DFID’s Economic Development Strategy Contents

2Past criticisms and responses

17.ICAI’s reviews of DFID’s economic development work in 2014 and 2015, both resulted in Amber/Red ratings.38 The criticisms were very similar in successive reviews: ICAI found:

18.In June 2017, ICAI reviewed DFID’s work on ‘Inclusive Growth in Africa’ and, despite giving DFID a Green/Amber rating39, it repeated warnings over DFID’s ambitions being welcome but spread too thinly; and identified that there were many challenges ahead. We consider these criticisms and how they have been followed up by DFID.

Ambitions vs reality

19.ICAI criticised DFID in its 2014 report for not turning ambitions into clear guidance to develop a realistic, well-balanced and joined-up portfolio of country-level programmes—Amber/Red.40 Again in 2015, ICAI praised DFID for their high-level ambitions but concluded that they had to do far more to translate these into detailed operational plans and concrete targets—Amber/Red.41

20.In response to ICAI’s criticism that there was a gap between project monitoring and the overall impact, DFID told our ICAI Sub-Committee earlier this year that it was putting its efforts into really understanding the overall impact of economic transformation on each economy.42 Development and improvement of DFID’s country-level diagnostic tools, as well as looking at the contributions from centrally-managed programmes, should fill gaps that had been present in past operations.43

21.Fairtrade Foundation recommended that DFID develop a clear ‘theory of change’ to accompany the strategy to demonstrate: the logic behind their investments more clearly; how DFID was working in different ways with different economic actors; and how DFID was aiming to bring about change for people living in poverty.44 The need to incorporate theories of change into programming to ensure the primacy of poverty reduction as an objective is something we also recommended in our recent report on Definition and Administration of ODA.45 Fairtrade Foundation highlighted that benefits of economic growth programming can be captured by established elites, particularly men, and that inequality could increase.46 ICAI also recognised this point, Marcus Cox, ICAI Team Leader, told us:

economic transformation as a process tends to create winners and losers, and I think there is an obligation on DFID to be aware of that, to track who is benefiting and who is potentially losing out, and to build in mitigations to make sure that they are not disadvantaging people.47

This is something that is recognised by DFID and Rachel Turner, Director of Economic Development told us that they were working to understand how people in all income groups are affected particularly from rural-urban transitions by investing in longitudinal research. She explained:

We have found that one of the most useful ways to deepen our understanding is really to understand and follow people on those journeys from rural to urban.48

Strategic oversight

22.ICAI found in its 2015 report Business in Development that there was a lack of strategic oversight, with economic development work spread across too many different areas with insufficient strategic oversight. ICAI found weak interaction and information sharing between central and country office programmes as well as a lack of cross-departmental oversight which resulted in diminished learning.49 This was repeated in the 2017 report which stated that country offices were not focusing on where DFID had a comparative advantage and was spreading its economic development work too thinly. 50

23.CDC conceded that, in the past, it was fair to say that CDC and DFID did not always understand what each other were doing. Nick O’Donohoe, Chief Executive Officer since March 2017, said: “When I joined CDC, I spent quite a bit of time travelling around the countries we were investing in, and it was clear that we had not had the close relationships that we needed to have in country with DFID or broadly across Government.”51 We were concerned as to whether CDC and DFID yet worked in as closely an aligned way as possible for maximum impact. In response the Chair of CDC referred to his organisation as a ‘subset’ of the Economic Development Strategy and ‘complementary’.52 Graham Wrigley said that both CDC and the Economic Development Strategy had the same goal of achieving the Sustainable Development Goals53— “I describe DFID as a shareholder with clear goals.”54 In terms of day-today practice, Nick O’Donohoe told us: “ We are in a constant dialogue with DFID. We are in a constant dialogue at a country level, with not just DFID but the other parts of the UK Government represented on the ground. There is a constant dialogue going on at a country level. … There is a dialogue at the sector level.”55

One size fits all

24.We were concerned with the twin risks that the Economic Development Strategy might prove either blandly aspirational or something of a straitjacket for innovative, context-sensitive, country programming. We questioned whether the strategy was a one size fits all approach in light of the ICAI Inclusive Growth report’s finding that:

