Select Committee on International Development Fourth Report

7  PSD IN PRACTICE: DFID'S ORGANISATIONAL DESIGN AND WAYS OF WORKING

178. Thus far, this report has concentrated on examining DFID's thinking — as reflected in its policy-making — regarding PSD. DFID's current set of policies imply that the growth-poverty reduction linkage is reasonably well-established in DFID's thinking. Kurt Hoffman, Director of the Shell Foundation, believed DFID to be leading the way amongst donors on its thinking regarding PSD: "Looking across a number of the donor agencies that we deal with, DFID is far ahead of its competitors in terms of understanding the importance of [private sector-led growth]".[368] The OECD Development Assistance Committee's Peer Review, published in June 2006, was satisfied that, "DFID is paying increased attention to the crosscutting "pro-poor growth" agenda and is considering further integration of economic growth and productive sectors into programming for poverty reduction."[369]

179. However, we now need to consider whether DFID's operational capacity — its administration, organisational design and ways of working — has 'caught up' with its policy-making on PSD, and adequately reflects the growing priority accorded to the PSD within DFID's thinking. This chapter will explore whether DFID's deployment of resources — both inside and outside the Department — adequately supports its PSD policies. It will also look at DFID's strategy and planning regarding PSD, and explore issues of coherence and co-ordination relating to PSD policies.

A cultural divide

180. As Ann Grant of Standard Chartered Bank pointed out, PSD represents a relatively new area for development actors:

"I think the fact that growth and jobs are key to development and that the private sector is key to both is now accepted wisdom, but the actual mechanisms and ways of working and, indeed, training and background of people involved in development is still quite new... I think the intellectual work has now been done…but you are talking about people in long-term business, whether it is NGOs, governments, multilaterals, for whom working naturally and easily with the private sector is still quite new."[370]

181. DFID officials acknowledged that PSD is a relatively new area for the Department.[371] However, we observe a number of indications that DFID's administration and organisational design have not 'caught up' with the Department's growing prioritisation of PSD within its thinking and policy-making. For a start, somewhat of a cultural divide seems to exist between DFID and the private sector — their ways of working and organisational cultures are very different, and bridging this gap represents a challenge that DFID has not yet fully addressed. Ann Grant expressed such a view:

"[There is a] Civil Service way of working that does not match up very easily to the way the private sector works and I think [the private sector] have not got that much tolerance for another lot of summits, another lot of discussions — discussions on policy in particular [...] We learn by doing rather than by talking about it."[372]

182. Andrew Hollas, Head of Africa Markets at PricewaterhouseCoopers, echoed this view, pointing to a lack of real understanding within DFID regarding how to work with the private sector: "I have huge respect for virtually every individual I have ever come across that worked in DFID. I think they are incredibly able, incredibly sincere and incredibly committed people. Does DFID properly understand and work with the private sector? No, in my view".[373]

183. Involving the private sector in policy-making — an integral part of building PSD policies — will require DFID to accommodate the different working styles in public and private sector bodies, otherwise the capacity of companies to contribute to PSD approaches may be compromised. One aspect of overcoming the cultural gulf is slimming down the time and opportunity costs associated with participation in policy consultation, which are evidently perceived by the private sector as a barrier to their engagement with DFID. Ms Grant suggested that speed was of the essence: "We need to get sharper and smarter and briefer [...] somebody [from DFID] to come to the Bank to do half an hour's quick presentation [...] rather than the opportunity to submit papers and to come in [to DFID]."[374]

184. Adopting this streamlined approach should not require radical or costly changes to DFID's approach, merely an adapted style. Time will not permit DFID staff to visit every individual company involved in a particular aspect of PSD. This is why we recommend that DFID makes better use of business forums networks such as Business Action for Africa, and industry groups in the UK and across countries of operation, as a means to link with a number of private sector actors simultaneously in a time- and cost- effective way.

185. A second aspect of bridging the cultural divide between DFID and the private sector concerns personnel issues within DFID. Out of a total staff of 2500, DFID employs just 25 PSD Advisers, who represent the primary cadre of officials working on PSD.[375] In our view, not only does the limited number of PSD specialist staff affect DFID's ability to engage effectively with the private sector, it is also an insufficient number to cover DFID's 36 country offices plus its two UK-based headquarters. We believe that DFID should set a minimum target of one PSD adviser for each of its 36 country offices in addition to the current Growth and Investment Group within DFID headquarters.

