ICAI to DfID: Manage expectations on private sector engagement

Alan Duncan, U.K. minister of state for international development visits a small business that produces grinding wheels in the Palestinian territories, where the Department for International Development is supporting Palestinian private sector that, in turn, will create 3,400 jobs and boost economic growth. The Independent Commission for Aid Impact’s new review says that DfID’s statements on private sector development objectives objectives are “too broad, complex.” Photo by: Zoe Paxton / DfID / CC BY

The U.K. Department for International Development is set to boost its spending on private sector engagement in economic development to 1.8 billion pounds by 2015, showing how the agency truly values the growing role of business in poverty eradication efforts.

But a new review published on Thursday by the Independent Commission for Aid Impact notes this amount is nowhere near enough to achieve DfID’s huge overall goal of transforming the business environment in its partner countries to encourage more private sector involvement in development, which the British aid watchdog feels DfID should to be more realistic about.

Over the past few years, the U.K. aid agency has been actively encouraging more private sector participation in its programs, and Secretary of State for International Development Justine Greening has been championing the cause since she was appointed in September 2012.

Greening wants to truly open DfID for business for the private sector to become a partner for sustainable economic growth and to lessen aid dependence in all of the agency’s partner countries. Under a new strategic framework for private sector engagement launched in January, DfID identified five focus areas, two of which are are enabling the business environment in partner countries to promote private sector-led growth and "improving international rules for shared prosperity."

But the aid watchdog describes these objectives as too broad, complex or an area where the agency sometimes has "relatively small" influence, and notes it would be best for DfID to further define its role and provide clear direction on how it aims to achieve these goals.

"The combination of ambitious, high level objectives and a failure to define its role in the wider context means that DfID has not articulated what success would look like," the aid watchdog argues in the first of a two-part report on DfID's private sector work.

Strengths and weaknesses

DfID is highly regarded among donor agencies for its ideas and practices on private sector development, and the report finds that the agency’s programs align with the priorities of partner government priorities — at least in the countries studied by ICAI.

However, there are still a few inconsistencies that DfID needs to address.

For instance, not all of its micro-, mid- and macro-level programs per country appear to collectively contribute to DfID's goals. Another problem is that donors are increasingly seeing the need to introduce job creation early on in fragile and conflict-affected states, and the agency has committed to channeling 30 percent of its official development assistance funds to this purpose in these nations. But it's unclear how the DfID plans to introduce its private sector development against myriad of challenges like broken infrastructure, lack of a central government, displaced populations or a disrupted market.

So if, as DfID says it aims to work closely with the private sector — and rightly so, for it to better understand the sector's needs and challenges — it seems the working relation between the two is still too distant, according to the aid watchdog. A business leader who engages with the agency told ICAI: "DfID is very difficult to work with."

As for its private sector advisers, DfID was able to increase their number from 30 in 2011 to 80 today, but the aid watchdog questions whether they are skilled and experienced enough to help the agency boost its private sector programs and their delivery. More than half have only three years of experience or less in this line of work, and few have taken part in a program introduced by the agency to boost staff capacity in this area.

"It still does not have the appropriate type of skill sets and experience to advise on current and future challenges," the review points out.

These advisers, according to ICAI, can play a critical role in helping DfID identify the areas of private sector development interventions where the agency is positioned to have the most impact, instead of pursuing too many different goals at the same time, a concern that was also raised in the watchdog’s last review of DfID’s work in Afghanistan.

Common concerns

Many aid organizations often complain that donor focus on economic growth doesn't always translate to development outcomes for the poorest.

This also occurs with DfID’s private sector development work sometimes, the report points out, citing for instance how the agency has had finding evidence that interventions on regulatory reform in Bangladesh under the Enterprise Growth program — to which DfID has contributed 40 million pounds — is actually benefiting poor households or their businesses.

The review argues: "DfID needs to recognize that the private sector is not a developmental panacea. References to ‘the miracles’ that companies are able to perform risks underplaying the role that donors like DfID and country governments have in ensuring that economic development provides benefits to the poorest in society."

Furthermore, ICAI also mentions problems with accounting and transparency, as the watchdog found it "impossible" to figure out much DfID actually spends on its private sector development work, given how spread out it is across the agency's development portfolio.

In response to the report, a DfID spokesman shared the following statement with Devex:

“ICAI is right to recognise the very clear link between economic development and ending dependency on aid. That is why we have ambitious plans to create jobs, raise incomes, generate tax returns and boost growth at the very heart of our work.

We agree that this must be appropriately managed which is why we set out a full strategic framework earlier this year and we are building DFID’s private sector skills.”

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See more:

DfID under the spotlight over aid for trade in Southern Africa
Under pressure: UK aid to Afghanistan
UK firms heed DfID's call for development through business
What we've learned in London: DfIDs shifting strategy and partnership challenges
UK MP to DfID: Walk the talk on private sector engagement

About the author

  • Jenny Lei Ravelo

    Jenny Lei Ravelo is a Devex Senior Reporter based in Manila. She covers global health, with a particular focus on the World Health Organization, and other development and humanitarian aid trends in Asia Pacific. Prior to Devex, she wrote for ABS-CBN, one of the largest broadcasting networks in the Philippines, and was a copy editor for various international scientific journals. She received her journalism degree from the University of Santo Tomas.