DFID’s Private Sector Development Work
We examine DFID’s approach to private sector development. This encompasses a wide range of programmes from large-scale regulatory reform to microfinance support for small enterprises.
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 is immense and DFID’s approach is highly ambitious. DFID 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 our findings, we have given a rating of Amber-Red.
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.