186. We also believe that DFID should seek to better integrate its PSD Advisers within its organisational structure, to ensure coherence with other areas of work. As we discussed in the Introduction, PSD is not so much a development sector as a 'way of doing things' that cross-cuts a variety of policy areas. Currently, DFID sites all 9 of its London-based PSD Advisers within its Growth and Investment Group (except for two who belong to the International Trade Department).[376] The remaining 16 PSD Advisers of the 25 total are employed within country teams.[377]

187. There is evidence that this improved integration is already occurring within a number of country office teams. Sunil Sinha of Emerging Market Economics stated:

"In the most progressive DFID offices, what is happening is a change from enterprise development advisers doing enterprise development in isolation to pro-poor growth teams being brought together, multidisciplinary teams, which will include a macro-economist, an enterprise development adviser, a governance expert, somebody who is good on basic social services like education and health, trying to address the pattern and pace of growth holistically. That is still restricted to a few offices… [including] the Nigeria office".[378]

188. Professor Wood agreed and detected this trend more widely, "Ghana is another example where they have had a very strong team. Most of the Africa country offices are taking this focus."[379] The development of multidisciplinary teams in country offices, which integrate PSD expertise with other policy specialisms, should be emulated across all 36 DFID country offices.

189. We believe that greater integration should also be sought within DFID's Policy Division. Deploying an PSD Adviser to every team — for instance, in the way a Social Development Adviser currently sits within most teams — would involve too large-scale an increase in staff to be cost-efficient. But, following the Department's restructuring in 2002 — which aimed for enhanced fluidity of staff deployment — DFID should have the structure in place to ensure that PSD Advisers can work flexibly across different teams according to work priorities. We advise DFID to use the flexibility and fluidity of its post-restructuring arrangements to maximum effect, and move PSD Advisers in and out of Policy Division teams to support changing priorities and the cross-cutting nature of different policy areas.

190. Ensuring that PSD Advisers have first-hand experience of the private sector and business expertise will help both mitigate the cultural gap and contribute to DFID's pool of knowledge regarding PSD. DFID's current staff of PSD Advisers is well-qualified in this regard, with 82% having either a business qualification or experience in business, or both.[380] We recommend that if, as we have recommended, the numbers of PSD Advisers are expanded, a minimum target should be set to recruit advisers who have both business qualifications and business experience.

191. As well addressing its external recruitment of PSD Advisers, DFID should focus on developing the business skills of its current employees. One possible route towards this would be the increased use of secondments of DFID staff to the private sector. To date, DFID has only undertaken one such secondment in this direction (who worked for BP as an Analyst in their Shareholder Team for 12 months in 2004). Six secondments into DFID from the private sector have also been undertaken in the last 3 years.[381] Currently, Unilever has an arrangement with the Foreign Office whereby high potential FCO staff are seconded for a year to Unilever's Africa and Middle East Region office. We feel similar secondment schemes within DFID would assist the development of common understanding between DFID and the private sector. We advise that increased use of secondments into and from the private sector will assist the development of common understanding between DFID and the private sector.

Using resources outside DFID

192. However, as Gavin McGillivray, Head of International Financial Institutions at DFID, pointed out, "Having a few people in-house with private sector experience is helpful but so is using the right people outside of DFID".[382] DFID uses a number of different arrangements for placing the running of PSD policies in private sector hands — for instance, the CDC-Actis fund management model and the out-sourcing of challenge funds to consultancies. As Bob Fitch, Project Director of the Financial Deepening Challenge Fund at Enterplan, said:

"DFID themselves are not the best body to do the business type of interaction. The private sector has some difficulty in having constructive conversation with civil servants, however good and enlightened they are, and I think [DFID's] willingness to look at ways of outsourcing that type of intermediary role has been very important as well in pushing [the PSD] agenda forwards."[383]

193. We support DFID's current outsourcing of challenge funds to consultancies and risk finance to the CDC Group. Not all DFID policies will benefit from being outsourced to the private sector and we do not recommend expanding the use of outsourcing beyond its current usage, which is focused on policies which involve the most direct engagement with the private sector.

