INTERNATIONAL DEVELOPOMENT SELECT COMMITTEE

INQUIRY INTO INVESTING FOR DEVELOPMENT

 

Written Evidence from

Dr Nicholas Westcott, Director of the Royal African Society

 

This evidence is submitted in a personal capacity.  It is based on my experience of working with CDC and BII in a number of roles over the past 40 years.  It has been completed while travelling. so I have not had the benefit of being able to look up the specific projects I have in mind to add more granularity to the general observations, but these can be provided in oral or supplementary evidence if required.

It is focussed particularly towards the following specific elements of the Terms of Reference:

 

A. Comparative strategic outlook

There is both something mainstream and something original about what BII do.  There are other Multilateral Financial Institutions (MFIs) that focus on investment rather than grant aid, notably the International Finance Corporation, part of the World Bank Group.   They too seek to support private sector development by investing in enterprises with commercial potential.  Where BII adds additional value and originality is in:

(a)   Its long-term partnerships with a number of countries, through the years when as CDC it sustained investment in countries such as Kenya, Malawi, Zambia and Tanzania through turbulent times when other investors tended to pull out or hold back. In turn, these countries felt invested in BII – that it was part of them, not just an external entity trying to give aid or extract profit.  That was immensely valuable, and helped the enterprises succeed.

(b)   Its long-term approach to investment, putting in money that would reap returns over 20 years or more – beyond the horizon of many ordinary investors – was also much appreciated.  This was particularly so in the agricultural sector, which has been starved of investment, though rather less now than in the past.  Horizons have, however shortened, but BII is still amongst the longer-term investors in the field.

(c)    Its policy priorities for investment include significant social and developmental objectives, such as reducing gender disparity and tackling climate change.  Its investments, while small in the great scheme of things, are big enough to have critical mass in certain sectors and be market leaders that encourage other investors into the sector.  Its recent work investing in renewable energy is a case in point.

B. Criteria and Returns

The criteria are set out in broad terms on BII’s website and BII management will no doubt give fuller evidence to the inquiry.

From my own experience in Ghana, Tanzania and elsewhere, however, BII applies criteria that prioritise the wider benefits as well as the strict financial return on investment (RoI).  An investment has to be economically and financially viable, but the final selection will weigh the extent to which it also contributes to other social  and economic goals, specifically those linked to the SDGs – which have been well-embedded into the decision-making process.

The rigour and credibility of BII’s decision-making process has built a good reputation among other investors who are often encouraged to participate in public-private partnerships where BII is one of the partners on board.  They provide in effect a guarantee of quality.

 

C. Management of investments over time.

Given the importance attached to investments that reap long-term benefits, BII’s management approach is one of patience and continuous interest.  It avoids micromanagement, leaving responsibility to the management of the project, but makes regular checks to see whether the business is evolving in the direction anticipated.

A major challenge to many of BII’s investments was posed by the Covid pandemic.  Many investments, particularly early start-ups, were heavily hit and at risk of failing to meet growth targets and even falling into bankruptcy.  BII responded swiftly and generously, extending terms and providing additional resources in some cases to preserve the value of the original investment and give the companies time to re-establish themselves once economic conditions returned nearer to normal.  This may have delayed the timescale for achieving commercial viability by 2 years or more.  But BII was in a position to act as a responsible and responsive investor and helped quite a number of enterprises survive which would otherwise have gone under.

On occasions, BII management have to accept that an investment has not worked.  The proportion in that category is small, but the risk goes with the territory.  BII management try to minimise the risk by continuing monitoring and suggesting corrective action to the commercial managers to prevent companies falling into that situation.  It would be worth asking BII, outside of the Covid experience, where they have been able to ensure corrective action was taken in time.

 

 

2 February 2023