Britain’s Department for International Development (DFID) is not capitalising on partnerships with the private sector, the UK’s aid watchdog, the Independent Commission for Aid Impact (ICAI), has reported.
Although ICAI also reported strong examples of delivery through loans, equity investments and guarantees that help reduce poverty, concerns were raised on the level of strategic oversight DFID has over business engagement activities and the lack of clear targets for this portfolio.
“Our findings show that DFID needs to do more to translate its high level ambition into detailed operational plans with a clear focus on poverty reduction.” ICAI reported.
ICAI’s report assessed the impact of DFID’s work with private sector firms on economic and human development, environmental sustainability and humanitarian assistance, awarding the agency an amber-red rating – its second worst – for its work with businesses.
While recognising the great potential for collaboration between the private sector and DFID, ICAI reported that “We are concerned, however, about how DFID will translate these goals into practical actions without more strategic oversight of business engagement activities and without concrete targets.
Part of the problem identified is that DFID’s poverty reduction targets are out of sync with the profit-making imperative fundamental to private business.
The financial incentives for businesses to work with DFID mean that the agency must agree with private sector partners on reachable targets, the study said.
Poor executive leadership has also made the development objectives behind DFID’s private sector partnerships unclear, ICAI reported.
The study also supports in part criticisms levelled against DFID’s approach by NGOs.
While the study does not take into account spending by the UK’s CDC Group, formerly the Commonwealth Development Corporation, or the Private Infrastructure Development Group, in which DFID invests, this received a similar negative report in July 2014 from the National Audit Office
DFID was found to have insufficient evidence to show that funding PIDG was the best option and that its financial control was lacking, allowing the PIDG Trust to hold nearly £27 million worth of DFID funding since 2012, leading to a 2013 overhaul of management protocols.
DFID is projected to increase its financing to private sector firms – in the form of loans, equity investments and guarantees – to an estimated £580m, up from £68m in 2012.
In the last three years DFID has spent about £494 million on alliances, financing and partnerships with UK and foreign businesses.
Responding to the report, a DFID spokesman clarified that, “This report comes a year into our groundbreaking new strategy and only reviews a small cross-section of our work. It would be wrong to rush to conclusions on projects that are intended to deliver over a five- to 10-year timeframe.”
The ICAI has outlined five recommendations for DFID:
- Recommendation 1: DFID should translate its high level strategies for business engagement into detailed operational plans which provide specific guidance on business engagement with a focus on the poor.
- Recommendation 2: DFID should ensure better linkages between centrally-managed programmes and country offices for business in development, including Loans, Equities and Guarantees (LEG).
- Recommendation 3: DFID should pull together, synthesise and disseminate management information across all departments, including for LEG, to improve management and ensure learning is captured and used to improve performance.
- Recommendation 4: DFID should add suitably experienced members to its Investment Committee to enable sufficient strategic oversight of all components of its LEG portfolio.
- Recommendation 5: DFID should reassess how it appraises, monitors and evaluates its engagements with business to ensure fitness for purpose and a sharper focus on the poor.
The full report is available to download here.