194. DFID will also strengthen its resources for PSD by ensuring that it utilises the strengths of other UK Government Departments through effective co-ordination of policies linked to PSD. A particular area where improved co-ordination would be beneficial is the implementation of international regulatory codes on the private sector's social and environmental impacts. Dr Claire Melamed of Christian Aid told us:

"It is safe to say that government policy could be much better coordinated in this area [...] I think there is a cross-Whitehall group which is supposed to deal with these issues which perhaps is less effective than it might be. I think there are specific areas where you can see there is a particularly woeful gap. One that comes to mind is the Export Credit Guarantee Department, for example, where DFID needs to have a much, much stronger authority to look at the kind of support that is being offered to companies [...] That is just one example and I think there are a whole range."[384]

195. DFID should also ensure that its wider PSD approach is co-ordinated with the international and development policies of other UK Government departments. To reiterate a concern that we first expressed in a letter to the Secretary of State in March 2006, responding to the White Paper consultation, we noticed that the widely-distributed letter sent jointly by Hilary Benn, Tony Blair and Gordon Brown on 9 March 2006 announcing the progress report on 'Implementation of the Commission for Africa Recommendations and G8 Gleneagles' Commitments on Poverty' did not mention PSD, implying that DFID's prioritisation of PSD is perhaps not shared with HM Treasury and No.10 Downing Street.[385] The accompanying Progress Report, whilst making a number of references to PSD, did not convey that PSD would be a central tool in implementing the development promises made during 2005. We found it concerning that DFID may not be coordinating closely with HM Treasury, in particular, over harnessing the potential of the private sector for poverty reduction. DFID will strengthen its resources for PSD by ensuring that it utilises the strengths of other UK Government departments. This will involve more efficient co-ordination with other departments, where appropriate, to ensure a shared vision for achieving the development promises for 2005 and the role of PSD in meeting global targets. A particular area where greater co-ordination would be beneficial is the implementation of international regulatory codes on the private sector's social and environmental impacts.

196. DFID should also ensure that it co-ordinates effectively with other donors over PSD. We discussed the differing approaches used by donors in Chapter 2 of this report, and will not re-examine these at this point. Donor co-ordination is important within any development area, but it has particular significance within PSD due to the wide-ranging nature of the private sector's potential engagement with poverty reduction. Jonathan Mitchell, Dirk Willem te Velde and Michael Warner of the Overseas Development Institute (ODI) said the following in relation to donor co-ordination within PSD: "While this needs to avoid the creation of an "escalator" of donor-assisted instruments at the micro level, resulting in a dependency of local business on subsidy, there does need to be a co-ordinated approach by donors across various areas (infrastructure, human resources, credit) at a strategic level."[386]

197. Unfortunately, we did not receive specific evidence on how donors effectively are co-ordinating their approaches to PSD in practice. DFID is involved in international co-ordination initiatives that bring donors together in terms of policy and practice in PSD, such as the Committee of Donor Agencies for Enterprise Development and the OECD PovNet, which looks at private sector, agriculture and infrastructure policy around growth and PSD specifically.[387] Donor co-ordination is particularly important within PSD due to the wide-ranging nature of the private sector's potential engagement with poverty reduction. DFID should ensure that it co-ordinates effectively with other donors over PSD, and continue its active participation in international co-ordination initiatives such as the Donor Committee for Donor Agencies for Enterprise Development and the OECD PovNet.

Innovation: a weakness as well as a strength

198. DFID is viewed as an innovator and leader amongst donors in regard to PSD.[388] The Department is spearheading a multiplicity of creative approaches to PSD: the EITI, Investment Climate Facility (ICF), Africa Infrastructure Consortium, the FinMark Trust, challenge funds - to name just a few. Yet, witnesses' praise for DFID's imaginative policies was tempered with a concern that innovation was not a panacea for sustainable, long-term policies. Alan Gibson of the Springfield Centre for Business Development spoke of development's "emperor's new clothes syndrome", under which, "Good intentions are mistaken with achievements."[389] Bob Fitch of Enterplan believed that donors were sometimes prone to short-termism in regard to PSD:

"I said earlier that I thought one of the strengths of DFID was its innovativeness but in many organisations a strength can also become a weakness, and I think sometimes there is too much of looking for new answers rather than seeing what merit there is in existing approaches, and there is a tendency — and this is not just DFID but the development community as a whole — to look short term rather than long."[390]

