In a major speech this week Andrew Mitchell the Secretary of State announced that DFID will now be looking more to the Private Sector to bring in their expertise on Business and Enterprise to aid International Development efforts.
Whether this is genuine change in policy or just another empty speech made to placate the growing masses of opinion against Aid remains to be seen. Many people including myself have argued for a very long time that unless there’s an increased focus on trade, business and job creation in poor countries the international community risks spending billions on legacy projects that will achieve nothing in the long term.
In this regard Andrew Mitchell’s speech is a step in the right direction however its implementation will be keenly monitored by observers. As the rest of the United Kingdom prepares for radical cuts in Public Spending people in the UK are beginning to question why the Government has decided to ring fence the Aid Budget.
The speech can be summarised in four succinct points:
Private Investment: A new Private Sector Department will be established inside DFID to boost the role of private enterprise in the poorest developing countries, the fact that this now being done tells you everything you need to know about what the focus of DFID has been the past. The new department will have business experts seconded to it to provide advice to civil servants on private enterprise
Reduced Barriers to Growth: The UK will focus on reducing barriers to growth in the poorest developing countries, there will be an increased focus on levelling the playing field for all investors and helping poor countries to streamline market entry and reduce the amount of work involved in setting up businesses. In my previous writings I’ve increasingly argued that steps like these even though may seem basic are the building blocks for economic development. Rwanda’s achievement in this area is clear for all to see and I hope DFID will liaise with the Rwandan Government to help and advice other African countries adopt a pro-business approach to regulation.
Trade negotiations: A renewed push for a successful conclusion to the Doha trade talks, global reforms that could bring gains three times the volume of global aid. I’m rather suspicious of how much leverage DFID can bring to the Doha trade talks, these talks have been going for years and it’s in the interest both the Developed and Developing world to come to a conclusion that is acceptable to all parties
Reform of the CDC: The final and most radical part of the speech was the proposed reform of the CDC; the development finance institution owned by the UK Government will be radically reformed and revitalised to drive more effectively investment in countries where businesses cannot usually find investment partners. The reform of the CDC if carried out in the right way could revolutionize the way business is done in Africa, currently start-ups and SME’s in Africa are starved of credit same as is happening in the UK at the moment, if the CDC could be convinced to relax its remit and actually look to putting its funds at the disposal of SME’s in Africa the result could be huge increase in company formations and business growth in the region. I get the impression from Andrew Mitchell’s speech that this is what he is aiming for.
The speech echoes one made recently by Bob Geldof who after years of campaigning for more bilateral aid and debt relief performed a spectacular u-turn last month, insisting that it was Trade and commerce rather than aid that would change the fortunes of the millions living in poverty in Africa. Cynics noted that the speech was made as Bob Geldof launched a private equity vehicle to raise funds to invest in Africa
The challenge that lies ahead for DFID is a tough one, as an organisation Trade and Commerce have never been at the core of its activities, and this is certainly not the first time the organisation has announced sweeping changes to the way it carries out its work.
Previously DFID announced it was going to be moving away from the Economic Development Assistance approach i.e. building schools and wells to a more “rights” based approach i.e. people in poor countries should demand schools and wells.
How did the new approach work out? Well in essence it led to DFID spending hundreds of millions of taxpayer funds on Advocacy and communications, how these will actually improve the lots of poor people in the world remains to be seen, see here and here for more information on DFID expenditure on advocacy.
Two days ago at a networking lunch I asked Stephen O’brien ( A minister at DFID) whether the new focus on Private Sector Enterprise meant DFID was moving away from its reliance on “Aid” to a purely “Trade focused” settlement, his answer wasn’t exactly what I was expecting, after regurgitating parts of his speech he’d made earlier he concluded by admitting that as much as he accepted the importance of trade, there was a need to transition from the current system to a more private sector trade focused approach to International Development. Surely the fact that 60 years on little has been achieved by the current approach to development is enough to justify completely changing it. Why it has to be transitioned defeats me.
What I found most interesting was that after the lunch I was approached by some Africans at the same event and castigated for having the nerve to criticize African countries, as part of my question I pointed out to the minister that a lot of DFID money spent in Africa ended up in Swiss bank accounts and this clearly didn’t sit well with some of the African delegation at the event.
Why does any of this matter I hear you ask? Well it matters because I think DFID can become an incredible force for good, one of the biggest problems for businesses in Africa is a lack of access to credit.
Farmers can’t afford fertilizer or modern agricultural tools to help increase yield and hence their earnings, tech start-ups can’t find funding to leverage their ideas because Venture Capitalists are only interested in projects that are already making money, Local Banks will only lend to long established and profitable businesses.
This is where DFID can make a huge difference if for example the CDC can be reformed so that its funds are invested in smaller companies in poor countries rather than already established firms who can raise funds from the private sector it will only mean one thing for Africa… an increase in jobs which in turn will lead to an increase in growth and living standards for the poor.
Whether DFID will be able to achieve its goals remains to be seen….I for one won’t be betting on it