Aid watchdog says DfID's investment arm 'lacks rigorous monitoring'

CDC is doing too little to ensure the billions it invests have maximum impact, ICAI says

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The Department for International Development has been told to improve the way its investment arm plans and evaluates the impact of investments, following a report that found the finance institution was doing too little to maximise the impact of its aid funding.

DfID invested some £1.8bn through CDC Group, a development finance institution owned by the department, between 2015 and 2018. However, a review by the Independent Commission on Aid Impact has rated CDC’s performance as ‘amber-red’ after finding serious flaws in the way CDC decides where to invest and evaluates the impact of its investments.

Among other things, the report said CDC was directing too much of its funding to large economies, meaning the world’s poorest could be missing out on hundreds of millions of pounds in investments.


ICAI’s review examined how well CDC had achieved its objectives between 2012 and 2018, a period in which it underwent “wholesale organisational change”. CDC had previously focused on low-middle income countries, but in 2010 then-development secretary Andrew Mitchell said it should become “more pro-poor focused than any other development finance institution” to align better with DfID’s strategic priorities.

CDC has since shifted its focus towards investing in low-income and fragile countries in Africa and South Asia. Just over half of new investments in its main portfolio between 2012 and 2017 were in countries classified as difficult investment environments, but the majority were concentrated in a few large economies such as Pakistan, Kenya and Nigeria, ICAI found.

The watchdog said CDC had too weak a presence in Africa, putting the impact of its investments at risk.

ICAI commissioner Richard Gledhill, who led the review, said despite having made “significant progress” towards its focus on investing in low-income and fragile states, the commission had “serious concerns about CDC’s lack of rigorous monitoring and evaluation for its multi-billion investment portfolio”.

He said there was “still a way to go to ensure the substantial investments are really making the maximum possible impact on poor people and communities”.

The report called on DfID and CDC to work more closely together to set out geographical and sectoral investment priorities, and to improve the way the organisation monitored and evaluated development impact.

The commission said CDC relied too heavily on the Development Impact Grid, a tool it developed in 2013, to screen its investments according to their potential benefits for poor people. The grid, although useful, was a “relatively blunt instrument” with a too-narrow focus on jobs, according to the report.

“We believe that CDC should have done more to select impactful investments,” ICAI said. It said CDC had set neither targets nor expectations for its investments beyond its impact grid assessment, and until recently monitored only a “narrow set of metrics”.

The report also said CDC had done too little to measure the development impact of its work, and found “weaknesses and gaps in evaluation and learning”. It said the organisation needed to learn from other development finance institutions and civil society organisations.

Until 2017, CDC did too little to evaluate the development impact of its investments and had no strategic plan to use monitoring and evaluation results to inform its investments, the review found.

ICAI said CDC had since increased its focus on evaluation through the creation of new staff roles and a website revamp that made it easier to share lessons learned. However, it said making evaluation and learning part of investment teams’ core working practices was an “ongoing challenge”.

The report did acknowledge that CDC had begun to implement “ambitious plans” to address these concerns, but said they were still at an early stage and both it and the department needed to do more to ensure the money it distributed was used effectively.

Improvements CDC had made to its assessment and monitoring of impact included ‘development impact cases’ for all potential investments and a significantly expanded team of development impact experts.

Responding to the report, a DfID spokesperson said the review was “backward-looking” and focused mainly on CDC’s work between 2012 and 2016.

“In 2017, CDC agreed a new five-year strategy with DfID and it has already taken steps to increase the development impact of its investments and expand its presence overseas,” they said.

“Over the past three years, CDC investments have mobilised over US$3bn of additional private capital which have supported the growth of successful businesses in the world’s most challenged countries.

"These firms are creating jobs, providing essential services and boosting local tax revenues which help transform economies, lift people out of poverty and achieve the Global Goals.”

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