DFID’s Economic Development Strategy Contents

1The Strategy

6.DFID’s bilateral economic development spending for 2017/18 is estimated to be £1.9bn. This has increased from £1.1bn in 2012/13.19 In 2017/18 this was 31% of total DFID bilateral programming spend.20

7.Economic development expenditure is, however, not identified separately by, for instance, Development Tracker (Devtracker)21 - DFID’s expenditure transparency tool. Devtracker lists the top ten themes for DFID spending as follows:

Project budgets for each sector [FY18/19]

8.A Development Initiatives report on the enabling environment for private sector development found the UK to be the second largest provider of Official Development Assistance (ODA) for such purposes after the USA. In 2015, the UK invested $1.34billion compared to the United States’ $1.65 billion and Germany’s $1.26 billion. 22

9.The Economic Development Strategy (see Box 1 for its key messages) asserts that:

These priorities will support economic development overseas whilst benefitting the UK at home. Our priorities will help build Britain’s trading partners of the future, and advance Britain’s national security and foreign policy interests. We will assist poor countries to finance their own development, harness their rapidly growing young populations and overcome the need for aid.23

Lord Bates, DFID’s Minister-of-State with responsibility for the strategy, told us:

You have to create wealth and find ways of creating wealth in order to eradicate extreme poverty. As I said right at the beginning, that simply cannot be done with $140 billion of aid flows when there is a need for $3.5 trillion.24

Melinda Bohannon, Head of Growth and Resilience at DFID, said “The whole point of the Economic Development Strategy is to give us that momentum and that clarity of vision, to which we then want country teams to respond.”25

10.We look to DFID to ensure that the responses of individual country teams maintain a focus on wealth creation that includes marginalised groups, takes account of sustainable development and generates revenue for national governments to spend in appropriate ways.

Box 1: DFID’s Economic Development Strategy key messages:

DFID’s Economic Development Strategy will deliver by:

  • Focusing on trade as an engine for poverty reduction
  • Stimulating investment to spur economic growth in developing countries
  • Supporting countries to mobilise their own domestic resources, improve their enabling environment for business and reduce reliance on aid
  • Focusing on sectors that can unlock growth
  • Making it easier for companies – including from the UK – to enter and invest in markets of the future
  • Supporting our partner countries to harness new technologies for growth and look to emerging and innovating economic sectors
  • Working with, and challenging, the City of London to become the ‘development finance hub of choice’
  • Using country presence, knowledge and expertise to bring economic opportunity to some of the world’s most fragile states
  • Building a sharper focus on nutrition, human development and skills for work into economic development programmes
  • Focusing on the poorest and most marginalised people, the majority of whom work in the informal sector
  • Establishing new links both in the UK and internationally with civil society organisations and other innovative partners.

Source: DFID Economic Development Strategy: prosperity, poverty and meeting global challenges, January 2017

11.The recent ICAI review of DFID’s work on inclusive growth in Africa noted a ‘broad consensus amongst external stakeholders, including academic experts and development NGOs, that [an economic transformation focus] was the right direction-of-travel’. The review also welcomed the Economic Development Strategy which, it said, represented a ‘much clearer articulation of DFID’s objectives and overall approach’.26 Much of our evidence was similar in tone to ICAI’s view, with submissions broadly supporting the strategy (with the Overseas Development Institute questioning why it had taken so long for DFID to develop one.)27 The typical thrust of submissions to us comprised a welcome for the overall approach, with additional suggestions of themes that merit further emphasis within the strategy; for example, gender,28 climate change29 and decent work.30

Commonwealth Development Corporation (CDC)

12.The CDC is a vital component of DFID’s Economic Development Strategy. CDC is the UK’s development finance institution (DFI), a company owned by DFID. Graham Wrigley, Chair of CDC told us: “Our strategy is all about driving patient capital to the poorest parts of the world.”31 He described the relationship with DFID and the Economic Development Strategy as follows: “DFID has a general development strategy and economic development is one subset of that overall strategy. CDC, with its provision of patient capital, is one subset of the Economic Development Strategy. It is very complementary.” 32

13.CDC invests in private enterprise projects in developing countries, primarily by buying shares in companies which would otherwise find it difficult to attract investment. In line with Word Bank objectives for its lending activity, CDC aims to demonstrate the commercial viability of such investments and hence catalyse further financing for commercial sources.

