1. DFID and UK Growth:
Presentation to the Whitehall and Industry
Group
Mark Lowcock
Permanent Secretary, Department for International Development
27 June 2013
1

2. “Many UK companies are doing this around the world as part
of their core business. It isn‟t about corporate social
responsibility; we know that developing countries will be major
markets and important sources of supply in the future – in fact
many already are. Developing countries become emerging
economies and emerging economies become the engines
of future global growth and prosperity. One reason these
economies are doing better is because of the impact of
development assistance..
“… Aid makes a huge contribution to this process and it is for
this reason that we fully support the government‟s commitment
to stand by its aid pledge.”
Letter to the Financial Times from 28 top business leaders - March 2013
The Engines of Future Growth
 Brunswick Group
 GlaxoSmithKline
 Boston Consulting Group
 IKEA UK and Ireland
 WM Morrison
Supermarkets
 Hammerson
 Clifford Chance
 Rexam
 Pearson
 Curtis Brown
 FTSE Group
 Waitrose
 BT Group
 Xstrata
 Afren
 Diageo
 The Cooperative Group
 Reckitt Benckiser Group
 Standard Chartered
 Innocent Drinks
 Premier League
 BP
 Dixons Retail
 Hachette UK
 FirstGroup
 HarperCollins
 Vodafone Group
 Unilever

3. International development – done effectively – is market making, presenting
opportunities for UK companies.
Driving growth in poor countries is fundamental to DFID‟s mission:
 Growth reduces aid dependency, producing the tax revenue to fund public
services.
 Good for people. The World Bank‟s Voices of the Poor Survey showed that a
job was amongst the highest preferences of the poorest. Over the long-term,
poverty has always fallen significantly when per capita growth exceeds 3%.
 Good for the international community. It makes the world safer. A decline
in economic growth of 5% increases the likelihood of conflict by 50%.
 Good for the global economy. Aid is about “how best to create new, stable
trading partners that can create opportunities and jobs in emerging and donor
countries.” President Ellen Johnson Sirleaf of Liberia
 Good for UK businesses. Creates the global export markets of the future,
and investment opportunities for UK companies.
An End to Aid Dependency through Jobs

4.  Poor countries are growing fast and will eventually become emerging economies
As poor countries turn into middle income countries…
GDP (US$ billions) Growth*
1990 2000 2010 1990-2010
Low Income 100 143 236 4.4%
Middle Income 11,660 16,572 22,702 3.4%
High Income 12,173 15,005 17,351 1.8%
Developing 11,761 16,716 22,938 3.4%
DFID priority
countries
570 861 1,583 5.2%
BRICS 1,613 2,584 5,573 6.4%
European Union 5,326 6,644 7,539 1.8%
World 23,934 31,721 40,289 2.6%
• Fewer poor
performers
• Higher mean growth
rate than in the 80’s
and 90’s despite the
crisis
• Narrower spread of
growth rates and
economic collapse is
rarer 4
Strong growth in
LICs, with DFID
priority countries
performing
particularly well

5.  Emerging and middle income economies have been the main drivers of world
economic growth since the millennium
… they become the engines of global growth
Annual contribution to growth in world GDP per capita
Advanced economies
Emerging and developing economies
Emerging and
developing economies
are the main drivers of
global economic growth
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6.  Strong positive link between a country‟s income and it‟s level of trade
 UK trade with middle income and emerging economies has grown rapidly
… they trade more with the rest of the world and the UK
15
20
25
30
lngdp
15 20 25 30
lntotaltrade
HIC MIC LIC
GDP and Trade, 2000 to 2010 - by income group
UK Exports (US$ millions) Growth UK Imports (US$ millions) Growth
1990 2000 2010 1990-2010 1990 2000 2010 1990-2010
Low Income 934 969 1,792 3.3% 480 1,013 1,193 4.7%
Middle Income 10,675 26,256 57,840 8.8% 10,449 39,613 101,995 12.1%
High Income 138,778 246,534 314,831 4.2% 168,997 278,377 426,512 4.7%
Developing 11,609 27,225 59,632 8.5% 10,930 40,625 103,188 11.9%
BAR Countries 2,759 7,259 11,787 7.5% 2,056 6,816 13,741 10.0%
BRICS 3,411 10,353 27,011 10.9% 2,892 16,398 62,333 16.6%
European Union 95,527 165,571 220,776 4.3% 122,974 198,060 335,591 5.1%
World 150,387 273,759 374,463 4.7% 179,927 319,002 529,700 5.5%
Positive link between
income and trade
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Strong growth of UK trade with
developing countries

7. … they attract UK investment, bringing high economic returns
 UK foreign investment is shifting away from traditional destinations towards Asia
and Africa (although predominately Middle Income Countries).
 UK investments in Africa and Asia are generating higher returns than in Europe
and the Americas.
UK net FDI outflows, by region Rate of Return on UK outward FDI
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Value(£millions)
Year
AFRICA
ASIA
AMERICAS
EUROPE
0%
5%
10%
15%
20%
25%
30%
Year
AFRICA
ASIA
AMERICAS
EUROPE
High returns to UK investments
in Africa and Asia 7

