CDC’s investments in low-income and fragile states

The UK’s multi-billion pound development finance institution did not do enough to maximise the impact of its UK aid investments.

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26 Mar 2019
Amber - Red
Lead commissioner
Richard Gledhill
Development finance
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Approach paper

CDC is the primary vehicle through which DFID invests development capital and plays a key role within DFID’s Economic Development Strategy. It aims to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”.

CDC invests capital in businesses either directly (by investing equity or providing loans and other debt finance) or indirectly (by investing through commercial funds), through a structured process of investment selection and portfolio management seeking to generate both positive development impacts and a financial return. Financial returns are then recycled into new investments.

There have been significant and ongoing shifts in CDC’s approach over the period covered by this review. Since 2012, CDC has sought to better align its portfolio of investments with DFID’s priorities. It has increased its focus on Africa and South Asia, particularly in low-income and fragile states where the private sector is weaker and financial risks are greater. Between 2015 and 2018, CDC received investments of new capital from DFID totaling £1.8 billion, and further capital injections of up to £703 million per annum are planned until 2021. CDC’s net assets are projected to increase to above £8 billion by 2021 as a result of these capital injections and earnings.

Scope and methodology

This review covers the period from 2012 to 2018. The review explores how well CDC has reoriented its investment approach and portfolio to achieve development impact in low-income and fragile states, while still delivering its intended financial return. It builds on previous parliamentary and National Audit Office (NAO) reviews of CDC. Our primary focus is on CDC’s ability to deliver results in low-income and fragile states.

For this review we conducted a literature review, a review of CDC’s corporate processes, a review of six investment teams and in-depth reviews of 19 investments, as well as four country visits where we conducted interviews with investee company staff, visited company sites and interviewed stakeholders.


  • CDC has made significant progress in reorienting its portfolio towards low-income and fragile states, as well as towards direct investment, with the intention of driving greater development impact.
  • Its focus on poverty reduction has increased, although the mechanisms through which CDC ensures its investments reach and benefit the poorest could be strengthened and more clearly articulated.
  • CDC has significantly scaled up its human resources in support of its work but has been slow to expand its country presence beyond India.
  • In order to accelerate the scale-up of investment and achieve broader development impacts in more challenging markets, CDC should have prioritised much earlier on in the process its country presence expansion in Africa, the development of its geographic and sectoral plans, strengthened its links with DFID country offices and improved its monitoring and evaluation systems.
  • CDC’s new investments have been concentrated in a small number of larger economies within low-income and fragile countries, as well as in the financial services and power sectors. CDC has faced challenges in finding viable direct investment deals, particularly in Africa.
  • We identified several investments within our sample that did not deliver the development impact that CDC had expected. We also found that CDC was not active enough, once it had invested, in understanding and promoting the impact being achieved by its investees.
  • CDC has introduced a range of learning and knowledge-sharing mechanisms. But during most of the review period, we found limited evidence of CDC applying learning on development impact in the appraisal or management of individual investments.


  1. CDC should incorporate a broader range of development impact criteria and indicators into its assessment of investment opportunities and ensure these are systematically considered in the selection process.
  2. CDC should take a more active role in the management of its investments, using the various channels available to it to promote development impact during their lifetime.
  3. CDC should strengthen the monitoring and evaluation of the development impact of its investments and the learning from this, working with DFID to accelerate their joint evaluation and learning programme.
  4. CDC should work more closely and systematically with DFID and other development partners to inform its geographic and sectoral priorities and build synergies with other UK aid programmes to optimise the value of official development assistance.
  5. In the presentation of its strategy and reporting to stakeholders, CDC should communicate better its approach to balancing financial risk with development impact opportunity, and the justification for its different investment strategies.
  6. DFID’s business cases for future capital commitments to CDC should be based on stronger evidence of achieved development impact and clear progress on expanding their in-country presence.

Government response

The government publishes a response to all ICAI reviews. The government response to our CDC review is available to read online.

International Development Committee

Parliament’s International Development Committee (IDC), or its ICAI sub-committee, hold hearings on all ICAI reviews. The IDC hearing on CDC’s investments in low-income and fragile states is available to watch online.