What’s in DFID’s new economic development strategy – and what’s missing

31 January 2017
Articles and blogs

This morning, the UK Department for International Development (DFID) published its long-awaited economic development strategy. Its vision is crystal clear, and DFID has done a lot of good work in this area already.

But the strategy does not offer additional money above the £1.8 billion a year – only around 10-15% of UK aid – previously announced. As there is no new money on the table, improved impact must come from making current economic development spend more effective, ensuring other parts of UK aid support the strategy, and getting other actors (other UK departments, international organisations and the private sector) on board. This will be a tall order.

What’s in the strategy?

The new strategy aims to tackle one key challenge: many poorer countries, especially in Africa, need to create jobs for millions of young labour market entrants. But they haven’t transformed their economies to create the kind of growth that supports jobs and shares the benefits widely.

The strategy is clear on how to achieve progress: these countries need to move into higher productivity activities. How? There’s a remarkable emphasis on the role of the state: ‘A capable state and committed political leadership can drive economic transformation and manage the tensions it presents.’ Of course, in reality some countries are better able to take on this role than others and a ‘politically-smart’ approach to economic development will be useful.

As for the specifics: there isn’t much analysis of the economic frameworks required to promote transformation. It would have been good to reference the recent UK industrial strategy, for example. The ingredients of a successful industrial strategy are now well known.

Implicitly, this new economic development strategy goes well beyond the previous emphasis on getting the rules and regulation (investment climate) right. It also includes more targeted support including skills training, finance, infrastructure and innovation.

How DFID can build on its existing track record

DFID has a good track record on economic development. It has pushed for development-friendly trade outcomes; owns one of the world’s biggest and most effective bilateral development finance institutions (DFIs); has increased resources for economic development; and, with others, has persuaded the World Bank to prioritise transformation and jobs (disclaimer: we advised on these issues).

The focus on DFIs and development capital follows a global trend of relying more on such forms of aid, which can be effective although the UK aid’s private sector arm, the CDC, can certainly do more to improve its focus and increase its impact. DFID’s work with the City of London is innovative but still in its infancy. And it is good that UK aid remains firmly untied.

But some of the proposed solutions set out in this new DFID strategy need further thought.

First, prioritisation. This first economic development strategy is based on country-specific diagnostics which are supposed to prioritise. One section title says ‘our sector priorities’ – but its sub-headings cover the entire economy: agriculture, manufacturing, services and extractive industries.

Donors have traditionally focused on agriculture because that is where many poor people are now. So more attention to sectors with greater potential to transform economies (manufacturing, productive services) and support jobs in the future, such as through InvestAfrica, is welcome. ODI’s Supporting Economic Transformation programme has useful learnings from Nigeria, Tanzania and elsewhere on using context-specific diagnostics to prioritise support for economic transformation.

Second, we need more detail on trade. The document rightly highlights the importance of trade in development. No country has transformed its economy without engaging in trade. The UK is a leader in Aid for Trade and should increase such support for trade capacity (untied to direct UK interests, although indirectly there can be large benefits).

However, the UK’s new trade and investment policies should also be high on the development agenda. With Brexit around the corner we need more specific assurances than ‘we will continue to open our markets to the world’s poorest countries’. Here are five win-win trade policies, for example. My colleague has  further ideas following Theresa May’s recent Brexit speech.

Finally, there are unexplored links between economic transformation, inclusion and climate change.

Here I think the challenges put to the non-economic development parts of DFID or other government departments are not strong enough. Joint work between SET and New Climate Economy finds that economic transformation has the capacity to create jobs, solve poverty and address climate change.

While this strategy discusses how economic development can help inclusion, it needs to better articulate how climate action, resilience building, health and education support programmes can be more targeted to support broad-based economic transformation.