The U.K. Department for International Development often claims it would like to see increased private sector engagement, diversification of funding strategies and a change in attitude in the sector.
But while DfID is saying the right things, especially regarding the role of the private sector, moving toward using more “returnable capital” and adopting the right approach to development, the aid agency’s actions don’t always follow, according to Sir Malcolm Bruce, chair of the International Development Select Committee at the House of Commons.
DfID, he explained, is recognized as a world leader in development, but it should consider what it can do to further new strategies and meet its development goals.
Devex Impact sat down with Sir Malcolm in London last month for a chat about what he sees as the role of the private sector in development, where DfID can do better and how this can be accomplished. Here are a few excerpts from our conversation:
What do you see as the role of the private sector in development? Do you see potential to for further involvement?
It’s not about potential. You’re not going to get development without it. The truth is all those countries that have been lifted out of poverty have expanded their private sector to do it. Not only that: if you want to deliver the public services you have to have a tax base, which is also going to come from the private sector.
It’s a no-brainer. The question is how do donors interact in ways that are going to help that — and I think that creates difficulties. Partly it’s that development professionals’ mindsets tend to be about delivering public goods in one way or another. I don’t mean they’re anti, but they’re not utterly well groomed and well versed. There’s a mistrust sometimes. There’s also just a lack of meeting of minds.
I know the department has set up this private business sector, but it’s relatively new and not entirely clear. We as a committee will be producing a report and publishing it fairly soon about the future of development finance and we absolutely think that there must be a greater role for returnable capital — particularly as countries graduate out of lower income and become lower middle income. We think there should be graduations through grants to loans then eventually to a straight commercial relationship. What we’re interested in is what the intl donor community can help … I’m quite certain that [U.K. Secretary for International Development] Justine Greening wants to do that, but I’m not sure she really entirely knows how.
How do you think some of these changes should be made? How can this get done?
We’ve got organizations like PIDG for infrastructure, which seem to be fairly successful and is run on fairly commercial lines and is turning grant aid into loans, and effectively multiplying its reach. It’s demonstrated that if you can use public money to unlock private money then you can reach a heck of a lot more.
[It should] change to be more of a mixture of grants, loans, technical assistance and that’s where partnerships with the private sector seem to be potentially ripe. I don’t think there’s enough engagement between business and donors — they’re all very uncomfortable with it. Generally speaking the reputable companies tend to be good employers and set good examples and pay fairer wages even though they get criticized for it — there are exceptions. The simple question is what can you do to ensure mineral exploitations in sub-Saharan Africa actually stimulates the development of a more diverse economy and a stronger tax base. At the end of the day it’s up to the governments of those countries to make it happen, but donors can partner with them and help them and advise them about how and what is a fair tax system that will actually deliver results. It does require them to play the game themselves. It is also how you can then perhaps redistribute money to stimulate other sectors of the economy in partnership either with your own private sector or external ones and then do it without corruption. There are lots of questions begged but that is essentially what we’re trying to do.
What do you see as parliament’s role?
Our technical role is to hold the department to account but we’re a bit more creative than that. I think what we want to do is challenge the department. So it’s partly to say what are you doing and can you do more? Quite a lot of what we do is the traditional development stuff. We’re doing disability in development now, so what are you doing to help disabled be included, what more could you do. Similarly we’re tackling things like violence against women and girls, child marriage, female genital mutilation, all of those kinds of things. But, we’re also addressing the future of development finance, the role of the private sector, the possibility of setting up a development bank, which the U.K. doesn’t haven’t have… the fact that others have it doesn’t mean we should but we should at least ask the questions if not why not, and if so, how?
You described your role in part as holding DfID to account and challenging them. What do you think they’re doing well and what could they be doing better?
In many ways I think they are regarded as the world leader, inasmuch as they are doing their best to deliver measurable outcomes in all the usual indicators whether it’s, Millennium Development Goals, like nutrition, education, health and infrastructure. I think on the whole they are doing it well, transparently, in scale and with some degree of energy and enlightenment.
But what they need to do better, I think, is to always look at how they can strengthen the capacity of the countries they are operating in and ultimately improve tax collection, local skills and, if you like, the dynamics of the local economy. I’m not sure traditional grant aid does that. I think they understand it but I don’t know how much of it they’re actually doing.
They are putting more money into livelihoods, but it tends to be still in the microfinance, small scale stuff. What can they do more substantially than that? I’ve been approached to ask about whether we could have partnerships, for example in Uganda, where Tullow [Oil] and others have found oil and gas. How can we get in on the ground floor and work with Ugandan authorities to say a) we can help train your skills in that sector and b) possibly also use some of the revenues for skills training that could be useful in other sectors. Could we could help Uganda work out a strategy so that they get the most out of the oil and gas industry as an industry in terms of local capacity and skills but also that the revenue can then stimulate the diversification of the economy.
You mentioned that the committee is working on a report, can you give us a preview of what types of recommendations it may make and how you envision the role of the private sector moving forward?
I think it is about how you create instruments which the private sector can more conveniently come in on and I think that requires a change of mindset on both sides. Because the private sector has to understand that if taxpayers money is coming in there will be a degree of transparency and accountability they may not find they like. The public sector has got to recognize commercial interest, commercial realities and timescales.
You’re trying to get it to transition to the point where ultimately development assistance as such is obsolete. If the post 2015 goal of ending absolute poverty and leaving no one behind by 2030 was actually achieved, would that mean the end of USAID or DfID? My view is that probably it should. But it doesn’t mean the end of development assistance — it becomes probably more focused on trade and cooperation, with a little bit of ODA-type funding because the gaps are still wide. There’s still a recognition that they need a little bit of help — whether it’s subsidized loans or limited grant aid or guarantees to try and ensure that things happen that aren’t quite as attractive as they are in sub-Saharan Africa than they would be in Kent.
It’s about of working out what creative solutions will work and having a better mix of instruments. I think they’ve got to move away from just grant aid, but that requires them to think differently and train differently. This is why we’ve been exploring the idea of having a development bank, because we think it would actually require building up of capacity. We’re saying create a wider range of instruments and be more creative and more imaginative and bring in private sector people.
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About the author
Adva Saldinger@AdvaSal
Adva Saldinger is an Associate Editor at Devex, where she covers the intersection of business and international development, as well as U.S. foreign aid policy. From partnerships to trade and social entrepreneurship to impact investing, Adva explores the role the private sector and private capital play in development. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.
