Written evidence submitted by the ONE Campaign to the International Development Committee’s inquiry on the UK’s strategy towards Development Finance Institutions and the effectiveness of aid spending through British International Investment (BII)

 

About the ONE Campaign

 

The ONE Campaign is an international development advocacy and campaigning organisation, working to end extreme poverty and preventable diseases, especially in Africa.[1] ONE members raise their voices and put pressure on governments to keep their promises to the world’s poorest people. ONE has been at the centre of campaigns to increase development budgets in order to raise vital funds for the fight against poverty, and to call for measures to ensure that aid is spent effectively and meets high standards of transparency. We believe that this is vital for maintaining public confidence in our aid budget.

 

What transparency is there over BII’s performance monitoring and reporting?

 

In 2020, ONE launched the Africa Jobs Campaign, which aims to push for policy changes that could create 15 million decent jobs annually on the continent by 2025.[2] Development Finance Institutions (DFIs) have great potential to help meet this goal, and ONE welcomed the commitment made in 2021, by a group of G7 DFIs (including BII) and multilateral partners to invest $80 billion over the next five years to support African businesses.[3]

 

Africa’s growth has not translated into jobs, and from 2000 to 2008 employment grew at only 2.8%, just half the rate of economic growth.[4] Job demand is outstripping supply, and just 3 million formal jobs are created on the continent per annum.[5] This figure is not enough to meet the needs of Africa’s growing population as approximately 15 million people are predicted to enter Africa’s workforce each year.[6] Challenges will only worsen if action is not taken as Africa’s population is expected to grow by 450 million by 2035.[7]

 

As a DFI, BII has the ability to provide patient public capital that can effectively subsidise higher risk investments that would drive economic growth and enable the creation of more and higher-quality jobs. However, there are minimum standards that must be met, and job quality is equally as important as job quantity. Most employment in Africa is informal, and a significant number of people are employed in jobs that offer no social protection, unsafe working conditions and limited opportunities for skills development.

 

In 2021, the Government injected £660.7 million from the UK’s Official Development Assistance (ODA) budget into BII.[8] All ODA, irrespective of the vehicle, should deliver poverty focus and effectiveness. BII’s investments should therefore seek to deliver decent jobs in areas of need. In order to assess BII’s delivery against this criteria, there must be sufficient transparency.

 

BII currently reports on the total number of jobs generated, and provides the option to view this information by sector and gender. The latest available data shows that, in 2021, BII’s portfolio supported almost one million direct jobs, with 22,310 additional jobs created that year.[9] About 34% of the jobs supported in 2021 were in the financial services sector, 25% in the infrastructure sector, 5% in agriculture and food, and 5% in manufacturing.[10]

 

However, no data is available on the number of green jobs created by BII’s investments. The creation of green, sustainable jobs is of particular importance to Africa as 49% of African workers are employed in agriculture, a sector characterised by instability as a result of climate related threats.[11] Further, from BII’s data, it is impossible to determine the quantity of youth jobs generated. This lack of transparency is concerning as Africa has the youngest population in the world, and 13.4% of the continent’s youth are already unemployed.[12] ONE’s report, Shifting and Accelerating DFI Investments for more Decent Jobs in Africa, also found that BII does not publish information on the wages of employees relative to local averages or poverty lines.[13]

 

Reporting on these priority areas would not only enable sufficient scrutiny, but also ensure better targeted job creation policies for both BII and the Governments of recipient nations. It is difficult to assess the impact of BII’s work as without details of the end use, it is impossible to know whether investment is effectively meeting the needs of the population in question.

 

Reports have also criticised the channelling of finance to MSMEs through financial institutions.[14] DFIs largely invest in financial institutions. This is the most effective route to MSME financing, as transaction costs are too high for them to monitor these directly. It is important that MSME impact through financial institutions is captured and reported to the DFI, and safeguards put in place where possible.

 

On quality, BII does monitor job quality including implementation of standards or policies. However, BII provides no information regarding metrics on job quality on a project basis or processes that routinely consider tradeoffs and improve quantity and quality of jobs. Quality jobs are important for guaranteeing stability and improving the livelihoods of those employed.

 

Further concerns can be raised when the method used by BII to decide which projects to progress is taken into consideration. BII’s current system scores projects against productivity, inclusivity and sustainability, and ranks projects accordingly. But, at present, there is no threshold for cutting schemes that score poorly for sustainability or inclusivity - BII instead takes a portfolio approach. BII should not be investing in projects that fall below a minimum threshold on inclusivity or sustainability. It is unacceptable that at present, a project could score 0 out of 5 in either of these categories and still be approved as part of a balanced approach.

 

There is more that can be done to improve BII’s transparency and reporting. Given that the Government’s International Development Strategy outlines the ambition to invest more resources into British Investment Partnerships and use BII as a significant tool, there should be greater accountability to the FCDO and the highest levels of transparency. 

