DFID’s Increased Focus on Economic Development

DFID’s shift towards a stronger focus on economic development is a top priority for the UK Secretary of State for International Development, Justine Greening. Last month, she delivered a speech at the London Stock Exchange where she gives the rationale for ramping up our work in this area. A new strategic framework – “Economic development for shared prosperity and poverty reduction” – published by the department in January sets out five pillars, which together provide a coherent framework for supporting the main drivers to inclusive and sustained economic growth:

• Improving international rules for shared prosperity
• Supporting the enabling environment for private sector growth
• Catalysing capital flows and trade in frontier markets
• Engaging with businesses to help their investments contribute to development
• Ensuring growth is inclusive, and benefits girls and women

We’ve come a long way from the small enterprise development and micro-finance projects of old. Economic Development sees a country secure long term, high rates of economic growth, accompanied by a wider economic transformation that benefits the poor and shares prosperity more broadly.

As part of this shift, DFID is stepping up its engagement with businesses. The companies that get name-checked in speeches tend to be those on the High Street: firms such as Sainsbury’s, Tesco, Marks and Spencer and Primark. But this is not, as the Secretary of State has made clear, a return to tied aid. It is about increasing the developmental impact of the investments and operations of these and other multinational businesses in Low or Lower Middle Income Countries.

Working with UK retailers, DFID can support the transfer of knowledge and skills to increase productivity (for example in the horticultural sector in South Africa) or use industry leverage to improve working conditions (for instance in the textile sector in Bangladesh). There’s a rich vein of shared common and commercial interest to tap into. Global corporates have expertise to share and a growing number publically recognise the benefits to their own supply chains, corporate reputations and bottom lines from more equitable partnerships and more transparent business dealings with local communities.

Working with corporates is not a wholly new venture for DFID. A decade ago, we were one of the first to champion the Extractive Industries Transparency Initiative, to make more information available and increase accountability for the use of revenues gained from the exploitation of natural resources. We have worked with BP, Rio Tinto and others to raise global reporting standards, and working alongside other governments and civil society organisations, as well as firms in the oil, gas and mining sector, we were able to advance the issue during the UK presidency of the G8.

Engaging with international companies is important, but local firms continue to be the target for much of what we do. It’s not an “either/or” equation. The bulk of DFID’s private sector development programming remains directed at improving the livelihoods of those with jobs – mostly informal, self-employed or unwaged – in small and micro enterprises or on smallholder farms.

And for good reason. In sub-Saharan Africa, according to a recent World Bank study of Youth Employment in SSA, over 80% of jobs are in these sectors, with only slow change expected to this picture of employment. Even high growth in waged employment will still see most people in low income countries (LICs) engaged in agriculture and household enterprises in the medium term.

So we are building on our current portfolio of programmes that support investment climate reforms and improve the policy, legal, regulatory and institutional “enabling environment” for businesses of all size. We provide assistance (primarily technical) to local business associations, to advocate for better policies and regulations that benefit smaller firms, who are typically the most burdened by red tape and official harassment. We work with formal and informal financial service providers to improve access to finance for micro, small and medium enterprises, and have ambitions to do more in this space.

Many of DFID’s programmes focus explicitly on women’s economic empowerment and overcoming the obstacles that stand in the way of women-owned businesses in many developing countries. Many of our programmes take a market systems development approach – looking at sectors that have the greatest potential to grow, create new and better paying jobs and so lift large numbers of poor people, women and men, out of poverty.

Creating a better enabling environment for vibrant local private sector growth remains an important pillar within DFID’s new strategic framework on economic development. But this is certainly not “business as usual” for DFID and I would highlight three shifts. The first is the increased level of DFID’s ambition. The second is the steer to engage more with the private sector directly and with a broader range of business partners, small and big, local and international. And the third is the focus on transformative change. Directing support to the poor where we find them now – whether it be in the informal sector or “hanging in” as semi-subsistence farmers – is not enough. We need to be supporting new investment, innovation and the growth of those sectors of the economy that will create longer term opportunities for improved incomes in the future.