Britain’s soft power and impact investing is giving way to something more hard-nosed and political

Hello and goodbye? Britain’s prime Minister Boris Johnson walks off stage at UK-Africa Investment Summit in London, Britain Jan. 20, 2020.
Hello and goodbye? Britain’s prime Minister Boris Johnson walks off stage at UK-Africa Investment Summit in London, Britain Jan. 20, 2020.
Image: Matt Dunham/Pool
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Staff at the UK’s Department for International Development (DfID) were caught by surprise on June 16 when prime minister Boris Johnson announced their ministry would be merged with the Foreign and Commonwealth Office to create a new Foreign, Commonwealth and Development Office.

“What a day,” sighed one DfID staff member. There had been rumors about such a move for some time, but they largely died down after Anne-Marie Trevelyan was named secretary of State for International Development in February.

Also caught out were aid and development agencies, who denied Johnson’s claim in parliament that there had been “massive consultation over a long period” ahead of the decision. In subsequent days, former prime ministers, foreign secretaries and international development secretaries from the two main parties lined up to criticize the move, as have myriad voices from the development community.

One thing missing from the discussion so far is any sense of what it might mean for the UK’s development finance agency CDC, which is part of DfID and one of the biggest investors in Africa, both via direct investments and putting money into funds of funds. Several sectors including the African private equity sector could be hit if the agency is forced to change course.

Campaigning groups including Results UK and Cafod say they are still analyzing what it means for CDC, but others detect reasons for concern. “The whole purpose of this merger is to accelerate the redirection of aid into corporate coffers and shut off any avenues for scrutiny,” claims Daniel Willis, policy and campaigns manager of Global Justice Now, who predicts CDC will become a much bigger part of UK aid in the years to come. “That means more money going to for-profit healthcare, fossil fuel projects and unaccountable private equity funds in the global south,” he says.

CDC itself says in the wake of Johnson’s announcement that it was “business as normal” for its operations. A spokesman declined to comment on the merger, other than to say it is “far too early” to know whether there will be any implications for its activities. For now, the organization’s mandate remains unchanged.

However, CDC may well come under pressure to adapt its approach in the future, if not fundamentally change it. In particular, it seems likely that aid spending will become more closely linked to other government objectives in the future, whether economic, diplomatic or otherwise. “The UK possesses the third biggest aid budget and diplomatic network in the world: we owe it to our people to make best use of these assets,” Johnson told the House of Commons. “The British taxpayer has the right to expect that we achieve the maximum value with every pound we spend.”

Ian Mitchell, senior policy fellow at the Center for Global Development, argues DfID’s seats at the World Bank and regional development banks should be handed to the UK Treasury rather than the new FCDO. Such an approach would be similar to that of the United States. But if that happened it could indirectly have an impact on some of the financing decisions made by CDC and other arms of the UK state.

There are several ways a new, more commercial approach might affect CDC, which is part-funded by DfID—the department invested some £700 million ($900 million) in CDC in 2018–19 and had planned to increase this to almost £1billion in 2019–20, according to a recent report by the House of Commons International Development Committee. (CDC also makes returns on its investments which helps to fund its deal-making).

Among other things, there might be more pressure on CDC to involve British companies in its deal-making. Until now, the organization has been happy to work with partners from anywhere in the world, as CDC chief executive Nick O’Donohoe told Quartz in an interview in January.

“We like to invest alongside UK companies where we can, but we’re not required to,” he said. “The critical thing for us is to find partners we can work with. Ideally, they’ll be local companies. Sometimes they’ll be international companies. Where possible they’ll be UK companies. But it’s not tied.”

In addition, CDC’s focus on making investments in Africa and South Asia—a consequence of a decision by Andrew Mitchell when he was International Development Secretary to ensure it only invested in the parts of the world most in need of development finance – may also come under pressure, given some examples Johnson gave in his Commons speech in which he contrasted the large amount of UK aid spent in Tanzania and Zambia compared to trouble spots closer to home such as Ukraine or the Western Balkans.

Those comments fit in with a sense among many commentators that DfID’s policies will now become subservient to the priorities of the FCO and other departments even though, as one former FCO staffer told Quartz, “the knowledge DfID people have is often far better than the FCO because they have better contacts on the ground.”

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