Investing for Prosperity

Reforms made to British International Investment (BII), the UK’s development finance institution, have made it  one of the great success stories of British policy-making in the last decade. BII has created a million jobs and generated tens of billions of pounds in economic activity in some of the poorest countries of the world in the last five years alone. It has also delivered a 6.6% annual return on investment – money which has been ploughed back in to provide more help to more people overseas. This is the definition of a virtuous circle.

In a new Centre for Policy Studies paper – endorsed by and with a foreword from the Rt Hon Andrew Mitchell MP, the Minister for Development – Gareth Davies MP argues that we need to turbocharge our ambitions for development finance and pre-empt risks that our world-class programme helps fewer people than it could and should.

‘Investing for Prosperity: How Britain can Turbocharge its Development Finance Ambitions’ warns that without scaling up the UK’s ambitions, “there is a real risk that the momentum of the last decade might stall in the next”. It also points out that BII, which invests in private sector projects in low- and middle-income countries, can offer a welcome and reliable alternative to China’s ‘Belt and Road’ loans – and that with a $4.3 trillion funding gap for such finance, there is an enormous role for Britain to play a lead.

The report makes three key recommendations. BII (formerly the Commonwealth Development Corporation) should unlock new sources of capital by enabling institutional investors and others to contribute towards its funds. It should harness new financial instruments to reduce the cost and boost the volume of investment, as recently deployed by the International Finance Corporation. And it should be allowed to invest in high-return projects in allied countries, using the returns to grow its investments in poorer nations.

The case for expanding BII is overwhelming. As the paper reports, capital accumulation is a better predictor for poverty reduction than income distribution, commodity prices, quality of local institutions, or aid levels. Increasing development finance investment has been shown to increase productivity, raise investment and reduce poverty.