DFID is showing a welcome increase in ambition as it aims to improve economic development and create jobs in Africa, a new ICAI review has found.

The UK’s Department for International Development has pursued a well-considered approach to building up its knowledge and expertise in the area of inclusive growth, doubling its global investment in economic development – from £934 million in 2011-12 to £1.8 billion in 2015-16.

With some 10 to 12 million young Africans entering the jobs market each year, ICAI’s review said this was a positive commitment.

For example in Ethiopia, DFID is supporting access to finance for poor households and businesses, particularly female-led firms, and is investing in specific areas – textiles, leather, and horticulture – which have the potential to transform parts of the country’s economy in ways which benefit the poorest.

However aspects of the department’s work to bring about inclusive growth are of variable quality.

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DFID’s approach to supporting inclusive growth in Africa: A learning review

In recent years, DFID has been rebalancing its aid portfolio towards economic development. Its investments have doubled from £934 million in 2011-12 to £1.8 billion in 2015-16. In January 2017, it published a new Economic Development Strategy, announcing a focus on economic transformation and job creation as the key to achieving inclusive growth and sustainable poverty reduction. This represents a major shift in the orientation of DFID’s portfolio, which is still underway.

This learning review assesses how well DFID has gone about learning what works in the promotion of economic development. We have chosen to focus on Africa. While the continent has enjoyed a period of economic growth since 1998 (slowing in the last two years), this has not generated enough jobs to achieve large-scale poverty reduction. With 10 to 12 million young Africans entering the labour force each year, job creation in Africa is an urgent challenge. We have chosen to conduct a learning review, in recognition that global evidence on how to promote job creation on the scale required is still emerging. We explore the learning processes at both central and country levels that have contributed to DFID’s evolving approach. We then assess whether DFID has arrived at a credible overall approach to promoting economic development.

This is a high-level strategic assessment of a very broad portfolio. We have focused on the evolution of DFID’s strategy, its growth diagnostics and its portfolios in three case study countries: Ethiopia, Tanzania and Zambia (we visited the latter two). We have not covered DFID’s development capital portfolio (loans, equity and guarantees) or its development finance institution, CDC, as these were the subject of a recent National Audit O ce review. We also chose not to look at conflict-affected countries, in order to focus on Africa’s core development challenges.

How well has DFID’s research and diagnostic work informed its approach to inclusive growth and job creation?

In 2013, DFID conducted a stocktake of its readiness to scale up its economic development work, providing a useful baseline against which to measure its learning. At that point, DFID had no economic development strategy. Its wealth creation portfolio was described as deeply heterogeneous, with a good focus on reaching the poorest but limited ambition towards tackling constraints on economic growth. The stocktake concluded that, to scale up successfully, DFID would need to strengthen its organisational capacity, its in-country analytical work and its ability to measure results.

In 2014-15, DFID conducted an inclusive growth diagnostic across 25 countries to identify the constraints on growth and opportunities for DFID to influence them. This was DFID’s first such diagnostic exercise, based on a common conceptual framework. We encountered mixed views on the quality of the work. The analysis was led by country economists. Participation from other professional disciplines varied across countries, resulting in weaknesses in areas such as political economy analysis, social inclusion and climate change. Country offices used different data and analytical techniques to reach their conclusions, and it was not always clear how consistent or robust their answers were. The diagnostics were nonetheless an important learning tool for DFID, showing the strengths and weaknesses of the economic development portfolio and indicating areas where country offices needed further guidance. This informed the development of DFID’s research portfolio and sectoral strategies.

The diagnostics revealed a number of gaps in DFID’s economic development work, in areas such as energy, trade and job creation. Some of these have since been addressed through the development of new centrally managed programmes. While past ICAI reviews have pointed out problems of coherence and coordination between country-level and centrally managed programmes, the new centrally managed programmes are designed in a more strategic way to address gaps in delivery capacity in country offices.

DFID has developed a large research portfolio on economic development, with a total investment of £282 million over the period from 2011 to 2022. The research corresponds well to the knowledge and evidence gaps identified by DFID, and is designed to contribute both to the global pool of knowledge in the area and to DFID’s own programming. There are challenges, however, in applying such a complex body of research. The Research and Evidence Division has produced some useful summaries of emerging findings, but staff in country offices prefer to learn directly from other DFID staff and programmes.

Individual research programmes have uptake reporting requirements, but it is difficult to quantify the uptake of findings across a research portfolio. This means that at this point we are unable to reach a conclusion as to how much the research has contributed to learning.

DFID’s approach to economic development has evolved through successive strategy documents. A series of papers from the chief economist have made the case for a more ambitious portfolio aimed at transformational growth. DFID has developed sectoral strategies on agriculture, infrastructure, sustainable cities and energy (the latter two are not yet approved). The 2017 Economic Development Strategy reflects this process of learning, with a much clearer articulation of DFID’s objectives and overall approach. It also contains some new policy commitments – such as changing international trading rules, leveraging commercial investment through ‘patient capital’ and helping firms from developing countries raise funds in London – that are not grounded in past learning.

Overall, we find that DFID has engaged in a concerted effort to build its knowledge and expertise on economic development, and that its strategy has become progressively clearer and more ambitious as a result, meriting a green-amber score.

Are DFID’s country economic development portfolios informed by evidence?

The Economic Development Strategy correctly states that there is no standard recipe for promoting economic development and that programming must be context-specific, based on in-country diagnostics. In our three case study countries, the impact of the inclusive growth diagnostics on country portfolios has so far been limited, for several reasons. They were out of sync with the programme cycle, coming after the main scale-up of country portfolios in 2012-14 when funds had already been committed. We encountered a few examples of new initiatives that emerged from the diagnostics, amid a wider concern that they were often used to justify existing portfolio choices. However, we recognise that aligning country programmes with diagnostic work necessarily takes time to achieve.

