3 DFID policy
Economic
Development Strategic Framework
15. In February 2013 the Secretary of State, Rt Hon
Justine Greening MP, made her key note speech where she first
set out her priorities for DFID entitled "Development in
Transition". She said "the evidence is really clear,
economic growth is essential for sustained poverty reduction"
and "the challenge I've set out [is] for DFID to be a driver
of economic growth in developing countries."[21]
In a speech to the London Stock Exchange a year later in January
2014 the Secretary of State went further saying that "I believe
economic development must be DFID's top priority in the future".[22]
This was followed by the announcement of DFID's Economic Development
Strategic Framework (EDSF).
16. The EDSF has five pillars that DFID said provide
an overall objective to "reduce poverty and increase prosperity
by creating jobs and increasing incomes through the promotion
of high, sustainable and inclusive growth." They are:
i) Improving
international rules for shared prosperity;
ii) Supporting
the enabling environment for private sector growth;
iii) Catalysing
capital flows and trade in frontier markets;
iv) Engaging
with businesses to help their investments contribute to development;
and
v) Ensuring
growth is inclusive, and benefits girls and women.[23]
17. The recent Resource Allocation Round process
set the aim of scaling up ambitions to spend £1.8bn in 2015/16
on economic development. We were concerned as to how the Department
could absorb this extra money. The Secretary of State told us:
When we went out to our country programme officers
and asked them to have a higher level of ambition on economic
development, they came back with way more proposals than we can
actually fund with that £1.8 billion. […]We do have
an evidence base that can give us a clear sense of where we need
to invest, but also some of the ways that we can do that sensibly.[24]
Jobs or livelihoods
18. The evidence we received for the inquiry was
split between: the need for donors to support structural changes
in developing economies from agrarian to industrial, and the resulting
creation of more formal waged jobs; or whether the focus should
be on improving agricultural livelihoods and making smallholder
farmers more productive. Jim Tanburn of the Donor Committee for
Enterprise Development told the Committee:
We debated this at our annual meeting this year.
It was very vigorous. One camp was saying agriculture in the foreseeable
future has to be the focus; the other camp was saying there are
big opportunities now. Asian wages are going up a lot, so this
is an opportunity for Africa to compete because wages and incomes
are still much lower, so factories could start in Africa and employ
people.[25]
19. There seemed to be a consensus that in the long
term, the number of waged jobs that was required could only come
from structural change to economies. The Foreign Policy Centre
said:
For many developing economies, the labour intensive
industrial sector-particularly manufacturing-has provided an important
platform for generating waged employment. However, across Africa
south of the Sahara, jobs in industry represent less than 10%
of paid employment, compared to over 30% in East Asia. A profound
shift in the nature of African economies will contribute to: improving
ordinary people's living standards, generating the investments
needed to develop diverse economic sectors which support social
development and building public and private infrastructure.[26]
However in the short term agricultural livelihoods
needed to be supported and improved whilst these structural changes
were happening. Tim Brosnan of Small Foundation said:
The reality is that you have hundreds of millions
of smallholder farmers who are extremely poor and will remain
extremely poor unless policies help them to change that situation.
Being extremely poor carries the threat of famine. It is as severe
as that. It does not require much to go wrong if you are extremely
poor for you to be in that life threatening situation and have
your children in that life-threatening situation.[27]
He also said:
Those of us who spend our money, spend our time
and put our efforts into smallholding farming in Africa, why are
we doing it? It is important to know that we are not doing it
to save smallholding farming; we are doing it to save smallholder
farmers. Over time that salvation will come by the vast majority
of them ending up not in farming.[28]
Luqman Ahmad of Adam Smith International agreed that:
While rural livelihoods remain important and
will be for some time, if you look at the trajectory these economies
need to go on, there will be a requirement for industrialisation
elements within their economy.[29]
There is a strong link between agriculture and manufacturing.
In the UK the largest manufacturing industry is the food and drink
sector—with a turnover of £76 billion and employing
15% of the UK's manufacturing workforce[30]—which
in itself is reliant on production through agriculture.
