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Investment for development: The UK’s strategy towards development finance institutions


Written by Samantha Attridge, Joseph Feyertag


The emergence of the Sustainable Development Goals (SDGs) marked a change in development debates. Not only do the SDGs aim to promote an integrated approach to economic, social and environmental development, they place emphasis on a development model where the private and public sectors have complementary roles to play in supporting inclusive and sustainable growth. They also represent a major shift in the international community’s strategy to achieve these Goals by recognising the central role of the private sector. Private investment and innovation are major drivers of productivity, inclusive economic growth and job creation, which are key ingredients to tackle poverty. More than nine in ten jobs are created in the private sector in the global south.

Low- and middle-income countries (L&MICs) face unparalleled challenges to their future growth and development. Covid-19 and climate change have combined to reverse years of development progress and have created extraordinary challenges, made much worse by the impact of the war in Ukraine. In 2021, the SDG financing gap stood at $3.9 trillion in 2021, 56% increase from the pre-Covid estimate of $2.5 trillion. A need that far exceeds global aid budgets. Mobilising private investment will be critical and is the only way to generate the sufficient scale of capital that is required.

DFI investment (including that made by BII) plays a critical role in this. It is different from traditional aid investment thus BII’s objectives and its theories of change are different from UK traditional aid but so too are the impacts. The UK government has set a clear priority on mobilising investment in its international development strategy to help L&MICs growth their economies sustainably. In this context, the question of interest is therefore one about economy, effectiveness and efficiency, ultimately does BII deliver value for money in the pursuit of this goal?

There is no doubt that BII plays a critical role in contributing to this agenda. It is a successful, respected, unique and stand out bilateral DFI. It has a long track record in supporting business in the global south to grow, has created thousands of jobs, thereby supporting economic growth and has generated tax revenue which governments can use to fund public goods and social investment. In 2021 its investments supported approximately 938,360 jobs.

It is especially valued for its focus on challenging geographies (e.g., South Asia and Africa), high risk investment through the deployment of scare equity capital and the development of its high risk catalyst portfolio. It has also been on a transformational journey since 2012 and again in 2017 with a much sharper focus on better understanding, managing and communicating the impact of its investments. It can improve on this and indeed must improve in this area. This will be essential for BII to better articulate and communicate its value for money and for stakeholders to better appreciate the value of BII as tool of government development policy.

This submission offers reflections in five areas based on ODI’s latest research as follows:

1) Mobilisation of private finance

2) BII funding

3) Transparency and accountability

4) Intermediated investment and due diligence

5) Fighting and adapting to climate change

Relevant research has been hyperlinked in the submission.