8. … and they provide an important source of surplus for the UK
 The UK‟s current account deficit hides significant surpluses with developing
regions such as Latin America and Africa
Value (£millions)
2001 2006 2011
Europe −11,685 −51,088 −60,675
Americas, of which 4,778 25,751 38,502
Latin America -1,023 4,335 16,860
Asia −17,230 -12,188 −15,726
Africa, of which −1,684 −3,239 2,282
Sub-Saharan Africa -1,231 -206 2,477
World -23,843 -39,098 -29,046
Strong and growing UK
Current Account surpluses
with Latin America and SSA
8

9.  DFID Technical Assistance has contributed to the dramatic improvements in
macroeconomic management in developing countries over the last twenty years.
 Inflation in the worst performers has fallen from a peak of 106% to under 20%
0%
10%
20%
30%
40%
50%
60%
70%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Inflation in developing countries (1980-2012)
Average Inflation
Worst 10% of countries
Best 10% of countries
Aid has helped improve the macroeconomic environment…
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10. Improvement in Doing Business Indicators 2005-2012
(World Bank)
Source: World Bank 2012
… as well as the business environment
 DFID support is helping our partner countries become better places to do
business. Many are now improving their business environment faster than the
BRICS.
Along with other
donors, DFID has
contributed to the
improvements seen
in every DFID focus
country except
Zimbabwe.
10

11.  Compared with 1990, Developing Countries annually bring an extra $48 billion
of export business to the UK.
 UK exports to Developing Countries have grown at more than twice the rate of
exports to High Income Countries. This has doubled their share from 7.7% of
UK exports in 1990 to 16% in 2010.
 CDC, the UK‟s Development Finance Institution, has invested £1.9 billion in 74
developing countries.
 London is the global centre for raising private equity to invest in developing
countries. DFID is moving from an ad hoc to a more grounded approach, e.g.
by working with the London Stock Exchange and Commodity exchanges.
 Equity raised by UK companies with a focus on Africa has sharply risen
recently.
The emerging markets of the next 30 years,
and investment opportunities now

12.  UK aid has been fully untied since April 2001. (The nationality of the
bidder is not part of the evaluation criteria), but UK companies have
become highly competitive in the international development market. In
2012, global ODA was £95 billion.
 British companies won over 90% of DFID‟s competitively-tendered,
centrally-procured contracts in 2011.
 In 2010 the UK was amongst the top ten countries supplying to the UN
system, providing goods and services worth $490 million.
UK companies directly benefit not from tied aid, but from UK
international development investment

13. DFID‟s new Economic Development programme will focus on the Prime Minister‟s
Golden Thread, to create foundations of economic growth in poor countries: open
economies and open societies. It will also seek to use ODA more aggressively to
leverage private investment.
 Reducing overall barriers to trade and investment: macro, regulatory,
infrastructure, legal or institutional.
 Unlocking the ability of entrepreneurs in developing countries to
themselves drive economic growth through their own businesses.
 Increasing levels of investment including from UK companies.
DFID‟s day-to-day work with governments and communities creates strong
partnerships that are essential for any successful economic relationship later. It
also gives our staff a unique insight into the challenges that businesses face in
these countries.
Economic Development Strategy

14. Portfolio of Growth Programmes
ENABLING ENVIRONMENT
• Institutions. The „Golden Thread‟: improving the rule of law, property and land
rights, regulation and democracy. Joint work with HMRC to build tax capability in
developing countries.
• Investment Climate. Investment climate programmes in nearly all partner countries; using
cross-Whitehall expertise in regulatory reform, competition policy, customs procedures.
• Policy Advice: International Growth Centre offers world class advice on growth policy to
developing country governments in 12 partner countries.
EFFECTIVE MARKETS
• Infrastructure. Support to the Private Infrastructure Development Group (co-invests with
UK commercial banks) has financed 88 new infrastructure projects creating 185,000 jobs.
• Finance. Work with Small and Medium Sized Enterprises to unblock £5 billion in
commercial lending.
• Skills. Higher Education Taskforce (DFID/BIS): Will build capacity of higher education in
developing countries by tapping expertise of UK universities.
TRADE
• Trade (DFID/BIS). Better trade policies, trade agreements, helping countries access to EU
markets; trade infrastructure (e.g Trade Mark East Africa reduces red-tape at borders so
goods move faster and costs of trade are lowered).
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15. Next Steps
• Finalise joint DFID-CBI Strategy on UK Business
Engagement. By Autumn 2013.
• Conclude review of the DFID Business Model with
economic growth a central goal of UK development
spending. By end-2013.
Contacts:
Shujoya Venugopalan, s-venugopala@dfid.gov.uk (UK Business
Engagement)
Thomas McGregor, t-mcgregor@dfid.gov.uk (Business Model)