20. The World Bank has said that 90% of jobs in the
developing world will come from the private sector.[31]
DFID recognised this and its submission said:
Creating more productive employment for all requires
economic development and transformation led by the private sector.[32]
However it also recognised the importance of agricultural
livelihoods:
DFID's strategy recognises that agricultural
transformation and job creation outside of agriculture are long
processes, and that the majority of the rural poor will continue
to rely on farm production for the majority of their livelihoods
and household food security in the foreseeable future. This is
why DFID continues to enhance productivity of small-scale farms
and works with farmers to protect their livelihoods and to increase
their resilience to shocks.[33]
21. The Secretary of State explained that the focus
for DFID within a priority country was dependent on its current
state of economic transition:
While they are at that stage, as many of the
sub Saharan economies are, for example, of being predominantly
still agricultural in terms of what drives their GDP growth, you
will continue to see us put a lot of weight on improving livelihoods.
If you look at the progress Ethiopia is now making, with its nascent
successful manufacturing base in leather and shoes, and perhaps
further along that process is Bangladesh with its retail and clothing
manufacturing, you will steadily see the mix of our work gradually
change towards work that can help, for example, improve access
to finance at that more medium enterprise level, looking at working
conditions. It is a slightly different mix, but ultimately it
is a continuum. What we are trying to do is get the right blend
of work to fit the country where it is at that point in time.[34]
Developing programmes in each
country
22. The Secretary of State informed us:
We have a growth diagnostic that we now do to
look at not just the broad economic context; it then looks at
the opportunities for economic growth, some of the barriers where
DFID can perhaps add value and some of the political constraints.
It is a very structured way of helping us understand what needs
to happen in country and that is an exercise that is being rolled
out right now.[35]
Stefan Dercon explained that each DFID country office
had created a 'growth diagnostic' to look at the country specific
issues. The diagnostic considered whether there were opportunities
for transformational growth activities. If there were barriers
it considered their severity and whether DFID should instead be
concentrating on income improvement for people.[36]
When asked about whether the political economies were considered
Alistair Fernie DFID's Director of International Finance said:
the growth diagnostic asks our country offices
not just to analyse what the binding constraints to growth are,
but to make a political economy assessment of whether or not they
can be overcome. The more the answer to those questions is that
it is very difficult and we are unlikely to have much impact,
the more the case is for us to invest more in direct assistance,
which we know can have an impact in the shorter term.[37]
Our ICAI sub Committee considered the Inclusive
Growth Diagnostic pilot document as part of its inquiry
on ICAI's assessment of DFID's Private Sector Development Work.[38]
CENTRALLY MANAGED PROGRAMMES VS BILATERAL
COUNTRY PROGRAMMES
23. DFID's Economic Development Strategic Framework
states that:
All our economic development activities will
be rooted in country need. Our activity will vary from country
to country, depending on context.[39]
24. During our inquiry on Sierra Leone and Liberia
the then Minister Lynne Featherstone MP, told us that overall
funding plans for centrally managed programmes had increased from
approximately £1.4 billion to £2.4 billion in Africa
in 2013/14. At that time that meant for example an 18.6% cut in
the bilateral country office budgets in both Sierra Leone and
Liberia-although this has now changed due to Ebola. She said that
this was because of:
a shift in focus at DFID "to prioritise
things like economic development and 'golden thread'" which
had led to "a significant organisational restructure"
and the creation of "a big cross-cutting operation directorate"
based in Whitehall.[40]
We were concerned by this development and the growth
in centrally managed programmes. We were even more concerned to
discover that country offices were often not consulted on the
centrally managed programmes being operated within their country.
In our report we recommended that:
the protocol to link bilateral country offices
with centrally managed programmes be established as a matter of
urgency. The protocol should ensure that the country offices are
informed of all the DFID centrally managed programmes in the country
and that the DFID country teams are consulted on the programme
design stage. In its response to this report, DFID should inform
us of how this protocol will operate in detail.[41]
This concern with centrally managed programmes was
also raised in the National Audit Office report on the Private
Infrastructure Development Group (PIDG) which found that country
offices:
were concerned about a lack of co-ordination
between their activities and PIDG. They were sometimes unaware
of important project developments, potentially putting DFID's
reputation at risk and meaning missed opportunities for cooperation.[42]
25. We questioned the Secretary of State on the balance
between centrally managed and bilateral programmes on economic
development and she told us:
of the £1.8 billion that we will end up
investing over the coming year in economic development, about
£1 billion of that will be in country. There is probably
roughly a halfandhalf split.[43]
ICAI's report on DFID's private sector development
work found that a higher percentage was spent through country
offices (£341 million) rather than centrally managed (£232
million) and regional (£41 million) programmes in 2012-13[44]
indicating that DFID is preferring to move away from country office
programme spending in this area. It is therefore difficult to
see how it can be rooted in country need. As Luqman Ahmad of Adam
Smith International said:
each country requires its own unique solution
and mix of responses.[45]
Professor Gollin agreed the importance of local knowledge:
I would defer in great measure to the DFID country
offices, which in my experience are enormously well informed on
the opportunities that vary enormously from country to country.[46]
Fragile state economic development
work
26. DFID has a strong focus on fragile and conflict
affected states. It has committed to spend 30% of ODA on fragile
and conflict affected states, 23 out of 28 of DFID targeted countries
are classified as fragile and conflict affected.[47]
ICAI found that in 2012-13 DFID spent an estimated £251 million
in fragile states on wealth creation.[48]
27. In 2014 ICAI examined the effectiveness of DFID's
bilateral growth and livelihoods projects in Afghanistan. It looked
in depth at five programmes worth £97.7 million between 2006
and 2018. DFID received an amber/red rating. ICAI said:
The growth and livelihoods portfolio lacks strategic
coherence. Weaknesses in design-particularly a lack of direct
consultation with intended beneficiaries and unproven theories
of change-have made it harder for DFID to meet and assess its
intended targets.
