Development Finance

CDC to mobilise £3.5 billion from DfID over next five years

Priti Patel, secretary of state for the UK Department for International Development, speaks at the World Bank annual meetings in Washington DC

The UK’s Department for International Development (DfID) will invest up to £3.5 billion of aid capital in its private investment arm CDC Group over the next five years.

Speaking at the World Bank annual meetings in Washington DC on 14 October, Priti Patel, UK secretary for international development and head of DfID, said the department’s investment plan aims to create “vital jobs and economic stability that enable countries to leave poverty behind and stand on their own two feet”.

CDC gained the backing of DfID in February this year following an approved parliamentary bill to raise the institution’s capital limit. The limit was initially set to reach as much as £6 billion. DfID is now expected to inject the development finance institution with around £703 million per year, giving CDC greater flexibility to invest in its target regions of South Asia and sub-Saharan Africa where many of the poorest people in the world still live.

“The international private sector must rise to the challenge of investing in and powering the growth that helps people to work and earn money, to transform economies and end aid dependency,” Patel added.

In a recent interview with Development Finance, Nick O’Donohoe, CEO of CDC Group said: “The reason that DfID is backing us much more is a function of the fact that, when you look at the data, no country has ever developed successfully without a thriving private sector that creates jobs, pays taxes and builds infrastructure.”

CDC invests in 74 of the world’s poorest and fragile countries with the goal of creating jobs in infrastructure, manufacturing and renewable energy, as well as generating domestic revenue through taxation. Sustained investment by DfID will, according to a UK government website, increase the pace at which CDC can respond to growing demand from businesses in developing countries and fulfill its five-year strategy, which lasts until 2021.

The strategy comprises several priorities for CDC, including the need to invest in sectors that create jobs while mobilising further private capital through its managers and investment partners. CDC also wants to supply investors with higher quality data on the risks and rates of return involved in these markets in order to close the knowledge gap it says currently stops capital from entering the market.