime and governance systems.

 

  1. TheCityUK has supported several UK development programmes, including UK Prosperity Fund projects, that have helped authorities in emerging markets develop their country’s business environments to UK and international regulatory standards.[1] Based on the successful delivery of these projects, we offer the following reflections on the benefits delivered through the Prosperity Fund, how the projects have helped partners overseas, and how the UK benefits from these projects.

 

  1. The UK Prosperity Fund was established in 2015 to support other countries in their economic reform efforts. It sought to support inclusive growth in partner countries and create opportunities for international businesses, including UK businesses. We believe that this vision of engaging with UK businesses to help partner countries develop the infrastructure required to support sustainable growth is effective and has delivered practical benefits to both sides.

 

  1. As a leading international financial centre, the UK and its FRPS industry can offer partner countries access to critical expertise on how to develop their own financial and professional services ecosystems – ecosystems which, in turn, enable broad based sustainable growth throughout the partner country economy, and provide a gateway for accessing UK capital markets and investment into core infrastructure.

 

  1. In order to develop strong business environments, countries need to develop their regulatory regimes and capabilities, establish the rule of law, strengthen governance standards, and attain international standards in environmental, sustainability and governance (ESG) areas. Prosperity Fund initiatives have provided an invaluable platform through which UK industry and civil society organisations have been able to partner with industries and regulators in international markets to deliver on these objectives. TheCityUK’s experience in supporting development projects offers examples of how this can occur, and the benefits that can ensue for partner countries and UK businesses.

 

  1. TheCityUK has worked through development projects with regulators, officials, and key private sector stakeholders in countries like Uzbekistan, Kazakhstan, India, Turkey and Malaysia to help partners develop core financial infrastructure. For example, in Kazakhstan and Uzbekistan, international aid platforms have enabled UK industry experts to advise partner country authorities on how to develop dedicated International Financial Centres (IFCs) in Astana and Tashkent. IFC development work has involved UK experts offering advice to authorities overseas on steps such as: creating common law systems and courts; developing independent regulators with clear mandates; shaping new corporate governance regimes and green finance taxonomies to help partner countries achieve their sustainable development goals; and establishing new training and education bodies to upskill local practitioners to the point that they can staff core financial functions. In Turkey, the Prosperity Fund has enabled UK professionals to advise regulators and businesses in market on how to develop Islamic Finance capabilities so as to cater to large domestic audiences of underbanked citizens who sometimes eschew traditional financial options for religious reasons.

 

  1. Through supporting the development of financial infrastructure, professional education, green and sustainable finance markets, financial inclusion and helping to shape new purpose built International Financial Centres, development projects have helped emerging economies achieve sustainable growth goals (i.e., to deliver on UN Sustainable Development Goal (SDG) 8, the core SDG targeted by the Prosperity Fund). Evidence suggests that high-quality and efficient services sectors within an emerging economy can contribute directly to growth, job creation and revenue generation as well as supporting productivity growth and competitiveness in other sectors.[2] However, such capacity building projects have far broader development implications as they can also help countries deliver against SDG Goal 4 (providing quality education), Goal 9 (building resilient infrastructure), Goal 11 (creating sustainable cities), Goal 13 (climate action) and Goal 17 (strengthening the means of implementation for sustainable development). Crucially, however, on these projects, the overarching objectives are determined by a range of political, business, regulatory, business, and academic stakeholders in partner countries, not directed by UK experts.

 

  1. The UK benefits greatly from helping emerging economies develop their financial and legal infrastructure. In terms of soft diplomacy, the UK benefits from being seen as a trusted partner to countries seeking to improve their citizens’ quality of life. In commercial terms, when UK practitioners help overseas partners to develop their own financial and professional services ecosystems, those new financial centres often seek in turn to model themselves on UK standards. UK financial and professional services businesses can attain a competitive advantage in the jurisdiction, benefitting from an association with international excellence. For example, businesses located in new financial centres can opt to access UK capital markets to raise funding.

 

  1. At a time when there is increasing competition among the world’s leading international financial centres, it is especially important that the UK continue to work to demonstrate its financial expertise in emerging markets. The same applies for legal expertise: as UK legal services professionals provide partners with advice on establishing robust legal systems, the UK can strengthen its association with the rule of law and legal expertise. This supports the UK’s position as a leading legal hub, and businesses in emerging financial centres governed by common law systems often choose to be advised by UK-based law firms.

 

  1. The underlying vision motivating the Prosperity Fund and other, similar development initiatives – that UK businesses can help partners develop the infrastructure to support sustainable growth, has produced positive results and should be further developed in the years ahead. Critical to this effort will be continuing to ensure that there is sufficient funding available to support such initiatives and that trade and development objectives on such projects remain integrated. It is also vital that the UK government follows a joined-up approach. It should engage in a more proactive and co-ordinated way across departments (for example, FCDO, DIT, HMT, BEIS, MoJ) and with firms and industry bodies, to jointly identify, plan and pursue opportunities to strengthen trade, investment and development through engagement with other markets.

 

  1. The UK government should also continue to be strategic as it considers which emerging economies can best benefit from UK financial and related professional services expertise in developing their legal, regulatory and governance systems, and where the UK has the capabilities to make the greatest practical achievement in helping countries attain their development goals. Finally, the achievement of significant capacity building work like the establishment of an International Financial Centre and shaping new, effective legal and regulatory systems takes time. One year development projects are not always the best way to facilitate such complex tasks; sometimes more flexible multiyear project timelines are needed to ensure a more lasting impact.

 

  1. We hope the views of TheCityUK will help the Committee in its Inquiry, and would be pleased to provide further insight.

 

 

TheCityUK

March 2021


[1] Countries that TheCityUK has led development projects in include Turkey, Kazakhstan, Uzbekistan, and Malaysia

[2] Balchin, N. Why services are important for industrialisation and economic transformation, in Trade in services and econonomic transformation, (eds. Hoekman, B. and Willem te Velde, D., Overseas Development Institute, February 2017). Accessible at: https://set.odi.org/wp-content/uploads/2017/02/SET-essays.pdf. Accessed: 12 March 2021.