DfID needs to be clearer on what its private-sector focus achieves

The UK’s Department for International Development (DFID) is failing to make sure that aid money it channels into projects with private sector firms is actually reducing poverty, a report from the Independent Commission on Aid Impact (ICAI) found last week.

DfID has been ramping up its private sector focus in recent years, and in 2011 established a new department to increase its engagement with the private sector which it said would “enhance the contribution of firms to development”.

There are concerns however that DFID’s top-line strategy in this area lacks detail on how it will actually reduce poverty, and ICAI’s report suggests that DfID still needs to significantly improve the way it works with businesses.

Cafod believes that the private sector can play a significant role in boosting livelihoods in developing countries. Our Think Small research from 2013 sets out how micro and small businesses can contribute to poverty reduction, and the support they need to do that.

So we support ICAI’s view that in some cases businesses can lead the way in providing locally appropriate responses to development challenges.

Yet ICAI highlights that there is little evidence available on how development money spent via businesses delivers poverty reduction.

We strongly agree that DfID could add value by developing this evidence base. This will require DfID to significantly improve oversight of how its money is being spent.

A recent Cafod report found the Government began channelling aid money into two commercially run private equity vehicles before having appropriate monitoring in place to oversee what the public money delivers.

These investments, made under what’s known as the Climate Public-Private Partnership, (CP3), and designed to stimulate private-sector investment in low-carbon technology, will be made under commercial terms.

Yet DfID should go beyond simply keeping an oversight of financial returns made on investments when working to deliver poverty reduction. We think DFID should put a stronger focus on ensuring that taxpayers’ money makes positive economic, social and environmental contributions to people living in poverty and that it does no harm.

Our recent interviews with various donor agencies have told us they recognise that this way of delivering aid is relatively new and more work is needed to ensure accountability.

Finally, DfID also needs clear exit strategies in place for its investments in private firms, and that will require far greater transparency. For example, Cafod’s research found that if DfID contractually obliged firms to share more data about how investments are structured, who benefits from them and who controls the decisions, then the government of the country in question could use the information to improve its own poverty-reducing investments. Increased transparency around investments would also make it easier for developing countries to tackle corruption and prevent capital flight.

We hope that DfID will respond quickly to last week’s report, and put in place better management of the risks that ICAI identified. UK aid money is crucial for lifting people out of poverty around the world, but DfID has a responsibility to ensure that its spending delivers on that aim.

Beck Wallace is a private sector policy analyst at the Catholic aid agency Cafod

Above: White-collar aid: a meeting of the DfID-supported Future Cities Africa initiative, which aims to help cities grow and flourish as economic centres. Photo: DfID via Twitter