GRIPS Development Forum UK Mission Report
London, 4-8 March 2008
By
Elumba Jean Denis Nkongolo,(Senior Research Associate, GRIPS)
A team headed by Prof. Kenichi Ohno and including Prof. Izumi Ohno and myself(hereinafter, “the team”), visited London to interact with officials and researchers at the
Department for International Development (DFID) and the Overseas Development Institute(ODI) – a UK-based independent think tank on international development.

Objectives:
1. To launch a book titled “Diversity and Complementarity in Development Aid: East Asian
Lessons for African Growth” that aims to promote a UK-Japan dialogue on aid
effectiveness in developing countries, especially in Africa and;2. To learn about the UK’s assistance for African growth especially with regard to:(i)

Private sector development in Africa;(ii) Public-private partnerships (PPPs) in Africa for infrastructure development; and3. To understand the methodology of “Growth Diagnostics”

Mission Highlights
1. ODI seminar and book launch:
Japan and the UK are two very different development assistance donors. Whereas Japan’s
approach (the so called ingredient approach) is bottom-up and emphasizes field-based
problem solving, the UK’s approach (the framework approach) is top-down and emphasizes
policy design framework. A collaborative effort between researchers from the UK and Japan,
the book (edited by GDF) was launched at a seminar organized by the ODI.
The book poses a fundamental question that is, despite their different approaches, canJapan and the UK find synergies and increase cooperation in development assistance? It
discusses whether global convergence to a single approach is desirable and goes on toargue that, because the needs of developing countries are multiple and diverse varying fromcountry to country, and because donors have different strengths, comparative advantages
should be acknowledged to allow them to play to their strengths.
The seminar attracted a wide range of participants including university students, researchers,
development assistance practitioners and NGOs. Professors Izumi Ohno and Kenichi Ohno
made particularly interesting presentations. They covered (i) the principle of Japan-UK aid
partnership based on diversity and complementarity and its implications for aid to Africa and1

(ii) the right lessons Africa can learn from the East Asian development experience,
respectively. Equally interesting were ODI discussants Dr. Fletcher Tembo and Dr. David
Booth’s remarks which drew attention to (i) the need to broaden the discussion to include
the role of international financial institutions, (ii) consideration of recipient country processes
and ownership, (iii) need for real diversity in aid instruments taking account of the types ofactivities, etc.
2. The UK’s development assistance for African growth.
The team met with several DFID’s officials as well as researchers at the ODI and officials at
the CDC group (Elumba only) to gain a better understanding of the DFID’s programmes insupport of growth in Africa. These meetings also provided a good opportunity for networking
with development practitioners in the UK.
The general view in the UK is that although in recent years, several African countries haveregistered relatively strong GDP growth (>5%), a large number of impediments still hamper
private sector activities including their participation in infrastructure development throughpublic-private partnerships (PPPs). Relieving these impediments is generally seen as aprerequisite for stronger and sustainable growth and significant poverty reduction.
The DFID has gradually been shifting its focus on infrastructure development for growth indeveloping countries. In 2002 they published the “Making Connections: Infrastructure for
Poverty Reduction”. With the publication of the Commission for Africa report in 2005, theDFID signaled a renewed enthusiasm for infrastructure development in developing countries,
an approach Japan as a latecomer has successfully implemented herself as well as indevelopment assistance to East Asia. While recognizing the need for substantial
investments to develop infrastructure in Africa, the Commission for Africa report also
acknowledged that, this need would remain a challenge for policymakers unless key reforms
related to policies, institutions, and regulation are scaled up to ensure a healthy flow ofcapital from the private sector (both domestic and international).
In this backdrop, the DFID through a number of programmes has sought to catalyze theprivate sector in developing countries to participate in infrastructure development. Table 1
describes the DFID's identified constraints to private sector participation and their response.

