Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The investment arm of Britain’s international development policy will ensure half its annual budget goes to the poorest and most fragile countries by the end of the decade, under a new target at the heart of a revamped government strategy.
The pledge, to be unveiled in a Foreign Office white paper on Monday, comes after MPs warned in September that UK development finance had been directed at some “questionable investments” that lacked a clear focus on poverty.
Andrew Mitchell, the development minister, told the Financial Times that the target would lead to a “big change” in the distribution of money invested by British International Investment, which leverages private capital to invest across Asia, Africa and the Caribbean.
He said in an interview that BII’s focus at times on raising finance for more straightforward and less risky investments in middle-income countries had meant the poorest countries “lose out”.
“Doing [climate] mitigation projects in India is relatively easy. You get the finance for it quite quickly. The issue is how do you do [climate] adaptation in poor countries?” he said. At present “slightly less than 40 per cent” of BII’s investments are spent in the least developed countries, according to the government.
“We need to focus on conflict-affected and fragile states, because they are the ones that suffer first and hardest from climate change,” Mitchell said. “They are the ones that can be most prey to disorder and prey to the terrorist recruiter, and they are the places where girls and women suffer the most.”
Fully owned by the Foreign Office, BII has invested across the developing world in big infrastructure projects, including ports and renewable energy plants as well as businesses such as medical companies.
It aims to expand the private sector, support employment and boost tax receipts in the countries where it invests. Last year, its investments supported businesses that employed almost 1mn people and paid more than $1.5bn in taxes.
Mitchell conceded that Britain was “competing” with China to offer financing to African nations. However, he said that when they faced “a choice between BII, who are investing our taxpayers’ money and they take the risk” versus the option of “indebtedness with the Chinese”, African states would conclude “ours is a better offer” of capital.
The government white paper, which has sought cross-party input and sets out a vision for development up until 2030, will also include a target for more than 50 per cent of the UK’s bilateral official development assistance budget to be spent on the least developed countries. Last year, it totalled £9.6bn.
In each of the past three years the government has spent more than half this budget on UN-designated LDCs and other low-income countries. The UK does not disaggregate the two categories in official statistics.
In addition, the white paper will outline plans to create a resilience adaptability fund, injected with £150mn from the aid budget in the first year, for longer-term solutions to immediate crises.
Mitchell said if drought struck a nation, development efforts tended to focus on urgent alleviation of hunger, but that funding was also needed to mitigate the crisis recurring by investing in reservoirs and better irrigation. “You will never be able to do that unless you have a separate fund,” he said.
The appointment of Lord David Cameron as foreign secretary this week was a “massive boost” for development, said Mitchell. Cameron, prime minister in 2010-16, was the architect of the UK’s binding target to spend 0.7 per cent of gross national income on aid — since pared back to 0.5 per cent.
Mitchell stressed that Cameron and he were “signed up to the government policy” that the original target would not be reinstated until the fiscal situation allowed.
The UK had “lost some of our leadership credentials” in the development sphere since Cameron was last in office, said Mitchell, citing the “chaotic” merger of the Foreign Office and Department for International Development in 2020. But Prime Minister Rishi Sunak was “very determined” to restore Britain’s reputation, he added.
