British International Investment: Aid and trade

In April 2022, the UK Government relaunched the UK’s development finance institution, previously named the Commonwealth Development Corporation (CDC), as British International Investment (BII), with a new strategy.

The Government intends for the BII to form part of a “network of liberty” that brings more countries into the “orbit” of free-market economies and act as a competitor to Chinese investments.

As a development finance institution, the BII uses UK aid funding and the BII’s existing assets to invest in businesses and programmes in low- and lower- middle income countries. Its investments are intended to generate a return.

This briefing sets out what development finance institutions are, funding the CDC/BII has received, its strategic objectives and how these are intended to complement UK foreign policy aims. It also assesses the BII’s potential impact on development and transparency in its work.

What are development finance institutions?

Development finance institutions (DFIs) have the primary aim of creating jobs and increasing economic opportunity and thereby contributing to poverty reduction. They are usually majority-owned by national governments or international organisations like the World Bank.

DFIs are becoming an increasingly important source of development finance. Based on a survey of 30 institutions, annual investments by DFIs are estimated to have risen from US$12 billion in 2000 to US$87 billion in 2017. As their investments grow, they are more able to self-fund their activities. 

What funding has the CDC/BII received?

From 1999 to 2015 the CDC was self-funding, meaning it used its assets and investment returns to fund its investments. From 2016/17 to 2021/22, the UK Government planned to inject around £3.6 billion into the CDC. These capital investments represented around 3% of the annual budgets of the then Department for International Development.

These capital injections are counted as Official Development Assistance (ODA) (link opens PDF) for the purposes of aid spending and meeting the UK’s 0.7% aid target (currently at around 0.5%).

What are the BII’s priorities?

The BII’s new strategy runs from 2022 to 2026. It has three priorities: productive development (eg, job creation), sustainable development (helping countries respond to climate change) and inclusive development (promoting gender equality and alleviating poverty).

How does the BII support the UK’s foreign policy?

The BII is operationally independent from the Government in its investment decisions. However, the BII can be seen as supporting several of the UK’s foreign policy objectives (this is not exhaustive):

1. Competing with China to deliver investment in Africa and Asia. China’s foreign lending is criticised for its high interest rates.
2. Increasing the UK’s engagement in the Indo-Pacific as well as Africa to address climate change, promote trade, and address poverty.
3. Providing climate finance to help countries adapt to climate change and mitigate its impact. This may focus on lower-middle income countries, where emissions are rising faster than in low-income countries.
4. Supporting the empowerment of women and girls, by increasing their economic security.

Did the CDC contribute to development goals?

Historically, CDC investments tended to focus more on stable and middle-income countries. In 2011, 25% of its portfolio was in fragile and conflict-affected states. This grew to 41% by 2017 (opens PDF).

In 2016, the CDC was criticised by the National Audit Office (NAO) for insufficiently demonstrating it made a “lasting difference” to the world’s poorest. In 2021, the  Independent Commission for Aid Impact (ICAI) judged the CDC had made progress, noting the new Government-CDC evaluations of its the CDC’s work.

The ICAI has found a lack of evidence that DFIs have had a significant impact on poverty reduction. In 2019, it judged there were “mixed levels of engagement” in reaching the poorest people but noted improvements by 2021.

The CDC’s profit margin was also historically high. In 2017, the NAO said that while the financial target for the CDC’s portfolio return was set at 3.5% in 2012, CDC returns averaged 10.3% since then.

In 2022, the International Development Committee launched an inquiry into the effectiveness of aid spent via the BII.

How transparent and accountable is the BII?

The Foreign, Commonwealth and Development Office is the sole shareholder and owner of BII. It has oversight through shareholder meetings and other engagements. It can also attach conditions to any capital funding.

As an organisation focused on development, the BII is accountable to the UK’s ICAI, the Commons International Development Committee, and the NAO.

The BII publishes a list of its investments on its website.

Update log

December 2022: Updated details on funding and launch of International Development Committee inquiry.