Welcome and introduction
Thank you Jin-Yong.
I want to thank you and the Financial Times for inviting me here to speak today.
International development, at its best, builds markets. It helps to create jobs, boost economic growth and bring down the barriers that stand in the way of businesses and entrepreneurs, creating wealth across the developing world.
Ultimately, it should give the world’s poorest people the chance to lift themselves out of poverty and end dependency on aid.
You only need to take a look at China’s reduction of poverty rates or at Africa’s booming economies – like Ghana, Mozambique and Tanzania – to see how economic growth and a thriving private sector can improve the lives of millions. In fact, wherever long-term per capita growth has been higher than 3%, we have also seen significant falls in poverty.
That’s why I’ve made sure that my department’s primary focus is on economic growth and development.
Across the world Britain is helping to dismantle barriers to trade, boost investment and improve the business climate.
In Nigeria, we have worked with the Government to slash legal fees and start-up costs for new businesses.
In Lesotho, we have helped reduced the time it takes to process export applications by almost 100%.
We’ll keep working on all of that. But in the world’s poorest countries often the last, most difficult barrier to overcome is getting the lifeblood of enterprise flowing – finance.
Very few people in this room will need telling this, but over the last ten or twenty years countries across the developing world have gone from investment risks to emerging markets of enormous potential. 8 of the 15 fastest growing economies are in Africa.
Across Asia, nations from Vietnam to Indonesia have turned from aid recipients to crucial UK trading partners. A quarter of all the countries in Africa are now growing at a rate of 7% or higher.
I’m delighted to be in the company today of some of the most forward-thinking investors and institutions in the world, who are awake to the huge potential of these emerging markets. You see, as I do, the immense opportunity, not just financial but human, to tap into and build.
But these new markets are different in risk profile, in nature. And because of that, we need new models. New sources of finance. New ways to get much-needed capital injected into the growth markets of tomorrow.
I believe impact investment is one of the best solutions on offer. Investment intended to generate both a social and a financial return. Investments are targeted at enterprises that benefit poor people, whether they are a consumer, a producer, a supplier or an employee.
Impact investment is playing a vital role in finding innovative and commercially viable solutions to some of the world’s most pressing challenges. I want to see it become a leading source of innovative finance for emerging markets, using the immense creativity of the private sector to do what it has always done, compete – to push us all forward.
That is why, at tonight’s Sustainable Finance Awards, DFID is supporting a new award for ‘Achievement in Impact Investing’. This will recognise the investors that are making a real difference in enlisting commerce to unlock solutions to the economic and social challenges that need fixing.
Impact investment is a broad spectrum, but the possibilities are almost limitless. It has the potential to fundamentally change the way we use our resources in the development push, to radically improve the way investment works with innovation and unlock the potential of business in developing countries by providing a platform for entrepreneurship to flourish.
We are already starting to see its impact. From low cost urban housing provision in the slums of Nairobi to emergency ambulance services in Mumbai. In East Africa, impact investments are being made into the local production of malaria drugs, which not only devastates millions of families but can cost up to 5% of GDP per year in some countries.
Last week the Prime Minister recognised the importance of impact investment by hosting an event devoted to impact investment as part of the UK’s G8 presidency. This brought together delegates from governments, development finance institutions, foundations and Funds from all over the world.
And in December I launched the DFID Impact Fund, DFID’s first ever returnable capital programme, which aims to catalyse the growth of the impact investment market in Africa and South Asia over the next 13 years.
We will capitalise £75 million into Funds that invest in sustainable enterprises.
But the really transformational part of the picture is that our capital is not on its own. There is a huge amount of other capital that can be mobilised to invest alongside us. When we set up a fund, we want it to be in collaboration. We’ll only do it if other capital is raised, to match our investment pound for pound.
And we expect the DFID Impact Fund to generate a return that can itself be reinvested.
Aside from the intrinsic social benefit of the fund, it works on many other levels. It’s good for investors, who earn a financial return. It’s good for enterprises that meet the needs of people, opening new sources of capital for growth. And it’s good for DFID. Not only do we leverage in far more money, we can and reinvest our returns, meaning each pound of our budget has even more impact.
As we demonstrate the potential of this market and it grows, I want DFID investment to pull in more commercial investment still.
Through our programme we will initially be investing in over 100 enterprises, providing them with the crucial capital they need to take their businesses to scale. We’re starting small, testing the model and we can grow it from there.
Developing countries will only grow sustainably if their enterprises have development at their heart, and that’s why I want impact investment to help hardwire in sustainable business practices. This is the way to drive economic development without the need for grants or handouts.
Building capacity in the market
So that’s the upside, and the potential. Now for a bit of grounding. We know that at this early stage in its development, social impact investment has many challenges.
The market is fragmented. Many see high risk in a largely untested market. So we need to see a new type of investment professional that understands how to identify, manage and grow impact investments.
That’s why, we are partnering with Rockefeller Foundation, USAID and Omidyar Network in their support of GIIN, the Global Impact Investing Network with a £10.5 million investment.
On top of that, we’re kicking off a research programme that will look at capturing best practices and producing a solid evidence base.
It is absolutely critical for investors and development practitioners to at last share a common language and common valuation of the shared outcomes we are hoping for, so a key part of this work will be developing standard metrics for measuring development outcomes. One business case approach, in the same way that NPV is the basis for financial decisions.
Announcement - Basic Services Network of Fund Managers
I am pleased to announce today that we will set up a network of Fund Managers working on Basic Services.
This will enable knowledge sharing and help us identify opportunities for partnership and co-investment.
The aim is to demonstrate the potential in sectors such as health, education and water and sanitation.
Announcement - Advancing Impact Management Skills (AIMS)
For innovation to take root we also need to build market infrastructure to support it. As impact investment markets grow, there is a need for local expertise that goes beyond traditional investment management.
So I am pleased to announce the new Advancing Impact Management Skills, (AIMS) project. Under this DFID-funded project, we will work with local providers to train a new generation of impact investment professionals in Sub Saharan Africa and South Asia, in other words based in the markets alongside the opportunities. This will increase local capacity, skills and expertise to develop and manage impact investments.
Development Finance Institutions
What about aligning with existing players? Development Finance Institutions are also crucial if we want to scale up impact investment in developing countries.
I believe there is scope for development finance institutions to learn from each other and explore new partnerships.
I announced last week that CDC will be chairing a working group on impact investment. I would like to invite representatives of Development Finance Institutions here today to take part and help this market grow.
Big investors already recognise the risks and opportunities in the developing world. We need to show them that impact investments are not some kind of CSR sideline. They should be a core part of their investment strategy.
Finally, there is a need to finance early stage ventures with risk capital to build a pipeline for impact investments.
That is why we are making a fifty million pound investment into the Agricultural Development Company, to set up a new Fund which will invest in agricultural SMEs, smallholder farms and new agribusiness ventures. This is hugely exciting.
Part of the solution to hunger in Africa is for Africa’s farmers and agricultural sector to be able to produce the food it needs for itself.
Smart UK investment like this will help thousands of farmers develop their businesses to grow food for millions, whilst generating revenues that can be reinvested back into Africa’s agricultural sector.
This sort of innovative, self-sustaining, job-creating investment which generates a return that can be itself reinvested, will become an increasingly important part of DFID’s development approach.
I’m hugely proud that the UK is rapidly becoming a world-leader in this pioneering market. And I want DFID to help harness the power of this expertise.
Ultimately, I want DFID to help developing countries end a dependency on aid through jobs and growth.
I believe impact investment can and will be a fundamental part of these efforts.