DFID’s Private Sector Development Work

15 May 2014

The Independent Commission for Aid Impact (ICAI) has published a report on the Department for International Development’s private sector development work.

DFID has been coherent and consistent in its view that developing the private sector in a country is central to its economic development and to poverty reduction. DFID sees its work in this area as helping countries graduate from a dependency on aid. The scale of the challenge, however, is immense and DFID’s approach is highly ambitious. The department plans to spend £1.8 billion on economic development in 2015-16 – more than doubling the amount spent in 2012-13.

DFID’s private sector development work encompasses a wide range of different programmes: macro approaches to trade policy and regulatory reform, mid-level development of market systems and micro support to small enterprises and individuals. The impact of individual programmes is positive – particularly at the micro-level – and DFID has demonstrated its ability to assist the poor through a range of interventions.

DFID has not, however, turned its high ambitions into clear guidance to develop a realistic, well-balanced and joined-up country-level portfolio of programmes. There is pressure to demonstrate results against measurable targets. In none of the countries we visited did we see a plan for – or assessment of – the cumulative impact of programmes, so it was unclear how well DFID’s work overall is transforming the private sector as a tool for economic growth and poverty reduction.

Private sector thinking should be at the heart of DFID’s private sector development work. Understanding and learning from the private sector is starting to permeate through the organisation but more can be done to build on its relationships with the private sector.

As a result of these findings, we have given a marking of Amber-Red.

Graham Ward, ICAI Chief Commissioner, said: “DFID is respected amongst donors but still a very small player in the wider processes needed to develop the private sector. Moreover, much of what it seeks to achieve, such as transformational change through regulatory reform and relaxation of international trade rules, lies not only outside its control but also outside its core competencies as an aid agency. DFID needs to identify and focus on its core strengths and the areas of private sector development work where it can add most value in its role as an aid agency.”

Lead Commissioner, Diana Good, said, “DFID has an immense ambition for its private sector development work and is planning to more than double the funding for it over three years. Our major concern is that DFID has not sufficiently put in place the building blocks that are vital for it to succeed: its staff should have clear guidance and a framework with which to develop a coherent portfolio of projects that, together, effectively support economic growth and poverty reduction.”

ICAI has made four recommendations to support DFID’s future private sector development work:

Recommendation 1: DFID should clearly define and articulate where it can add most value in private sector development relative to other stakeholders. It should be more realistic in its ambitions and the impact it seeks to achieve.

Recommendation 2: DFID should provide clearer guidance to its staff on how to design a coherent and well-balanced private sector development country portfolio that matches its goals for an end to extreme poverty through economic development and transformational change.

Recommendation 3: DFID needs better to calibrate and manage the risks associated with private sector development and so innovate in a more informed fashion.

Recommendation 4: DFID needs to work harder to understand the barriers and business imperatives faced by the private sector in participating in development. Wherever it operates, DFID needs to be clear how and where its interventions can address these barriers.

The report is available here

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