Both the Zambia and Tanzania portfolios illustrate the difficulty of programming for economic transformation when diagnostic work reveals multiple constraints and a political economy that has not always delivered the degree of policy consistency needed to support increased investment. As a result, both country offices continue to invest most of their resources in agriculture, with a range of interventions aimed at different socio-economic strata, including those who are ‘hanging in’. This is consistent with their diagnostic work, but notably more realistic than the Economic Development Strategy about the prospects for economic transformation and job creation over the short-to-medium term.56

25.However, DFID has asserted that, due to its country diagnostic tools to support country planning, programming was indeed context-specific.57 These country diagnostic tools are now being updated and piloted to go “one notch … further” toward understanding “the underpinnings of economic transformation alongside state capability, resilience, human capital, governance, and conflict, so that country offices can make choices about their economic development priorities.”58 However, striking an appropriate balance between strategic direction from the centre, and the tactical wisdom in-county, is not straightforward. ICAI’s follow-up to its review of DFID’s support for inclusive growth in Africa noted that a focus on economic transformation and job creation should not come at the expense of supporting the development of livelihoods for the poorest. ICAI had recommended that DFID should provide more guidance for country programmes on portfolios that balance long-term structural change and job creation with effort to increase incomes for the poor in existing livelihood areas. DFID had partially accepted this recommendation but ICAI noted that the Department had not committed to developing any new guidance in this area, preferring to let country offices make their own decisions on sequencing and balance.59

Monitoring and measurement of results

26.The Economic Development Strategy says it will monitor results in different ways (See Box 3):

Box 3: Economic Development Strategy sample indicators

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

27.ICAI recommended improved DFID monitoring to help the Department to understand the impact of individual programmes on the overall transformation of the economy.60 Rachel Turner, Director of Economic Development at DFID, said that DFID was working on “what is happening on the overall transformation piece” and the “series of complex issues” in the overall economy.61 Melinda Bohannon, Head of Growth and Resilience said that DFID was keen to take the monitoring and evaluation “out of its box” to make it more systematic to a country’s approach.62 We expect to hear how this approach is evolving, and its impact, when the Department replies to this report and/or in subsequent ICAI follow-up work.

Staff expertise

28.The 201463 and 201564 ICAI reports as well as our predecessor Committee’s Jobs and Livelihoods report65 questioned the knowledge of DFID on economic development and the private sector. DFID now has its first dedicated directorate for economic development and is strengthening staff capacity. Rachel Turner told us that they had spent the last year scaling up their teams, making a specific effort to bring skills in from the financial sector and increasing the size of the team with trade policy skills.66 DFID also now has a secondee from the Office for National Statistics to help them with the job creation figures and analysis of the labour market.67 The 2017 ICAI review recognised that DFID had come a long way in building up its expertise.68

Additionality & mobilisation

29.The issue of additionality69 has featured in past concerns of donors working with the private sector. CDC’s main purposes are to act as a pathfinder or trailblazer for the commercial sector as well as bridging gaps and supplementing where the private market will not yet provide finance and take on risk. CDC’s approach to additionality was agreed in 2014 following an external review. CDC told us it is approaching this difficult topic with “clarity, honesty and objectivity – ensuring additionality in every investment and independent verification of this taking place.”70 Nick O’Donohoe told us that:

Last year [mobilisation] … was about $800 million. That includes other DFIs as well as private capital. One of the key strategic goals of the new strategy is to increase our mobilisation efforts. Yesterday, for example, we hosted an event in the City of London drawing together mainstream investors to talk about how we could get more of their capital into the countries in which we invest, so it is a critically important part. On additionality, I could give you a very long answer. The short answer is that we aspire for all our investments to be additional. That can mean financial additionality, meaning that we are investing somewhere that no one else would invest, but equally it can also mean value additionality. It can mean that we have an effect on the way this company is managed and run that we believe is different from other sources of capital. We look at both.71

Decent work

30.Our predecessor committee’s Jobs and Livelihoods report highlighted that it should not just be any job that is created and supported by DFID programmes but good jobs.72 ICAI’s 2017 report highlighted that DFID’s log frames73 did not pay attention to the quality of jobs created.74

31.This concern is evident still in the submissions received for this inquiry. The Gender & Development Network observed that DFID stops short of using the language of ‘decent work’ in the Economic Development Strategy which is not in line with the UK Government’s commitments under Sustainable Development Goal (SDG) 8. Care International recommended that DFID needed to improve the current ‘weak focus’ on decent work in the strategy. It said that DFID needed indicators to track the quality of jobs created.75 There was also a call for the UK Government to support the new ILO Convention on ending violence and harassment in the world of work.76 Bond’s joint submission by its Private Sector Working Group, Decent Work Group, and Sustainable Development Goals Group called for the promotion of the ILO’s decent work standards. It also recommended that CDC must develop a set of minimum standards on decent work to be used by CDC as a whole, as well as investees, to guide investment decisions and called for DFID to support worker ‘representation, voice and agency’.77