 

Recommendations:

 

To maximise impact, BII must:

 

1. Take risks that lead to transformation for quality job creation

 

BII still does not take enough risk investing in low-income countries or fragile states, some marginalised groups or businesses in new and existing sectors identified as transformational for Africa’s jobs. In ONE’s 2020 Real Aid Index, a project designed to assess Government programmes against the principles set out in the Real Aid Charter, CDC scored only moderately for poverty focus and weak for effectiveness.[15]

 

In 2021, 28% of BII’s total portfolio went to India, a middle-income country (MIC), this was the number one country for BII investment.[16] The second largest investment area was Nigeria, but the percentage of investment was much lower, at 7%.[17] Ghana saw 2%, and Cameroon only 1%.[18] Further, out of the countries where BII invests, only 15 were registered on the FCAS list in 2021.[19] Of the 15 fragile states where investment did occur, only Nigeria received more than 1% of BII’s total investment.[20] This is a historic trend, in its assessment of CDC, ICAI in March 2019, scored the CDC an amber/red on investment in LICs and fragile states. ICAI stated that CDC, “CDC has not done enough to ensure or monitor development results, or to progress plans to improve evaluation and apply learning”.[21] ICAI also found that CDC had a lack of clarity on expected development impact, which meant that it was difficult for them to assess their overall impact.

 

There is also evidence to suggest that jobs are not reaching marginalised groups. In 2021, only 28% of the jobs created through BII’s investments went to women.[22] This does not align with the Government’s focus on empowering women and girls. Greater FCDO oversight is necessary in this area if the International Development Strategy is to be a success.

 

In addition, just 5% of BII’s portfolio in 2021 was invested in the manufacturing sector, an area providing jobs with a long term, steady wage and conditions that are easy to monitor.[23] In contrast, 25% of BII’s portfolio was directed into infrastructure, and jobs in this sector tend to be in temporary and risk construction.[24] Investments in infrastructure are welcome, where long-term, sustainable, job creation and income generation is supported.

 

As a DFI, BII must continually evaluate where and how more risk can be tolerated and articulate this to stakeholders. DFIs are mandated to subsidise risk in order to enable transformation. ONE’s analysis suggests DFIs should target the following areas; riskier end users (MSMEs and informal workers), agricultural transformation, manufacturing and harder to reach geographies.

 

2. Measure and share impact, including for investments in financial institutions for accountability and learning

 

BII must collect information about its impact on job creation faster. BII must also report better on the quantity of green jobs and youth jobs, two key areas of need. Further, BII could act to improve reporting on the quality of the jobs created. BII could act to use GIIN/IRIS+ or ILO definitions to measure green jobs or digital jobs.

 

3. Transfer standards and skills

 

DFIs are in a unique position to implement capacity building or skills transfer alongside a transaction. This can be through the partnership with local financial institutions structuring a deal in a new sector, which can then be replicated without them, or more targeted capacity building through the use of technical assistance (TA).

 

International environmental, social and governance standards can be introduced and implemented in local companies when they receive DFI finance. DFIs are generally good at this, but further information is required on how ESG standards are applied to financial intermediaries.

 

 

 

 

 


[1] ONE, About ONE [Accessed 14th December 2022]

[2] ONE Analysis of ILO Labour Force Participation Data, and UN population prospects data

[3] African Development Bank Group, G7 Development Finance Institutions and multilateral partners to invest over $80 billion into African businesses over the next five years [Accessed 25th January 2023]

[4] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[5] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[6] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[7] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[8] FCDO, Annual Report and Accounts 2021-22 [Accessed 31 January 2023]

[9] British International Investment, Key Data [Accessed 31 January 2023]

[10] British International Investment, Key Data [Accessed 31 January 2023]

[11] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[12] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[13] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[14] ONE, Shifting an Accelerating DFI Investments For More Decent Jobs In Africa [Accessed 25th January 2023]

[15] ONE, Real Aid Index [Accessed 31 January 2023]

[16] British International Investment, Key Data [Accessed 31 January 2023]

[17] British International Investment, Key Data [Accessed 31 January 2023]

[18] British International Investment, Key Data [Accessed 31 January 2023]

[19] British International Investment, Key Data [Accessed 31 January 2023] and World Bank, Classification of Fragile and Conflict Affected Situations 2021 [Accessed 31 January 2023]

[20] British International Investment, Key Data [Accessed 31 January 2023]

[21] ICAI, Report: CDC’s investments in low-income and fragile states [Accessed 3 February 2023]

[22] British International Investment, Key Data [Accessed 31 January 2023]

[23] British International Investment, Key Data [Accessed 31 January 2023]

[24] British International Investment, Key Data [Accessed 31 January 2023]