199. Other witnesses expressed the view that, as long as one donor was prepared to lead and pioneer new policies, others will follow. Speaking with reference to the Investment Climate Facility, Professor Adrian Wood of the University of Oxford stated, "On past record, there are an awful lot of things in which DFID has been the first donor in the past which have been very successful. A lot of other donors have come in and the fact that DFID is leading should not necessarily be seen as a bad sign."[391] Hilary Benn expressed a similar view:

"We are not afraid to innovate. We are not. One of the questions when you do innovate, if it has been shown to work, is: Who is going to pick it up and then carry it forward? The question is: Is it the job of DFID, having shown the kind of innovation that is possible, to do that? For example, through the Financial Deepening Challenge Fund, working with Vodafone, to show that you could transfer money across using a mobile phone. It shows it is technical, it is possible, and one would hope that the business community and business sector would say, 'That's a good idea. It has been shown to work. Some of the costs of trying to find out whether it was working have been borne by somebody else, we are going to pick that up and run with it'".[392]

200. In the case of multi-donor or multilateral initiatives such as the ICF, EITI and Infrastructure Consortium for Africa, relying on others to follow up innovation seems to be a safe assumption. This is borne out, for example, by the sudden rush of donor funding for the ICF at its launch in June 2006, following a long period during which DFID had been the lone bilateral funder. But where care is needed is in ensuring the sustainable development of bilateral DFID policies where the Department cannot rely on follow-up support from other donors. Albert Tucker, a fair trade consultant, described the problems that can be caused by "short-termism" within bilateral support for PSD:

"One of the things DFID has been very strong at is piloting approaches, but where I see a weakness is bringing that to the mesh of business and private sector life and linking that in [...] DFID put [in] £70,000 to develop a coffee programme in Tanzania and in Ghana with the coffee farmers. After this three-year intervention, DFID had done that and it is gone."[393]

201. Mr Tucker went on to describe how DFID gave a one-off guarantee to the Divine Chocolate Company — but then "decided this was something they could not do any more — the guarantee structure was far too troublesome."[394]

202. The sustainability of policies is clearly a concern within any development sector. But we feel that in its approach to PSD — a new and disparate area — DFID is at particular risk of innovating at the expense of following up and sustaining existing policies. New ideas and pilot schemes are not a panacea for sustainable, long-term PSD policies, especially in the case of bilateral projects, where DFID cannot rely on other donors to step in after initial phases. DFID should focus on 'implementing as well as innovating' with regard to PSD. Existing policies should be carefully assessed for scalability and sustainability before new policies are launched.

A coherent approach to PSD

203. Our recommendation that DFID should take care to 'implement as well as innovate' with regard to PSD leads directly to our final concern about DFID's operational capacity to deliver on PSD. This relates to the need for DFID to ensure that it has a strategic, coherent plan underpinning its approaches to PSD. As we have already said, DFID is perceived as an innovator in regard to PSD and can point to a clutch of creative approaches for which it has led the way. Yet the thread that links these policies is that most are yet to be rolled out, yet to secure complete funding or are at very initial stages of implementation. As we said in our letter to Hilary Benn on the White Paper consultation, the success of these creative strategies can only be judged when they are put into full operation, and this will require deliverable, practical and time-bound plans for their full execution.[395]

204. It is also crucial that DFID's PSD policies are looked at in a coherent way across the Department's work. Building on our comments in the previous sub-section relating to DFID's organisational design, we believe that integrating PSD approaches within other policy areas will transform PSD's current status as somewhat of an 'add-on' to a mainstreamed development approach that is assimilated into policy-making throughout the Department.

205. There are numerous possible examples of how this integration should work in practice, but we will draw one from the discussion of fragile states in Chapter 3 of this report. Fragile states are an increasingly prominent area of engagement for DFID. DFID told us in their memorandum that they have "an emerging workstream" on PSD in fragile states.[396] But does the Department also have PSD expertise integrated within its fragile states team — does it have PSD Advisers working directly with officials on, for example, how infrastructure PPPs could bring urgently needed finance for post-conflict situations, how remittance initiatives could contribute to new financial inflows, how new and vulnerable administrations can be assisted over developing regulatory and taxation legislation? As far as we know, it does not. Thus the Department risks establishing two parallel channels of work, instead of properly integrated, coherent policy approaches.