Our fieldwork provides evidence that a positive
difference is being made to the livelihoods of intended beneficiaries
in the areas we surveyed. It is not clear, however, how positive
impacts will, in all cases, be sustained in the long term.[49]
It concluded that there was no evidence of long-term
sustainable change and recommended that DFID should "focus
its future strategy solely on poverty reduction."[50]
28. When the Committee visited Afghanistan in 2012
it was told about the Bost Agricultural Park which was created
to improve access for Helmandi entrepreneurs to agricultural processing
and export opportunities-since the Committee reported the Secretary
of State announced in January 2013 that the project was to be
discontinued as it did not represent value for money. The UK had
committed £8.3 million over four years (2009-2012, later
extended to 2013) to support the development of the Bost Airfield
and Agriculture Park in Helmand.[51]
However the Secretary of State defended the Department's economic
development work in fragile states:
economic development is important for stability.
We have a whole generation coming through who will want to have
some opportunity to reach their potential and to lead fulfilling
lives.[52]
She gave the example of the work DFID was doing in
the DRC where programmes were improving livelihoods specifically
to address instability risks.[53]
29. David Kennedy, DFID's Director General of Economic
Development said in a meeting with our sub committee on the ICAI
private sector report that:
A fragile state probably does not have a great
opportunity any time soon of joining the global economy or attracting
inward investment for export based manufacturing so […] you
have got to look at the SME sector: what could you do with micro
enterprises? What you can do with the agriculture?[54]
Youth Business International said evidence emerging
from work on jobs and livelihoods in post-conflict states showed
that a minimum level of infrastructure and economic and social
stability had to be in place first.[55]
Meenashki Nath, DFID's Head of Private Sector Development, said
The fragile and conflict-affected states tend
to be a really diverse group of countries so you need to have
a customised approach for each of them.[56]
DFID's comparative advantage
30. We were interested to find out from witnesses
what they saw as DFID's comparative advantage in the area of jobs
and livelihoods. As Mike Bird of Women in Informal Employment:
Globalizing and Organizing (WIEGO) said:
DFID is not going to solve the world's problems.
DFID is not going to create all the jobs that can be created.
There is merit in deciding where your expertise lies, building
on that expertise, and doing that work, but as part of a much
broader approach.[57]
He thought DFID's strength was to:
engage with other donors, and talk about how
to run complementary programmes. I would encourage DFID to do
exactly that.[58]
31. Andrew Devenport of YBI thought DFID had the
advantages of:
· being
able to take a longterm view;
· being able
to drive systemic important research and development;
· bringing interventions
to broader geographies than the private sector might wish to operate
in;
· being able
to correct market failures in relation to finance by helping to
bring credit to parts of the market where credit was not possible;
and
· having a good
understanding of the holistic development, covering areas such
as sexual health, governance, participation, alongside employment.
He concluded that DFID was therefore, "a very
valuable stable longterm partner, both of the NGO sector
and the private sector."[59]
David Woollcombe of Peace Child International thought DFID's strength
was its access to Government.[60]
Professor Gollin believed it was DFID's ability to take a "long
term view, rather than trying to achieve only short term project
level impacts" and he commended it for "taking quite
a strategic view in thinking about growth and growth processes."[61]
Achievements
32. We have seen on our visits many successful examples
of DFID's economic development work. We asked the Secretary of
State for examples of DFID's achievements which we have received.