Given differences in country context, the three case study countries show varying levels of ambition towards economic transformation. Ethiopia has identified a clear set of strategic investments with the potential to support both transformational growth and economic inclusion. In Tanzania and Zambia, economic transformation is a more distant prospect. The two offices are experimenting with some potentially transformative interventions, while continuing to invest the bulk of their resources into agriculture, where most poor people work.

We found that all the portfolios have a strong focus on reaching the poor, with a range of interventions targeting different socio-economic groups. However, few programmes are specifically designed to address the exclusion of women and girls, youth or marginalised groups (although there are signs of an increased focus on the economic empowerment of women in more recent programmes). We also found that programmes were not monitoring their distributional impacts to make sure that intended beneficiaries were being reached. We found that monitoring and evaluation practices were not strong enough to support and learn from the level of experimentation that is underway. Along with other donors in this area, DFID lacks standard methods of measuring the results of its economic development programming, particularly on job creation (although it has a partnership with the World Bank to address this). DFID has made some effort to apply value for money analysis to its portfolio, but progress so far is limited in the face of some substantial technical challenges.

Overall, while recognising that the inclusive growth diagnostics were an important step forward, we find that DFID still has some way to go in developing country portfolios that reflect robust in-country diagnostics and learning from programming. This area merits an amber-red score.

Does DFID have a credible approach to promoting inclusive growth and jobs in Africa?

The core objective of DFID’s approach, as it has evolved in recent years, has been to refocus the portfolio towards economic transformation in Africa in order to achieve poverty reduction on a larger scale through job creation. This is a major change in the orientation of DFID’s portfolio, which will take time to work through into programming. We find the new focus on economic transformation to be an appropriate objective and a welcome increase in the ambition of DFID’s economic development work. It responds well to research and evidence on the causes of jobless growth in Africa.

We found a broad consensus among external stakeholders, including academic experts and development non-governmental organisations, that this was the right direction of travel. However, this increased level of ambition for the portfolio raises a set of complex challenges that will need to be addressed over the coming period.

There are concerns among some stakeholders and in the literature about the extent to which the Asian model of mass job creation through industrialisation can be replicated in Africa. DFID will need to be realistic about the pace of change and open to the idea that job creation in Africa may take different forms, including a higher level of informality.

Some external stakeholders expressed a concern that DFID is not prioritising its investments based on its comparative advantage relative to other development actors. The current strategy correctly identifies that prioritisation should occur at the country level. The inclusive growth diagnostic is an important step in this direction. The first round of diagnostics, however, did not do enough to push country offices to make strategic choices. We saw some evidence, particularly in Tanzania, that investments were spread too widely for strategic impact. While a period of experimentation may be necessary in some contexts to identify what works, DFID should move as quickly as it can towards more focused investment in specific sectors, value chains or issues.

The Economic Development Strategy recognises the importance of the state in driving economic transformation and calls for a politically smart approach to economic development. We welcome this focus on the political dimension of economic transformation. Politically smart programming should be part of DFID’s comparative advantage in this area. While political economy analysis forms part of DFID’s diagnostic work, it was not a strong feature of the portfolios we reviewed. In our case study countries, DFID had identified areas where it hoped to influence government policy. However, several stakeholders in Zambia were concerned that DFID is too detached from government to be influential. We therefore welcome the commitment in the Economic Development Strategy to a stronger focus on the political and institutional constraints on economic transformation.

The strategy makes a clear statement on the importance of economic inclusion. Looking across the portfolio, we see three main strands to DFID’s approach to inclusion: supporting mass job creation through economic transformation; promoting income growth for the poor in existing livelihood areas; and ensuring that particular social groups (women and girls, youth, people with disabilities) are reached through DFID programming. At the country level, we found that country portfolios had a strong focus on the rural poor (the second form of inclusion). Most programmes did not target particular social groups, although there is increased attention to women’s economic empowerment in more recent programmes. Although the strategy makes a clear statement about the importance of providing improved jobs for the poorest, most DFID programmes in our sample are currently focused on the quantity rather than the quality of jobs created.

Overall, we welcome DFID’s increased ambition towards economic transformation, and we dind that the new strategy sets out some good foundations, including politically smart approaches, context-specific programming and economic inclusion. While there are substantial challenges ahead in implementing these commitments, we dind the approach to be a relevant and credible one, meriting a green-amber score.

Conclusions and recommendations

We find that DFID has taken a structured and considered approach to building up the learning required for a more ambitious economic development portfolio, meriting an overall green-amber score. A number of the concerns we raised in past ICAI reports have been addressed, but others remain outstanding. We have made recommendations in a number of areas where we believe the portfolio could be improved.

Recommendation 1

DFID’s diagnostic and planning tools should more clearly support and encourage country offices to prioritise and concentrate their investments into areas with the greatest potential for DFID to contribute to transformative growth.

Recommendation 2

DFID should provide more guidance on how to build a portfolio that balances investments in long-term structural change and job creation with programming to increase incomes for the poor in existing livelihood areas, taking into consideration the time required for economic transformation in each country context.

Recommendation 3

Recognising the centrality of the state to economic transformation alongside the private sector, DFID should prioritise learning on how to combine politically smart and technically sound approaches to economic development.

Recommendation 4

To meet the commitments in its Economic Development Strategy and drawing on broader learning on inclusion, DFID should ensure that, in each of its partner countries, opportunities for addressing the exclusion of women, young people and marginalised groups are identified and built into programme designs and results frameworks wherever feasible, and that distributional impacts (whether intended or unintended) of its programming are routinely monitored and assessed.

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» Read the full report online or download the document here (PDF).