My last day at BII – Reflections and Predictions

Today is my final day as Chief Executive of British International Investment. I have had the enormous privilege to lead this organisation for the last seven and a half years.

As I depart, I have been reflecting on how the organisation has grown and changed, where we are today and what are the key challenges and opportunities for BII, and for all of the development finance community, in the years ahead.

When I think back to my first year, in 2017, the outlook in most of BII’s (then CDC’s) investment geographies seemed benign. In Africa there was less optimism than earlier in the decade, but we were still looking at a relatively stable economic and political outlook. In South Asia, India was powering forward and that was providing a role model to neighbouring countries like Bangladesh, Sri Lanka and Myanmar.

From that position of relative confidence in 2017, we’ve seen a series of political and economic challenges that have affected almost every one of the countries in which we invest. Some of these have been self induced, largely through a lack of macroeconomic discipline and loose fiscal policy, but many were caused by the knock-on impacts of Covid, the Ukraine war and the conflict in Israel and Gaza.

This has made investment in these regions challenging but I have always been conscious that these are also the periods when development finance is most important and can have the greatest impact.

Since 2017, BII has invested over $10 billion. Despite the challenges, we have made a positive return of roughly 5%. We have embraced risk rather than shied away from it. Our portfolio is still the most highly concentrated in equity of any large DFI and we have incubated and launched new companies in key developmental areas like access to essential medical supplies, African power transmission and SME financing in Ghana. Our portfolio has remained more concentrated in lower and lower-middle-income countries, particularly in Africa, than almost any of our peers. We have also significantly increased our support to venture capital and early-stage companies where technology has the potential to provide solutions to critical development challenges. At the other end of the scale, we have built strong partnerships with large world class companies, such as DP World and Vodafone, and helped them expand their footprint across Africa and deliver new critical infrastructure that makes a difference to people’s lives.

Over the last seven years we have also shifted our priorities to ensure we focus not just on our traditional investment but also on leading in other key areas.

First, we’ve increased our focus on climate finance, committing ￡1.6 billion since 2020 in the fight against the climate emergency. We are now the UK Government’s largest provider of climate finance to emerging economies. Our investments include groundbreaking renewable energy, as well as extending far beyond infrastructure, with innovations such as electric vehicles, circular economy solutions, and new technology to help farmers adapt to a changing climate.

Second, we’ve become more focused on investing in women. When I joined, advancing gender equality was a fundamental part of my ambition for the organisation. Gender lens investing as a concept was still very new. So there was no blueprint for us to follow.

But BII has always been a pioneer. Six years ago, we launched our first gender finance strategy. We came together with our fellow DFIs across the G7 to launch the 2X Challenge, to shift more capital towards investments that empower women. Since then, the initiative has mobilised over $30 billion, and now has over 150 members, including pension funds and family offices. Gender equality has become a core part of what we do at BII, and since 2018, we have invested over $2 billion in 2X-qualified businesses.?

Third, we have focused on creating a systematic approach to development impact. Development impact is now firmly embedded into every investment decision we make. And we have built a market-leading framework to evaluate, measure and monitor that impact. I was pleased to be at Harvard Business School last week to present a new case study to students on how we went about incorporating and measuring impact across our whole portfolio.

Fourth, we have redoubled our efforts to channel investment to lower income and below investment grade countries. BII founded the Africa Resilience Investment Accelerator (ARIA) specifically to bring together development institutions, in target countries, such as Sierra Leone, which have little or no access to capital. Through ARIA we work together to present one face to government, accelerate the origination of new investments and improve the investment climate for all. We have been joined in ARIA by other DFIs, such as FMO, and this collaborative approach is showing real dividends.

Looking to the future

I feel we have achieved a great deal over the last few years but as I look to the future, I have no doubt that the role institutions like BII play – providing capital to the private sector in less developed countries so that companies can grow, create jobs, pay taxes and improve livelihoods – will become an ever more important part of global development. Multilateral Development Banks will increase their proportion of investment to the private rather than sovereign sectors. Bilateral DFIs will continue to grow and more newly industrialised countries, who currently do not have a DFI, will establish one.

As the industry grows however there are a few big issues I believe will be at the forefront of that growth narrative.

The first is the interplay between the climate agenda and the development agenda.

On one hand, we need to focus on global development. The world is nowhere close to achieving the SDGs by 2030. We need to redouble our efforts. Growing the private sector is an absolute prerequisite to meeting those goals and that means more capital to countries where it is most scarce. That has always been the primary aim of DFIs.

On the other hand, successful climate transition must underpin any development agenda. The private sector is even more central to delivering net zero. Quite rightly governments are looking to MDBs and DFIs to deliver and to catalyse the capital that can make that possible.

The challenge for MDBs, DFIs and their government shareholders is that the greatest amounts of capital needed for the transition to net zero are going to be in middle-income countries. Yet the greatest amounts of capital needed to address the SDGs are increasingly going to be in low-income countries. These are not mutually exclusive. Indeed, they are inextricably linked. But governments need to ensure that the funding for climate does not come at the expense of tackling the SDGs. The pie needs to grow not simply get redivided. That must be at the core of any MDB and DFI reform.

The second issue is ensuring that development finance remains additional and that means focused on the highest risk investment in the most difficult countries. An increasing number of countries, particularly in Asia, are seeing their domestic banks and capital markets grow substantially. Development finance becomes redundant if there is a surfeit of local capital. Indeed, it can end up distorting markets and becoming counter productive.

Development finance can still be additional in middle-income countries, especially where we are supporting, for example, new and unproven technology in climate finance. However, in a rapidly developing world, our focus needs to remain squarely on the poorest countries and ideally in providing the riskiest form of capital, equity, in those countries. That has always been at the heart of what BII does and I am sure it will remain so.

Third, the issue of how blended finance is used will be critical. We know that unlocking more commercial capital is critical. Without that, our chances of successfully addressing climate change are negligible. Blended finance is a key a tool to unlocking private capital and MDBs and DFIs have a critical and catalytic role in doing that. Indeed, it is fundamental in attracting sufficient capital to climate transition in fast growing economies. But at the same time, it needs to be used carefully. It must be the right type of finance for the market in question, with the right risk appetite and a proportionate level of subsidy applied in the right places. In my previous life, in 2016/17, I was a Senior Advisor on blended finance to the Gates Foundation. Since that time there has been growth, but not exponential growth, in blending. For that growth to happen we need less complexity and more standardisation.

Finally, we must recognise that the best way to encourage capital flows is for countries to provide an attractive investment climate and a stable economic environment. This means consistent and prudent macroeconomic management that does not lead to fiscal and trade imbalances, more effective regulation and stronger governance standards. MDBs and DFIs can help this process by encouraging growth in local capital markets and providing easier access to local currency financing and more efficient hedging. But these are not magic bullets. Ultimately capital, including development capital, will flow fastest to those countries that provide an environment that is secure and supportive of private sector growth and investment.

Overall, it has been, and will continue to be, an enormously exciting time for development finance. What the industry does is important and has never been more relevant than it is today. It has been my pleasure and privilege to be part of it over the last decade or so. Thanks to all of you who have played a part in my journey either as colleagues, investees, partners or any other capacity. It has been a pleasure to work with all of you.