Table 1. Constraints to Private Sector Participation and DFID’s Response2Constraints
Response

Enabling

Project

Capacity

Reaching theenvironment

preparationbuilding

poorest

PPIAF

PIDG

ICF

Financing

AECF

EAIF

DevCo

TAF

GuarantCo

InfraCoGPOBA

The programmes are described below:
A. The Africa Enterprise Challenge Fund (AECF)
Established:

June 2007

DFID commitment

US$50 million

Operation term:

7 ~ 9 years

Total commitments

US$100 million

Other donors

CGAP

IFAD

Netherlands’ MOFA

AGRA

AfDB

The AECF is a DFID-led initiative to stimulate pro-poor growth and create employment in
Africa. The programme offers matching grants on a competitive basis to private companies.
By helping to test innovative but unproven business models with assured social impact but
uncertain financial returns, the programme will enhance the ability of such projects to be
replicated and to access commercial finance. With more successful cases, the programme
will stimulate greater participation of the poor in markets both as consumers and also as
workers and producers. The AECF’s area of focus will be in innovation in agricultural
markets and deepening access to financial services. (CGAP: the Consultative Group to
Assist the Poor; IFAD: the International Fund for Agriculture Development; AGRA: theAlliance for a Green Revolution in Africa; AfDB: the African Development Bank).
B. The Africa's Investment Climate Facility (ICF)
Established:

November 2005

DFID commitment

US$30 million (3 years)

Operation term:

7 years

Total commitments

US$35 million

Other donors

Anglo American

Shell Foundation

Royal Dutch Shell plc.

The ICF is a public-private partnership focused on improving Africa's investment climate. It
aims to remove obstacles to domestic and foreign investment and promote Africa as an
attractive investment destination. The ICF is a pan-African body, based in Africa, explicitly
focused on improving the continent's investment climate. It is a quick disbursing, dynamic
and responsive facility. The ICF will focus its programmes mainly in 24 African countries thathave signed up to the Africa Peer Review Mechanism under the New Partnership for African
Development (NEPAD). Over its initial phase of three years, the ICF expects to support
initiatives costing up to a total of US$120 million for its first three years of operation (source:
DFID).

C. The CDC group plc. (Formerly the Commonwealth Development Corporation)

3

Established:1948 (1999: plc.)

DFID commitment

Fully owns CDC

Operation term:Long-term

Total commitments

US$ 2.2B (invested).

Other donors

Mobilizes other third party capital

While it operates at arms-length, the CDC is wholly owned by the DFID. The CDC aims tomaximize the creation and growth of viable businesses in poorer developing countries,
through responsible investment and mobilizing private finance.
The CDC's main function lies in setting up an investment framework, mobilizing funds, hiring
private sector fund managers (to work on for profit basis) and finding the deals to take to theinvestor committee. One such fund management company, which manages CDC's existing
portfolio of investments as well as its commitments to a group of new funds for Africa, andSouth Asia, is Actis. Actis concentrates on structuring complex financing solutions for
introduction into the capital markets. Their work is built around private sector discipline.
D. The Private Infrastructure Development Group (PIDG)
Established:

2002

DFID commitment

Other donors

SECO (Swiss)

DGIS (Netherlands)

SIDA (Sweden)

ADA (Austria)

The World Bank

Irish AID

PIDG is a grouping of six European government development assistance ministries and theWorld Bank that have joined forces to develop new approaches to support infrastructuredevelopment in low income developing countries. Since its launch in 2002, PIDG has sought
to put in place a number of new facilities, which have been specifically designed to help
overcome the constraints listed in Table 1 above. Several of these facilities are described
below. The PIDG Trust is located in Mauritius but managed by a London based trust
company in conjunction with two Mauritian trustees. (SECO: the Swiss State Secretariat for
Economic Affairs; DGIS: the Netherlands Ministry of Foreign Affairs; SIDA: the Swedish
International Development Cooperation Agency; ADA: the Austrian Development Agency)(i) The Emerging Africa Infrastructure Fund (EAIF)
Established:

Jan 2002

PIDG group

US$100 million)

commitment
Operation term:

15 years

Total commitments

US$365 million

Other donors

FMO

Barclays Bank PLC

DBSA

DEG

StandardBankof KfW (Germany)

South Africa Ltd.
The first PIDG initiative launched in 2002, EAIF provides long-term foreign exchange
denominated debt or mezzanine finance to finance the development and construction ofprivate infrastructure in 45 countries across sub-Saharan Africa, in the energy,
telecommunications, transportation, and water sectors. While EAIF lends on commercial
terms, it aims to support projects that promote economic growth and poverty reduction,

