Business in Development

21 May 2015

The Independent Commission for Aid Impact (ICAI) has published a report today, on how the Department for International Development (DFID) works with and through business.

Businesses are playing an increasing role in development. Collaboration between business and aid agencies has the potential to deliver major benefits for the poor and DFID’s growing portfolio of work with businesses recognises this important opportunity.

Our report found that DFID’s work with business is relevant to its mandate; and has expanded its capacity to deliver programmes and to test new approaches. We have observed some strong examples of delivery through loans, equity investments and guarantees and while, in many cases, it is too early to show real impact, our interim evidence suggests that there is scope for significant potential.

In some cases, however, we are not confident that DFID’s support is additional to what businesses would have done anyway, especially in the case of challenge funds.

We are concerned about 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.

Graham Ward, ICAI Chief Commissioner, said: “We examined DFID’s work with business at an early stage. They have clearly stated their intention to work more with business and there are great potential benefits for the poor from this collaboration. 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. Our recommendations address these issues and, if taken forward, we expect to see increased benefit for the poor”.

As a result of our findings, we have given a rating of Amber-Red.

We made the following recommendations:

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.

 

 

Notes to editors:

  1. For further information please contact Caroline Daniels on 07787698209 or caroline-daniels@icai.independent.gov.uk. The Independent Commission for Aid Impact (ICAI) is the independent body responsible for scrutinising UK aid. We focus on maximising the effectiveness of the UK aid budget for intended beneficiaries and on delivering value for money for UK taxpayers. For further details on ICAI, the workplan and for links to each report please visit independent.gov.uk/icai.
  1. ICAI’s Chief Commissioner is Graham Ward CBE. The three other Commissioners are: Mark Foster, John Githongo and Diana Good. Their biographies can be found on the ICAI website.
  1. These reports were prepared by ICAI with the assistance of KPMG LLP, Agulhas Applied Knowledge, Center of Evaluation for Global Action (CEGA) and the Swedish Institute for Public Administration (SIPU International).
  1. The review focusses on how DFID and businesses can work together in emerging markets in mutually beneficial ways. It does not cover DFID’s engagement with businesses through purely contractual relationships, where a private sector company is delivering a DFID programme.
  1. DFID’s financial systems do not categorise expenditure on working with business. Based on the information available to us, we calculate that between 2012-13 and 2014-15 DFID committed £494 million to work with business in development.
  1. This review complements but is distinct from our 2014 review of DFID’s Private Sector Development (PSD) work. The 2014 review assessed the overall coherence of DFID’s efforts to stimulate the growth of the private sector in developing countries.
  1. Challenge funds are mechanisms for the competitive allocation of funding on a matched-funding basis. Challenge funds are used by DFID to promote innovation in areas which are subject to market failure but has significant potential for development.
  1. ICAI reports use a simple ‘traffic light’ system to report our judgement on each programme or topic we review, as follows:

Green: The programme performs well overall against ICAI’s criteria for effectiveness and value for money. Some improvements are needed.

Green-Amber: The programme performs relatively well overall against ICAI’s criteria for effectiveness and value for money. Improvements should be made.

Amber-Red: The programme performs relatively poorly overall against ICAI’s criteria for effectiveness and value for money. Significant improvements should be made

Red: The programme performs poorly overall against ICAI’s criteria for effectiveness and value for money. Immediate and major changes need to be made.

 

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