Time to recognize private sector role in UK aid

British MEP Nirj Deva at the European Parliament. Photo by: Pietro Naj-Oleari / European Union / CC BY-NC-ND

Since its inception, the justification for international development has been universally guided by two fundamental pillars of distinct thought. As a developed nation, Britain should aspire to embrace a moral imperative; one that acknowledges a wider perspective in which our relative comfort imparts a responsibility to help those less fortunate, regardless of their geopolitical proximity or our gain.

While ideologically few would disagree, the realities of pressing austerity often stretch our adherence to such lofty principles, regardless of their enduring cogency. In such moments, we are reminded that overseas aid can serve a dual function: driving economic growth and generating jobs in partner countries — a result that, in turn, reduces aid dependency and opens fresh markets for British businesses to invest in.

Despite their conceptual differences, these guiding principles share a common cause, one which has driven Britain into a leading role in the international community. This is not merely rhetoric. Britain is the second-largest donor of aid in the world and the U.K. Department for International Development has made truly laudable efforts over the past few years to secure stability and prosperity in some of the most underprivileged and dangerous regions.

In the wake of Typhoon Haiyan, for example, Britain was the only European country with the naval capacity to deliver lifesaving, emergency aid to the Philippines.

Yet, as the Millennium Development Goals — the U.N. initiated program that has dominated international efforts for the past 15 years — come to their natural conclusion, the development landscape is shifting. Despite their many undisputed successes, estimates of the incremental global spending needed in developing countries is $1 trillion a year more than what is currently being spent — a burden that the already struggling taxpayer is unlikely to be willing to shoulder.

‘Irrevocable shifts’

Last month has seen likely irrevocable shifts in our national approach to development. With the passing of the International Development Bill in March, the U.K. has enshrined in law a 0.7 percent annual commitment of its gross national income to aid, making it the first of the G-7 nations to live up to the U.N.'s now 45-year-old target.

In 2014, this accounted for 11.4 billion pounds ($16.86 billion), and the decision has sparked polarizing arguments as to its efficacy. Nongovernmental organizations in particular have celebrated the bill, although, admittedly with a touch of cynicism. This is perhaps not altogether surprising, given that the guarantee will only be to their benefit.

Others, notably Lord Lawson of Blaby, who ran the British Treasury in Margaret Thatcher’s government in the 1980s, have expressed their justifiable concern that such a commitment wrongly frames development in terms of amount spent, as opposed to results achieved. In essence, such a decision risks the quality, accountability and targeted nature of our future aid programs.

Indeed, in 2013 — faced with a December deadline to match its commitment to the Organization for Economic Cooperation and Development — DfID faced the prospect that it had to spend 3.7 billion pounds (1 billion pounds more than expected) in just eight weeks.

The discrepancy lay in two fundamental issues: a difference in accounting the calendars between the Whitehall ministries and the OECD, and for the fact that the target can rise or fall depending on the economic success of that year. There is unfortunately no evidence to suggest that this will not prove to be a recurring issue and — although the commitment is admirable in its conception — I worry that it presents a narrow and unyielding target in a sector that inherently demands flexibility.

The National Audit Office’s annual report highlighted that given the limited time available, aid allocations may well have been based on the immediacy of the projects rather than their validity. The report concluded that while in this case the funds were appropriately distributed, once you subordinate results for spending targets, you threaten the fundamental tenets of rational management.

Indeed, in November and December 2013, DfID gave 1.7 billion pounds to multilateral organizations like the World Bank, and 415 million pounds to the Global Fund to Fight AIDS, Tuberculosis and Malaria. While such organizations are always eager to accept funds, the uncertain nature of being bound to floating targets is likely to drive DfID to push last-minute requirements through such international donors, regardless of their specific suitability.

Adam Smith International, a significant contractor for DfID, has warned that such global bodies run significantly high administrative costs than those run by Britain.

Role of the private sector

As we begin to re-evaluate our overseas commitments, the role of the private sector in development has increasingly been debated. Britain's Private Infrastructure Development Group has faced heavy criticism, following the Public Accounts Committee’s report that it is marked by “poor financial management,” opulent travel budgets and that much of its assistance either lingers, unspent in banks or goes to “known criminal fraudsters.”

Initially, we might well be tempted to write off private sector involvement based on this report alone. However, investment in the PIDG, which admittedly operates in countries of often questionable governance, has helped create 200,000 jobs and fostered 6.8 billion pounds in some of the world's most vulnerable countries.

As imperfect a partnership as private and public aid might be, there is currently no single significant development project in the world that does not consult and work with private investors. Indeed, the high-level panel advising U.N. Secretary-General Ban Ki-moon on the post-2015 development agenda consulted the CEOs of 250 companies from 30 countries and concluded that sustainability needs to be built into their corporate strategies to take advantage of the commercial opportunities for growth.

Population and income growth in developing countries is set to drive a growing global middle-class population, estimated at 5 billion by 2030, who will demand significantly higher levels of consumption. The demand for food, water and energy are forecast to grow by 50 percent, 40 percent and 30 percent, respectively, by 2030. If they are to remain cost competitive, companies will have to look forward and understand that they will need to achieve more with less. Shared value is increasingly viewed by the sector, not as philanthropy, but as the route to economic success.

We need to look beyond the outdated Friedman definition of companies as largely self-contained entities that only contribute to society by making a profit. Today, the private sector creates 90 percent of the jobs and income for poor people in partner countries and — despite the inherent challenges in any such partnership — as long as we operate on two distinct platforms, without understanding what each of the actors is trying to achieve, poverty will never be eradicated.

In the future, whether as a stand-alone ministry or in some other imagined incarnation, DfID will need to rely upon the private sector, not only for the massive injections of capital required but also for a sustainable base for domestic resource mobilization — the foundation of any aid program.

Stay tuned for more U.K. election coverage and news, views and analysis on how this impacts DfID and U.K. aid in the coming weeks. To explore additional content, visit the Future of DfID series site, follow us on Twitter and tweet using the hashtag #FutureofDfID.

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About the author

  • Photo deva new

    Nirj Deva

    Nirj Deva, a Conservative MEP for the South East of England for the past 12 years, has served in both the U.K. and European parliaments and has spent over 20 years in public service. Nirj's work in international development led to his nomination for the post of secretary-general of the United Nations, to succeed Kofi Annan, in 2006. In 2014, Nirj was elected chair of the delegation for relations with the Korean peninsula and re-elected as the vice-chair of the European Parliament's Development Committee.