4

benefit broad-based population groups, address issues of equity and participation, andpromote social and economic justice. Investments with a tenor of up to 15 years can range
from a minimum of US$10 million (or equivalent) to a maximum of US$36.5 million (orequivalent) for any one investment. (FMO: the Netherlands Development Finance Company,
DEG: Deutsche Investitions; DBSA: Development Bank of Southern Africa: KfW:
Kreditanstalt fur Wiederaufbau).
(ii) The Global Programme of Output Based Aid (GPOBA)
Established:

Jan 2003

DFID commitment￡6.8 million (03 - 06)

Other donors

the World Bank

SIDA

IFC

AusAID

the Government of
the Netherlands.

GPOBA is a grant financing facility that aims to address the affordability of infrastructure forpoor people by defining objectives and expected performance in terms of outputs. Under
GPOBA, public money is applied through performance-based contracts to subsidize(mitigate the increase in costs of infrastructure for poor consumers) the cost of delivering
basic services to the poor. GPOBA will remain crucial in attracting private capital, particularly
in sectors such as water and road transport. (SIDA: the Swedish International Development
Cooperation Agency; IFC: the International Finance Corporation; AusAID: Australian
Agency for International Development)(iii) The Project Development Facility (DevCo)
Established:

June 2003

DFID commitment

Operation term:

to 2009/2010

Total commitments

Other donors

Dutch MOFA

All the PIDG donors

US$15.7 million

High up-front transaction costs, risk and poor information, are important factors in deterring
the private sector from investing in working up prospective infrastructure projects indeveloping countries in the manner undertaken by commercial companies in developed
countries. As a result, there is a paucity of infrastructure projects structured in a way
attractive to private sector involvement. To address this, in 2003 the PIDG augmented an
existing project development facility operated by the IFC to give greater emphasis to thedevelopment of projects for private sector investment in poorer developing countries. The
resulting facility is DevCo. DevCo funds help defray the costs of expert consultants who
work with teams lead by IFC's Advisory Services to prepare infrastructure projects forprivate sector investment. DevCo’s areas of focus include water and sanitation, electricity,
telecommunications and ICT, transportation, housing, solid-waste and other physicalinfrastructure services.
(iv). The Infrastructure Development Company (InfraCo)

5

Established:

August 2004

DFID commitment

US$10 million

Operation term:

3 years pilot

Total commitments

US$20 million

Other donors

PIDG Donors

Although DevCo (above) can help governments structure infrastructure services to be more
conducive to private sector investment and assist in attracting investors, it cannot replace
the private sector developer, who takes on the entrepreneurial risk of developing a project
and then selling this on the market to an implementation company. Such private sector
developers have, however, all but disappeared from developing country markets. InfraCo
focuses on lower income countries and funds early stage, high risk costs by taking an equity
stake in the project and making decisions that will lead to a socially responsible andsuccessful construction and operation.
(v). The Local Currency Guarantee Facility (GuarantCo)
Established:

September 2003

DFID commitment

US$25 million

Operation term:

15 years

Total commitments

US$80 million

Other donors

PIDG Trust & FMO

Lack of long-term debt finance is a major constraint to infrastructure development. The EAIF
addresses this need for large, primarily hard currency funded infrastructure projects.
However, many infrastructure projects, particularly at the sub-sovereign level (municipal andparastatal entities) derive most of their revenues in local currency, making hard currency
debt funding inappropriate. GuarantCo is designed to mitigate risks for local currency
financing of infrastructure.
(vi) The Local Capacity Technical Assistance Facility (TAF)
Established:

Total commitments

2003

US$3 million per
annum

Other donors

All the PIDG donors

The overall objective of the TAF is to enhance the ability of public and private sector clients
to attract private capital to the financing of infrastructure and related services. Through theissuance of short- and medium-term technical assistance grants the TAF provides funding toassist the PIDG investment vehicles, and clients to evaluate, develop and/or implement risk
mitigation, financial and regulatory mechanisms, standards, systems and procedures
essential to raising funds in the capital markets.
E. The Public Private Infrastructure Advisory Facility (PPIAF)
Established:

July 1999

Other donors

UK

and

DFID commitment£15.3 million (3 years)

Japan

Govt.
PPIAF is a multi-donor facility that works with developing country governments at central