206. Achieving this 'mainstreaming' of PSD will, to a degree, evolve naturally if the other aspects of re-organisation that we have recommended are implemented. For instance, a larger number of PSD Advisers, and more flexible working patterns allowing for PSD Advisers to move in and out of teams, will enable increased deployment of expertise within the organisation. However, we advise that DFID should take pro-active steps to integrate PSD as a 'way of doing things' across the full range of policy areas, from agriculture to health and education. Integrating PSD approaches within other policy areas will transform PSD's current status as somewhat of an 'add-on' — a stand-alone channel of work — to a mainstreamed development approach that is assimilated into policy-making throughout the Department.

207. We are concerned that DFID's portfolio of 'immature' and somewhat isolated PSD policies may indicate a lack of a clear strategic plan regarding PSD. Without adequate planning or a long-term vision for what it wants to achieve through PSD, DFID risks amassing an incoherent mix of policies that will undermine the private sector's potential to contribute to poverty reduction. Bob Fitch of Enterplan explained the risks of an under-developed strategic plan:

"At the risk of being overly critical of one of my clients [...] One of the frustrations we did have with Financial Deepening Challenge Fund is that one of our roles as management was to go out and tell the rest of the development community [...] of the successes and the strengths of the instrument [...] the question would generally be: "That is really interesting, that is great, what are DFID going to do next?" To which my answer was: "I do not know, what would you like them to do next?" Sometimes it is that lack of, I suppose, a strategic plan as far as we can see."[397]

208. It is imperative that DFID's PSD policies are underpinned by a clear strategic plan. Without this long-term vision and coherent strategy, DFID's capacity for innovation could result in a scatter-gun approach to PSD — an incoherent mix of policies that will undermine the private sector's potential to contribute to poverty reduction. We anticipate DFID's PSD strategy being spelt out as soon as possible, together with deliverable, practical and time-bound plans for the full implementation of existing PSD policies.

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368   Q 9 [Kurt Hoffman] Back

369   OECD Development Assistance Committee (DAC), Peer Review (Paris: OECD, 2006), p.13. 'Productive sector' is another term for 'private sector'. Back

370   Q 277 [Ann Grant] Back

371   Q 65 [Sharon White] Back

372   Q 278 [Ann Grant] Back

373   Q 366 [Andrew Hollas] Back

374   Q 278 [Ann Grant] Back

375   Q 432 [Richard Boulter] Back

376   The Group is sub-divided into five teams, the Business Alliances Team (with one PSD Adviser), Investment Climate Team (two PSD Advisers), Pro-Poor Growth Team (one PSD Adviser), Financial Sector Team (two PSD Advisers) and Renewable Natural Resources and Agriculture Team (one PSD Adviser - currently unfilled). There is also a Head of Profession within the Group.  Back

377   There are currently five PSD Advisers in Asia, seven in Africa, two in Latin America and two on secondment to other parts of the Department. Back

378   Q 40 and Q 41 [Sunil Sinha] Back

379   Q 41 [Professor Adrian Wood] Back

380   Peter Wilson, Report to DFID Enterprise Development Cadre, Review Of Competency Framework And Continuing Professional Development (The Enterprise Partnership Ltd, 10th January 2005). Back

381   Ev 150 Back

382   Q 65 [Gavin McGillivray] Back

383   Q 279 [Bob Fitch] Back

384   Q 455 [Claire Melamed] Back

385   Letter from Malcolm Bruce MP to the Rt Hon Hilary Benn MP, Secretary of State for International Development, 28 March 2006. Back

386   Ev 282 Back

387   Ev 139 Back

388   Q 9 [Kurt Hoffman], Q 279 [Bob Fitch], Q 167 [Robert Annibale] Back

389   Ev 265 Back

390   Q 287 [Bob Fitch] Back

391   Q 38 [Professor Adrian Wood] Back

392   Q 421 [Hilary Benn] Back

393   Q 214 and Q 215 [Albert Tucker] Back

394   Ibid. Back

395   Letter from Malcolm Bruce MP to the Rt Hon Hilary Benn MP, Secretary of State for International Development, 28 March 2006. Back

396   Ev 139 Back

397   Q 288 [Bob Fitch] Back

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Prepared 23 July 2006