Climate change and the environment

32.A common theme through the submissions was a recommendation that DFID’s Economic Development Strategy should promote sustainable use of natural resources and climate protection. Bond warned that there was a significant risk that economic development could, if not designed appropriately, cause environmental degradation, which in turn increases rather than decreases poverty and adversely affects DFID’s broader work around sustainable development. 78 WWF asked for a clearer recognition by DFID in its Economic Development Strategy that development trajectories should be environmentally sustainable. It also highlighted that negative environmental outcomes from inappropriate economic development were damaging to future economic prospects.79

33.WWF recommended that DFID should cease investing in fossil fuels.80 CDC told us that it has a policy on coal fired power generation which means it no longer invests in coal-fired power plants and it will be issuing new guidance on heavy fuel oil. Instead, CDC is actively investing in low carbon sectors.81

34.In response to climate change and environment concerns, DFID is currently working on a set of updated country development diagnostics which consider climate change throughout.82 Climate change is also now one of CDC’s four key commitment areas in its new strategy. Since 2014, CDC has had a Climate Change Policy to proactively assess climate change risks.83

Marginalised groups

35.ICAI’s 2017 report on DFID’s approach to supporting inclusive growth in Africa recommended that:

Building on broader learning on inclusion, DFID should ensure that opportunities for reaching women, young people and marginalised groups are identified and built into programme designs and results frameworks and that distributional impacts are routinely monitored and assessed.84

DFID’s management response agreed that there was more to do and said:

We will develop analytical tools to track a range of economic development programme level results so that we better understand the impact of our economic development programmes on gender, young people and marginalised groups. … We will also conduct more in-depth analysis on the barriers to women’s economic empowerment in DFID’s focus countries.85

Gender

36.DFID’s Economic Development Strategy said it has ensured that girls and women were at the centre of its economic development work and that it addressed gender inequality, for example, it’s collaboration with the World Bank has meant that for the first time the particular challenges faced by women are reflected in the flagship ‘Doing Business Index’.86

37.The evidence we received suggested that DFID could go further in its work on women’s economic development. The Gender and Development Network recommended that DFID take into consideration the structural barriers to women’s economic empowerment such as unpaid care work and violence against women and girls.87 CARE recognised an opportunity for DFID in conflict and displacement settings to sustain positive changes to gender roles where women’s participation in economic activities had already increased.88

Disability

38.Sightsavers argued that disability should be a clear priority in the implementation of DFID’s Economic Development Strategy. It highlighted the upcoming Global Disability Summit as an opportunity to build an Economic Development Strategy which focused on how to reach people with disabilities. Although Sightsavers recognised that the strategy sets out a positive broad vision, the detail of the implementation regarding disability would be crucial to its success.89

Youth

39.Our predecessor Committee report on Jobs and Livelihoods focused on the youth factor - with a billion more young people entering the job market, mainly in Asia and Sub-Saharan Africa over the next decade.90 We questioned the Director of Economic Development at DFID, Rachel Turner, as to why there were not more specific programmes on youth employment. She told us:

We have reached a point in Africa where talking about young people as if they are a small niche and the programmes are targeted on everyone else is just not the reality of the shape of the population. Absolutely, young people are part and parcel of our ambition to the Economic Development Strategy. We do have some interesting programmes that we are developing in east Africa, particularly, that are focusing on young people. There are new programmes in both Tanzania and Kenya. There is a growing portfolio that is responding to the youth employment challenge. However, the wider piece as well speaks to the need to create jobs for young people.91

Overall

40.ICAI’s follow-up review of its report from 2016-1792 (published in June 2018 after we had taken evidence from DFID on its Economic Development Strategy) included a further review of DFID’s progress against ICAI’s recommendations on inclusive growth (in large measure, a review of DFID’s approach to economic development). The Department had accepted 3 out of 4 of ICAI’s recommendations and partially accepted one.

