While the strategy will not increase the amount of money DfID spends on economic development — currently about 1.8 billion pounds per year — two shifts in how the government finances international development will shape the new approach: the recapitalization of DfID’s private investment arm and the U.K.’s exit from the European Union.
“The U.K.’s exit from the European Union creates a unique opportunity to build up a comprehensive package bringing together U.K. trade policy, aid that unlocks barriers to trade and investment promotion to reduce poverty,” reads a section of the document titled “Advancing trade and prosperity.”
While DfID has produced a number of white papers related to economic development, namely during the tenure of former Secretary of State Clare Short, this document marks the department’s first formal strategy for economic development since it became an independent agency in 1997.
The “Global Britain” doctrine coined by Prime Minister Theresa May also features prominently in the strategy, as well as the previous administration’s commitment to deliver more aid through other government departments, including the Ministry of Defence, the new Department for International Trade, and the Foreign and Commonwealth Office. The document calls for more collaboration between DfID and the city of London, which the strategy says has “a central role to play in channelling private capital to developing economies,” in order to “become a leading financial center for the developing world, supporting economic growth, job creation and an exit from aid.”
DfID and Priti Patel, secretary of state for international development, have come under fire in the months since Patel took up the post in June 2015, both for moving toward an “aid for trade” approach to development and for drastically increasing the capacity of the CDC, DfID’s private sector arm. But Patel stressed in her introductory note that the CDC’s mandate will be to invest in the poorest, riskiest investment climates — a tactic aimed at improving economic prospects in those countries and regions where investors typically fear to tread.
“Right now there is a desperate shortage of private and public investment in the world’s poorest countries, despite the significant opportunities,” Patel writes.
“The U.K. will catalyze investment by using innovative financing approaches, as well as helping countries to improve their investment climate. CDC, the U.K.’s development finance institution, will be at the heart of this, alongside our leading role in reshaping the international system.”
In terms of sectors, the strategy will bolster DfID’s work on job-creating industries such as manufacturing and commercial agriculture and will increase efforts to break down binding constraints to growth — including energy provision, financial infrastructure and improving economic corridors. The strategy also commits to working more with developing country governments to support future sectors, such as fintech, peer-to-peer lending and financing, and e-commerce. DfID also commits through its economic development strategy to support development country government institutions to battle corruption, raise domestic revenue and build and implement effective tax systems. Finally, the strategy pivots toward the multilateral system and members of the G20, pledging to make good on previous commitments, including beneficial ownership, tackling illicit currency flows, and bringing down the cost of remittances, as well as using the U.K.’s role in the World Trade Organization to push for fairer trade rules.
The CDC’s investments under the new strategy will focus on infrastructure, improving financial institutions, manufacturing, agribusiness, construction, health and education. DfID also notes it will push the CDC to “make gender, climate and environment-related considerations more central to our development capital work.” In November, Parliament voted to increase the ceiling for DfID’s capital investment in the CDC from 2 billion to 6 billion pounds. A spokesperson confirmed to Devex in December that the CDC will produce its new investment strategy in early 2017.
Molly is a global development reporter for Devex. Based in London, she covers U.K. foreign aid and trends in international development. She draws on her experience covering aid legislation and the USAID implementer community in Washington, D.C., as well as her time as a Fulbright Fellow and development practitioner in the Middle East to develop stories with insider analysis.
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