6and municipal levels to improve the enabling environment for private sector involvement ininfrastructure services. PPIAF currently has 14 contributing donors and undertakes a broad
range of activities, including the development of legislation and regulatory systems, sector
reform strategies, the training of regulators and assistance with facilitating transactions.
3. Growth diagnostics
The “Growth diagnostics” framework pioneered by Harvard professors Ricardo Hausmann,
Dani Rodrik and Andrés Velasco, represents a key element in the efforts to search for new
approaches to growth strategy. Their framework - a strategy for discerning policy priorities
and their desired sequence - is based on three considerations. First, while development is abroad concept entailing the raising of human capabilities in general, they believe increasing
economic growth rates is the central challenge that developing nations face. Second, trying
to come up with an identical growth strategy for all countries, regardless of theircircumstances (geography, political and economic situation, local institutions or historicalbackground), is not likely to prove productive. Third, it is not helpful to provide governmentswith a long, un-prioritized list of reforms, which may not be targeted at the most binding
constraints on economic growth and development.
This “new” approach - more contingent on the economic environment of a country - would
force policy makers to confront countries economic growth constraints in a systematic way.
As a strong proponent, the DFID has stepped up its involvement in a number ofprogrammes (for instance private sector and infrastructure development) that promise toaccelerate and make growth more inclusive. In addition, the DFID is considering plans to set
up an International Growth Center (IGC) to provide world-class research and technicalassistance on growth to developing countries.
However, there still remain substantive analytical and research challenges around growth.
In this regard the DFID works closely with the World Bank in building the new
methodological framework with growth diagnostics already underway in a number ofdeveloping countries including Africa (Rwanda and Malawi). In early April 2008, they plan toorganize an international conference to discuss the draft growth diagnostics on Rwanda, inJohannesburg South Africa.
With this new focus on growth, and considering Japan’s development assistance experiencein East Asia (emphasis on the productive sector, including infrastructure development andindustrialization), the team believes the time is right for Japan to become more assertive inpublicizing its ideas on economic development assistance on the international stage.

7

4. G8 Summit
With a rare opportunity of having both TICAD IV and G8 Summit in Japan in 2008,
expectations have been raised in the international development community to see Japan
show strong leadership to draw international commitment for Africa. Opportunity seldom
knocks twice. The team strongly believes Japan should be encouraged to seize theopportunity to mobilize support for a major initiative on Africa.
As the Commission for Africa ‘s report (delivered in March 2005, approximately 3 months
before the G8 Gleneagle’s summit), was used as a blueprint for action by the G8Gleneagle’s summit in July of the same year, many in the UK’s development assistancecircles showed a keen interest in the preparation of these two events.
5. Other consultations
A. Meeting with Prof. Leftwich
Prof. Adrian Leftwich (political scientist, the University of York) read Prof. Kenichi Ohno’s
work and became interested in meeting him during the team’s stay in London. The team met
him along with his colleague Dr. Steve Hogg (AusAID researcher, on assignment at theDFID), to discuss leadership studies. While discussions focused on elites and theircoalitions in the story of Japan's transformation from the 1870s, the pair believes significant
gap exists in the international community’s understanding of the role of leaders and elites in
the formation and evolution of institutions and the functioning of the effective state and arevery interested in working on a joint research on the topic. They are currently working on a
study to understand effective leadership; how it emerges, how it works collectively, how it
can be helped, and how it can be sustained. Governance, they reckon is the missing big partin the development assistance jigsaw.
B. Meeting at the Gatsby Foundation
Lord David Sainsbury was introduced to Prof. Kenichi Ohno’s work too and found resonancewith his own work to support development in Africa. The Gatsby Charitable Foundation - ofwhich he is the founder - works to explore innovative ways of delivering services tocommunities through provision of financial and technical skills and understanding of local
social and economic complexities. To achieve its goals, the foundation engages with small
businesses and grassroots producers to open up new market opportunities for the poor.
Amongst the foundation’s recent activities is a project to improve productivity in the cotton
industry in Tanzania. Despite cotton being a top cash crop for Tanzania, there being suitableenvironmental conditions for cotton production, and the existence of a rudimentary cotton
processing capability, cotton’s productivity was still very low. The project is designed tochange this.

8