41.Of the accepted recommendations, ICAI concluded that new diagnostic development demonstrated good engagement by DFID with the challenges of investment prioritisation (not spreading efforts too thinly) and tackling weaknesses in its analysis of the contribution of the state to economic transformation (being politically smart). In addition, DFID had made practical efforts to lay the foundations for the effective monitoring and understanding of distributional impacts of programmes (who benefits and who remains excluded). We were disappointed to see that there had been little progress on taking account of DFID’s “comparative advantage relative to other development actors” in prioritising interventions.93

42.We refer to the partially accepted recommendation above. DFID seemed to accept the importance of striking an appropriate balance between job creation via economic transformation and the development of livelihoods for the poor. However, ICAI had called for central guidance and DFID argued that country offices were best-placed to make their own decisions about the proportions and sequencing of interventions in these areas.94 We tend to agree with the Department but DFID should test its confidence in country teams with a programme of review and best practice-sharing.

43.In responding to the ICAI Sub-Committee on this matter, DFID appeared to be conceding the challenge. Melinda Bohannon, Head of Growth and Resilience cast the issue in terms of agriculture, she told us:

we see it as central to the Economic Development Strategy ambition, for the reason […] that smallholders working in agriculture make up a significant part of the transformation challenge, and our agriculture policy framework, which was launched before the Economic Development Strategy, sets out quite a strong ambition for how we are going to work in the agriculture space. That speaks to the challenges of working with smallholders to hang in, those that are going to realistically be involved in smallholder farming indefinitely stepping up, so increasing the productivity of those smallholders to increase their incomes, and then stepping out, which is more of the diversification, rural-urban transition piece.95

This debate continues as the range of evidence submitted to this inquiry suggests.96


38 ICAI reviews use a simple ‘traffic light’ scoring system. The four assessment ratings are: green, green-amber, amber-red and red. Amber/Red means unsatisfactory achievement in most areas, with some positive elements. An area where improvements are required for UK aid to make a positive contribution. ICAI’s Approach to Effectiveness and Value for Money

39 Green/Amber score means satisfactory achievement in most areas, but partial achievement in others. An area where UK aid is making a positive contribution, but could do more

40 ICAI, DFID’s Private Sector Development Work, May 2014, Report 35

41 ICAI, Business in Development, May 2015, Report 43

42 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q23

43 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q33

44 Fairtrade Foundation (EDS0020), para 9

45 International Development Committee, Fifth Report of Session 2017-19, Definition and administration of ODA, HC 547, para 113

46 Fairtrade Foundation (EDS0020), para 13

47 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q11

48 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q19

49 ICAI, Business in Development, May 2015, Report 43

51 Q8

52 Q3

53 Q5

54 Q6

55 Q6

58 Q38

61 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q23

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

63 ICAI, DFID’s Private Sector Development Work, May 2014, Report 35

64 ICAI, Business in Development, May 2015, Report 43

65 International Development Committee, Twelfth Report of Session 2014-15, Jobs and Livelihoods, HC 685, para 80

66 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q21

67 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q35

69 Investments should only be undertaken where they are additional to what the local market would already offer i.e. providing funding for investments that would not have otherwise have received it.

70 CDC Group (EDS0023)

71 Q24

72 International Development Committee, Twelfth Report of Session 2014-15, Jobs and Livelihoods, HC 685

73 A Logical Framework Approach is a project design methodology that provides a systematic structure for identifying, planning and managing projects. It was developed in the United States for USAID and has been adopted and adapted for use by other major donors including DFID and the EC.

75 CARE International UK (EDS0009)

76 CARE International UK (EDS0009)

77 Bond (EDS0015), Summary

78 Bond (EDS0015)

79 WWF (EDS0011)

80 WWF (EDS0011)

81 CDC Group (EDS0023) supplementary

82 CDC Group (EDS0023) supplementary

83 CDC Group (EDS0023) supplementary

87 Gender and Development Network (EDS0021), para 2.2

88 CARE International UK (EDS0009)

89 Sightsavers (EDS0013)

90 DFID Economic Development Strategy: prosperity, poverty and meeting global challenges, January 2017, Foreword from the Secretary of State

91 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q30

95 Oral evidence taken on 7 February 2018, HC (2017-19) 727, Q15

96 ACTIONAID (EDS0012), Ethical Events Ltd (EDS0010), AgDevCo (EDS0004), APPG on Agriculture and Food for Development (EDS0003), George Gwyer (EDS0006)




Published: 17 July 2018