DfID investment profits could be funnelled into aid under reform plan
International development secretary Penny Mordaunt calls for ‘national conversation’ to promote private investment in aid as part of reset of DfID’s work
Profits made by the private sector investment arm of the Department for International Development could be funnelled towards meeting the UK’s commitment to spend 0.7% of economic output on aid, under plans announced by Penny Mordaunt.
In a speech at the Department for International Development’s private investment arm CDC yesterday setting out her vision for the future of UK aid after Brexit, Mordaunt said that private investment in countries in Africa and Asia was key to sustainable development.
As well as looking to use the profits from CDC, which as a development finance institution invests in less-developed markets in developing countries to support their economic growth, Mordaunt called for a national conversation on whether personal savings and pension investments could also be used.
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Rules governing what funds count towards the 0.7% target, and what the money can be spent on, are set by the Development Assistance Committee of the Organisation for Economic Co-operation and Development.
Currently, this is limited to government funds and does not include profits from such overseas investments, but Mordaunt said that she was looking to work with the international body to see how the use of money from private investments could be increased.
“Investing in developing countries in Africa and Asia helps to build the markets of the future and for UK businesses as we look to forge new trading partnerships. This is sustainable development,” she said.
“The more we do, the more we can trade, the more we can trade the less demand there will be for aid.
“And in future years as the amount of funding coming back into our own development financial instruments increases we should be open to using these profits to count towards the 0.7% and I’m exploring the scope to reinvest those funds with the DAC to maximise the value of our investments.”
Private sector role 'critical'
Her comments come the department’s permanent secretary Matthew Rycroft stressed the importance of promoting private sector development as part of DfID’s mission in an interview with Civil Service World.
“The heart I think of effective sustainable development is working with empeople, working with the grain of the country,” he said. “But you’ve got to find the people in the system who are trying to do the right thing and then empower them and encourage them and then use our aid budget to catalyse other people to come in," he said.
"Even as a very generous 0.7% donor, we as the UK are never going to solve the world’s problems on our own, but we can have a transformative effect of leading collections of other donors, of international organisations like the UN and the World bank and critically, of the private sector. Because there is way more capital in the private sector than in even a very generous aid budget, way more, so trying to find a way, as we do, of encouraging the private sector to invest in these sorts of countries, and building jobs and growth to eradicate poverty, in the long term that is going to be good for those countries, and good for the UK.”
In her speech, Mordaunt said the department had “carried out a reset” to both improving the quality of its work to alleviate poverty, but to also ensure aid spending more explicitly benefits the UK’s national interest
“Some other countries’ approach to development depends heavily on state finance and sovereign loans. Our approach is different - to mobilise private investment to support development. This results in driving innovation, increased competition and sustainable growth, while meeting high social and environmental standards.”
For example, Mordaunt floated the possibility of more UK individuals investing directly in overseas investment, tied to the 17 sustainable development goals, in order to “give British savers a chance to make a financial return in exchange for their goodwill”.
She added: “I want people to have more information about how their savings are used and the opportunities available to them to invest in things that they care about.
“Why can’t British people go to their Bank and invest their savings and pension in products that will invest in the global goals? Or open an app on their phone, and select which Goals they’d most like to invest in?”
However, aid experts warned such an approach could be have risks.
Jesse Griffiths, a specialist in development finance at the Overseas Development Institute, told the Guardian: “It is risky and potentially dangerous for two reasons. If we see profitable opportunities as aid, it risks undermining overseas development aid. Aid should be the transfer of resources from the richest countries to the poorest.
“Secondly, it is very difficult to incentivise private investment in the poorest countries because they lack the basic infrastructure that is needed.”
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