They have been included at the beginning of each chapter in boxes
under the five pillars of DFID's Economic Growth Strategic Framework.
We do not believe these examples encompass the full scale of DFID's
and the UK Government's work in this area particularly on improving
international rules-there have also been for example legislation
passed in the last Parliament and this including: The Bribery
Acts of 2010 and 2012, the Modern Slavery Act 2015 and the International
Development Act (Gender Equality) 2014. £1.8 billion is a
considerable amount of money which we would like to see more evidence
of how it has been and is to be spent.
33. DFID recognises that the private sector is
the driver of economic growth and will produce 90% of new jobs.
Its approach to economic development is centred on its Economic
Development Strategic Framework. This consists of a series of
wide-ranging interventions, listed under five pillars, including
international trade, improving the 'enabling' environment in countries;
catalysing capital flows; engaging with businesses to help their
investments contribute to development; and ensuring growth is
inclusive and benefits marginalised groups such as girls and women.
The choice and balance of interventions depends on the particular
circumstances of each country. The basic approach was supported
by many witnesses.
34. However, there are several concerns. Spending
on economic development has increased greatly in recent years.
DFID plans to spend £1.8 billion on economic development
by 2015-16-more than doubling the amount spent in 2012-13; is
DFID geared up to spend the extra money cost-effectively? We have
seen examples of successful work on our visits, but we urge
DFID to publish regularly a list of achievements from the funding
on its economic development programmes. A £1.8billion budget
needs to demonstrate year on year outcomes and results. We
agree with ICAI that DFID should be clearer about the areas in
which it has a comparative advantage relative to other stakeholders
and where it can actually make a difference.
35. As the balance of interventions will vary
from country to country, it is essential that decisions are made
locally. DFID country offices must lead this work; this means
they should determine not only their own bilateral country programmes,
but also ensure that programmes run from DFID in the UK should
be well-integrated with them. Country offices should be properly
consulted about centrally managed programmes to be run in their
country.
36. Economic development work can and should be
done in fragile and conflict affected states. We recommend that
DFID continues the difficult challenge of creating jobs and improving
livelihoods in fragile and conflict affected states as it is successfully
doing in the DRC.
21 Rt Hon Justine Greening MP at ONE February 2013:
"Development in Transition" Back
22
Rt Hon Justine Greening MP at the London Stock Exchange January
2014 "Smart aid: Why it's all about jobs." Back
23
DFID's Economic Development Strategic Framework Back
24
Q189 Back
25
Q21 Back
26
Foreign Policy Centre Back
27
Q172 Back
28
Q173 Back
29
Q5 Back
30
The Manufacturer, Manufacturing Statistics Back
31
World Development Report 2013, Moving Jobs Centre Stage,
Main Messages Back
32
Department for International Development Back
33
Department for International Development, para 30 Back
34
Q206 Back
35
Q195 Back
36
Q196 Back
37
Q198 Back
38
DFID's Inclusive Growth Diagnostic Pilot Document Back
39
DFID's Economic Development Strategic Framework, Page 10 Back
40
International Development Committee Sixth Report of Session 2014-15
Recovery and Development in Sierra Leone and Liberia HC 247 Back
41
International Development Committee Sixth Report of Session 2014-15
Recovery and Development in Sierra Leone and Liberia HC 247, para
45 Back
42
National Audit Office, Oversight of the Private Infrastructure Development Group,
July 2014, Summary, para 14 Back
43
Q195 Back
44
Independent Commission for Aid Impact, DFID's Private Sector Development Work Back
45
Q17 Back
46
Q156 Back
47
International Development Committee Eighth Report of Session 2013-14
The Future of UK Development Co-operation: Phase 1: Development Finance
HC 334 Back
48
Independent Commission for Aid Impact, DFID's Private Sector Development Work
para 2.19 Back
49
Independent Commission for Aid Impact, DFID's Bilateral Support to Growth and Livelihoods in Afghanistan
Back
50
Independent Commission for Aid Impact, DFID's Bilateral Support to Growth and Livelihoods in Afghanistan Back
51
Development Tracker, Bost Airfield and Agricultural Business Park Back
52
Q190 Back
53
Q190 Back
54
Oral Evidence taken on 17 December 2014 HC(2014-15) 999, Q40 Back
55
Youth Business International Back
56
Oral Evidence taken on 17 December 2014 HC(2014-15) 999, Q41 Back
57
Q21 Back
58
Q121 Back
59
Q100 Back
60
Q100 Back
61
Q162 Back
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