SEATTLE — There is a new approach being taken to foreign aid that focuses on investing in a nation’s private sector. This tactic differs from a government-to-government approach or non-governmental organizations handing out food or supplies to local populations.
The CDC Group is taking this new approach to foreign aid. It is part of the United Kingdom’s overseas aid department.
The CDC Group is a development financial institution that provides credit to financial services in developing countries. They invest in places that other financial firms do not, due to the high risk, and they help local businesses grow.
These local businesses often have a hard time securing the investments they need. The CDC group provides capital to entrepreneurs. They often give a business a ten-year investment plan, so it has adequate time to grow in its market.
The CDC Group focuses investments in known job-creating sectors like manufacturing, infrastructure and agribusiness. They do this in nations with a small private sector that have limited job opportunities. Job creation is a top priority to help populations move out of poverty.
Focusing on job creation as foreign aid came after a 2012 mandate. The CDC Group found that its investments were not having as big an impact as they hoped. They realized that simply investing in a developing economy is not enough, the investment had to have more of a positive effect on the population. They decided to shift their focus to creating jobs in areas that were historically poor.
This new direction meant that they primarily invest in sub-Saharan Africa and South Asia where 70 percent of the world’s poor live. Other investments help support funding for higher risk regions. For example, for every $1 raised for investment in China, 17 cents are raised for India, and 8 cents for Africa.
These regions are starved of capital, a big reason why businesses cannot grow. This keeps the wages low and perpetuates poverty. Three-quarters of the working population in both regions are in vulnerable employment, unprotected jobs such as street vending.
The UN High-Level Panel predicts the world’s labor forces will grow to 470 million people by 2030, and a large percent of this number will be workers in developing nations where poverty is rampant and inescapable. To help alleviate the levels of poverty and unrest, the CDC Group aims to create as many jobs as possible through the private sector where nine out of ten jobs are created in the developing world.
This growth in developing nations through this new kind of foreign aid will create more consumers in the global marketplace, and in turn create jobs in the developed world.
Sources: Devex, CDC Group 1, CDC Group 2, CDC Group 3