Published: November 30, -0001
The British DFI and impact investor will be aiming to crowd in more private investment than ever, at a time when aid spending is declining.
On 22nd April, British International Investment (BII) launched its new five-year strategy. As the development finance arm of the UK government, BII has long sought to accelerate the flow of private capital into emerging economies. The latest strategy underscores that aim. BII hopes to drive £15bn into its target countries by 2031, with around £8bn coming from BII itself and £7bn from private investors.
Announcing the new strategy was Jenny Chapman, the UK’s Minister for Development, along with Leslie Maasdorp, chief executive of BII. Chapman started by noting that the government had cut its aid budget significantly, which was leading them to seek out different approaches. “That shift from being a donor to being more of an investor, and being more of a long term ally with countries – where all that intersects is in BII,” he said.
Maasdorp agreed that BII sits at the “sweet spot” for a new model of development finance, which comes at a time when fiscal resources are declining across all the G7 countries. While conceding that this has been a “tough moment” for DFIs, he pointed out that BII has almost eight decades’ experience and is well placed to adapt to meet the circumstances. It plans to crowd in almost £1 of private capital for every £1 invested, around 40% more than in its previous strategy period.
The strategy includes three key pillars. As well as accelerating private capital flows into emerging markets, it will focus on what matters most for development (expressed as making investments that have a multiplier effect within that market), and committing 25% of new capital to the Least Developed Countries.
It will also increase its gender finance to 30% of new core investments up from 25%, and its climate finance to 40% of new core investments, which is an increase from the current 30%.
Along with the launch of the strategy, BII announced the launch of British Climate Partners. This is a £1.1bn initiative designed to support the energy transition in Asian countries. Public capital will be deployed to de-risk projects, therefore attracting commercial investors.
More than money
Following opening remarks from Chapman and Maasdorp, Maria Smith, chief impact officer at BII, reviewed the ‘market level impact’ of BII’s investments – or how any given investment can create a more enabling environment for others to invest. This can take the form of a cluster of investments, a single investment that strategically unlocks competition, or building an entire asset class, for example, supporting the growth of the private credit fund space across Africa.
“Capital alone isn’t going to be enough for functioning systems,” said Smith. “We know we’re small in the big picture, so we want to build partnerships in order to move the needle.”
Chris Chijiutomi, MD and head of Africa at BII, added that this would be especially important in frontier markets. He remarked that African countries only receive 1% of global foreign direct investment, despite the fact they account for 40% of the world’s poorest people.
“These are some of the hardest places to invest,” he said. “Financial systems are shallow and regulations can change overnight, which impacts the ability to do business in these markets. But that’s exactly why these markets matter for us – when the barriers come down you can really unlock extraordinary potential.”
As well as committing at least a quarter of its capital to these markets, BII has said it will apply a full range of tools including policy engagement, enhanced technical assistance, and concessional finance to help certain countries go even further. “We'll use the right instruments to share risk wisely so more private investors can eventually enter these markets with confidence,” said Chijiutomi.
Africa not a risk