14.CDC has recently undergone a period of change:

i)its investment strategy now allows it to make direct investments as well as investing through intermediaries33; and

ii)its list of eligible countries for new investments now consists exclusively of African and South Asian countries.

15.In 2017 CDC published a new 5-year strategy34 with changes aimed at significantly increasing CDC’s effectiveness in terms of contributing to meeting DFID’s objectives and priorities (see Box 2). Its mission statement is: “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.”35

Box 2: CDC’s 5-year strategic priorities


- Invest only in Africa and South Asia, where the world’s poorest people live.

- Prioritise investing in poorer and more fragile countries, and the sectors that create the most jobs.

- Develop a world-class framework to maximise our impact. We will integrate this with our investment process and deepen our development expertise.

- Mobilise private capital alongside our investments, and find new ways to partner with investors to increase our own impact.

- Achieve a broad range of impacts in addition to our main aim of creating jobs.

- Support the UN Global Goals, including women’s economic empowerment and climate change.

- Undertake more evaluations to enhance our understanding of the best ways to support long-term positive change in our markets.


- Set high environmental, social and business integrity standards and provide practical assistance to businesses and investment fund managers.

- Always ensure our capital or expertise supplements what private investors will provide

- Increase our transparency and strengthen our approach to tax practice amongst development finance institutions (DFIs).


- Invest to transform whole sectors.

- Invest in new business models and nascent or failed markets.

- Take calculated risks to unlock impact we could not otherwise achieve.


- Build our team of outstanding professionals, who are dedicated to achieving development impact through their commercial judgement.

- Expand our local presence by opening country offices

- Manage and mitigate risks, recognising they are inherent in our mission, through continuous improvement of our risk policies and procedures.

Source: Investing to transform lives, Strategic framework 2017–2021, CDC: the UK’s development finance institution, 2017

16.Our CDC witnesses were candid about the implications of an increased focus on riskier ventures in less stable business environments. Nick O’Donohoe, CDC’s Chief Executive Officer, told us:

The shift into fragile, more challenging states began in 2012. If you look at CDC today, more than 50% of our new investment goes into fragile and conflict states, under DFID’s definition. To put that into perspective, it is more than twice as the percentage in the other major development finance institutions. Principally, we have used the strategy that was developed in 2012, long before I came. We should feel proud of the fact that of all the development finance institutions, CDC is the one that is evidentially the most focused on fragile and conflict states. That is one of the things that we are measured on in terms of where our money is invested.36

The corollary of this was that, as Graham Wrigley, CDC Chair, conceded: “We put on record that the new strategy we have been moving towards is taking on more risk, and we think returns will go down in CDC over the next five years compared to what they have been in the last five years.”37

19 Figures supplied by DFID:
• Includes CDC, bilateral programme spend (country office and centrally managed programmes)
• Does not include multilaterals (except for Private Infrastructure Development Group)

20 Plus core PIDG multilateral funding in 2017/18.

22 Development Initiatives, The enabling environment for private sector development, March 2018

24 Q29

25 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q24

27 Overseas Development Institute (EDS0026), para 3

28 CARE International UK (EDS0009), ActionAid UK (EDS0027), Gender and Development Network (EDS0021)

29 WWF (EDS0011), CAFOD (EDS0008), Bond (EDS0015)

30 Bond (EDS0015), CAFOD (EDS0008), Fairtrade Foundation (EDS0020)

31 Q3

32 Q3

33 Changes introduced in 2012 enabled CDC to invest directly into companies, such that by 2016 around 60% of the portfolio was invested in funds and 40% directly through equity or debt instruments

36 Q10

37 Q18

Published: 17 July 2018