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Economic Development in Africa and South Asia

Over the next decade, a billion more young people will enter the job market, mainly in Asia and Sub-Saharan Africa. There is a chronic need for jobs and better opportunities in these countries to prevent the next generation falling further into poverty, potentially fuelling global instability and insecurity.

As set out in DFID’s Economic Development Strategy, the UK Government wants to support developing countries to transition into vibrant economies and become stronger trading partners. No country can defeat poverty and leave aid dependency behind without sustainable economic growth, jobs, trade and investment.

CDC is central to the UK’s approach to promoting inclusive growth and economic development in Africa and South Asia. As the UK’s Development Finance Institution, wholly owned by the UK government, it is a world leader in its field. It provides much-needed capital, expertise and support to businesses in the poorest and most fragile countries, helping them to grow markets and create jobs which change the lives of individuals, families and whole communities.

CDC invests for development impact, introducing much-needed capital, expertise and support to thousands of businesses, creating millions of jobs, generating essential taxes, and strengthening transformational sectors such as infrastructure, manufacturing and agriculture. Over the last 3 years - from 2014 through to 2016 - companies backed by CDC in Africa and South Asia have created over 3 million new direct and indirect jobs, and paid taxes to national governments worth over $9 billion.

In agreement with my Rt. Hon Friend the Chief Secretary to the Treasury, Elizabeth Truss MP, I am pleased to set out the next step in the UK’s commitment to the growth of CDC, through a gradual capital increase over the next five years. This follows the passing of the CDC Act earlier this year which increased the limit of capital which the UK could invest in CDC.

New capital will enable CDC to build on these excellent development results to make hundreds more investments, create millions of new jobs, and make a lasting difference to the lives of people in the world’s poorest and most fragile countries, by helping individuals to find work, earn money, feed their families and send their children to school.

The decision to invest new capital in CDC comes at a critical time. There is a huge shortfall in the investment needed to meet the ambitions of the Global Goals agreed by the UN in 2015. The UK is rising to this challenge by using government-funded capital in innovative ways. By investing patiently, CDC demonstrates to private investors the opportunities that exist, even in the most difficult places. This leads the way for other investors to follow, mobilising capital from a much larger pool of private investors.

Over the last 5 years, since 2012, DFID has been working together with CDC in a thoughtful and phased way to grow CDC’s capabilities, better measure its impact and identify the need for the long-term, patient capital that CDC can invest to transform the economies of developing countries.

In February Parliament passed the CDC Act, which benefitted from constructive inputs and debate from MPs and Peers from across both Houses.

In July, CDC published its new 5 year strategy. This strategy maintains CDC’s focus on investing in the poorest and most fragile countries in Africa and South Asia and sets out innovative approaches to maximise the transformational impact of CDCs investments, while committing CDC to increased levels of transparency and reporting.

DFID will invest an average of up to £703 million per year over the next 5 years, to support CDC’s new strategy and scale-up its job-creating investment activities. These funds will be drawn down as needed by CDC in response to market demand. The new capital will support investments in Africa and South Asia in priority sectors – those creating the most jobs in the hardest to reach. Capital invested in CDC is invested and reinvested time and again, to ensure that every penny of taxpayers’ money is having maximum development impact. At the same time, CDC is leading the way globally with its code of responsible investing, raising the social, environmental and governance standards of investment in the world’s poorest countries.

This investment is the outcome of extensive analysis and a detailed business case – a copy of which is available at https://www.gov.uk/government/publications/capital-increase-to-cdc-the-uks-development-finance-institution-to-deliver-increased-development-impact-in-africa-and-south-asia-2017-2022.

I am proud to set out this support today, which will have huge development impact for decades to come. CDC’s investments lay the foundations for sustainable and responsible businesses which create jobs, provide vital services, strengthen economies and ultimately transform the world’s poorest nations, and in doing so, build global security and prosperity that benefits us all.