Amber/Red for DFID - not business as usual

Today the body responsible for scrutinising the effectiveness of UK aid money, the Independent Commission for Aid Impact (ICAI) , released its report on Business in Development.They’ve lookedat how well DFID is working with, and through, businesses. Their assessment, announced today, is concerning. Marked as Amber/Red, it states: The programme performs relatively poorly overall against ICAI’s criteria for effectiveness and value for money. Significant improvements should be made.

It is a harsh message for DFID teams but timely for the start of a new term of office and will give some renewed focus (we hope). It also means it can’t be ‘business as usual’ if they want to achieve their goal of poverty reduction. ICAI has recommended there is a “sharper focus on the poor”. Specifically, they report that DFID’s work on business growth and investment has not been shown to translate into benefits for the poorest members in developing countries.

“The link between business engagement and reducing poverty is not always clear”

With the increasing share of the aid budget being directed towards private sector/economic development it has never been more important to get it right. ICAI flagged a problem with DFID’s ‘theory of change’; that their work with businesses has not led to benefits for the poor. The report gives DFID an opportunity to explore why that is: Should they change focus and work less with the private sector? Or should they work differently with the private sector?

So what should DFID do?

There’s strong case for the latter argument, and one that Practical Action along with other NGOs in the Bond Private Sector Group have been making since the publication of DFID's Economic Development Strategic Framework. We believe working with the private sector is important, and have recommended that DFID focus on three aspects to help ensure their work with business benefits those who need it most:

• Firstly, a broad spectrum of the private sector needs to be included, not just the bigger players DFID tends to favour. Small and micro businesses and those operating in the informal sector are fundamentally important to economies and those in poverty are heavily dependent on them for jobs and livelihoods.

• Secondly, prioritise those sectors and systems that are the most important for large numbers of people in poverty, fragile states and crisis. In particular those which provide income or employment opportunities, or goods and services to strengthen livelihoods. Target the agricultural sectors that will deliver most opportunity, and support models of energy provision and other services, such as water and sanitation, which can best serve the poor.

• Thirdly, DFID needs to pay particular attention to those who are marginalised from economic opportunities and participation – particularly women and young people in poverty, and those in fragile states or crisis.

Underpinning all DFID’s work with business, regardless of sector or geography, should be environmental sustainability via promoting both the sustainable use of natural resources and climate protection.

NGOs would lack credibility if they implied there are easy answers and simple solutions. The systems and processes that determine whether business support and market development works for the poor are complex and highly context specific. That’s why it’s important to understand the actual situation of people in poverty and empower them. Whether it is access to off-grid energy, selling produce to expanding markets or paying to have waste collected, people in poverty want choices and the means to make livelihood decisions that are right for them.

Practical Action like most NGOs works through local teams and partners. Our Southern Africa Regional Director Kudzai Marovanidze talked with DFID in Harare last week about their analysis of the future opportunities for ‘inclusive growth’. In this deeply challenging context, 84% of employment is in the informal sector, mainly for women and young people. This must have big implications for DFID’s choices about where to put funds if it wants to address poverty in Zimbabwe. Mining and manufacturing sectors are unlikely to offer many of these people opportunities. So business yes, but not business as usual.

Alison Griffith

Senior Advisor on Markets and Private Sector, Practical Action