The Government’s promise to “leave no-one behind” has been trampled on by none other than the government itself. The government wastes money on consultants who do not make any lasting impact on developing countries. International aid has propped up corruption in recipient countries, such as in Lebanon, where their ministers redistribute foreign aid into maintaining their hold in power through agreements with other parties, leaving many without adequate social services or education. Foreign aid is easily abusable and can hurt developing countries instead. However, those problems can be alleviated through private investment as an alternative to the current system.
Utilising the private sector to facilitate the growth of developing countries is not the standard strategy for national governments. This is because the OECD definition of official development assistance (ODA) states it must be delivered by official public entities, and not by private companies. These rules encourage of the provision of taxpayer-funded aid, but the scale of it is too small for adequate progress in developing countries.
While the UK spent 0.55% of its Gross National Income (GNI), or approximately £13 billion on aid in this year, by 2030, there is a need for $500 billion to be spent annually within low-income developing countries (LIDCs), and a further $2.1 trillion for emerging countries, which are only partially developed. But, in 2022, the total spending from the Development Assistance Committee, comprised of the world’s 32 major state donors, raised only a total of €211 billion for foreign aid. A different strategy is needed. State money globally can only meet the full need for foreign aid to a limited extent, but there is an opportunity for private finance to fill the gap.
This is not an entirely novel idea. Already in 2019, Penny Mordaunt, then-International Development Secretary, was reported to have had conversations with cabinet ministers regarding how her department could focus on fundraising instead of spending. Her proposals then already included reforming OECD aid rules for investments in private initiatives. Current rules for ODA eligibility do not allow for this.
Indeed, the UK has already launched initiatives to involve the private sector through its aid spending. Alongside other developed countries like Germany and Australia, the Private Infrastructure Development Group provides financial and strategic support to encourage private infrastructure investment in LIDCs. In addition to this, between 2011-2019, the Commonwealth Development Corporation (CDC), the profit-making investment arm of the then- Department for International Development, made 52 investments in foreign aid; mostly in Ghana’s energy and agricultural sectors. In response to this success, The UK’s 2022 Aid Strategy has set a target for British International Investment (formerly CDC) to raise £8 billion annually by 2025, which is already seeing success, potentially meeting the target three years early.
Investment in the private sector in developing countries can bring significant benefits to the local community. Cadbury’s investment to secure consistent, high-quality cocoa from Ghana has improved the income of farming communities, benefiting 10,000 farmers and their families. In addition to supporting farmers financially, the investment has raised awareness on gender equality and child labour. For-profit companies that invest in local communities are incentivised to care about the wellbeing of the people living in them, because it can lead to greater productivity amongst workers. To this end, they make various kinds of philanthropic contributions, including grants and knowledge sharing.
There are other benefits in private initiatives to develop LIDCs. They are not only more sustainable than taxpayer-funded aid but can also reduce developing countries dependence on debt caused by state aid, which is usually delivered through loans. This is because private initiatives lead to investment directly to recipient countries, without the need for the state to pay back loans. This advantage has led to such an approach has been supported even by the more populist members of the Conservatives, including Jacob Rees-Mogg and Priti Patel.
Companies are already willing and eager to invest into developing countries. Despite the support the government has announced within the last few years, it is still a small proportion of the overall aid budget. The potential of private investment remains untapped. There is funding need for trillions and, while this need exists, investment into LIDCs will remain below adequate levels. It is necessary for governments to consider schemes to bring in further private investment for foreign aid, without which we will not meet the living conditions we want to see in developing countries.
Burhan Miah was undergoing work experience at Bright Blue. Views expressed in this article are those of the author, and not those of Bright Blue.
