UK aid-funded BII investing in billionaire-owned companies including luxury hotels, new Bond report finds

• BII has made investments in luxury hotel chains, fossil fuel fertilizer production and dual fuel power plants, owned by five billionaires: worth around half of investments made in least developed countries.
• Only 14% of BII’s investments are made in the world’s least developed countries, and 14% in fragile and conflict affected states: despite BII’s goal to reduce poverty and promote development to benefit the world’s poorest.
• 37% of BII’s active investment commitments go to just 20 businesses.

British International Investment (BII), the UK’s aid-funded development finance institution, has made investment commitments worth $640 million into billionaire-owned companies – including luxury hotel chains, fossil fuel fertilizer and dual fuel power plants – while investing just 14% of its portfolio in the world’s least developed countries, a new Bond report reveals.

The majority of BII investments go to companies domiciled outside partner countries – with 92% of committed investments made through intermediaries going to companies domiciled in the UK and other G7 countries, or offshore. 24% of all committed investments go to UK-domiciled companies, and 18% to companies domiciled in Mauritius, a well-known offshore financial centre.

BII has received more than £6 billion in capital contributions from UK aid since 2015: and, despite cuts to the UK aid budget already forcing lifesaving humanitarian programmes around the world to close, is set to receive a further £140 million of UK aid per year for the next three years.

However, Bond identifies limited investment in the world’s least developed countries and fragile and conflict affected states (FCAS) – as BII instead channels a large share of investment to more mature economies and international businesses benefitting high-earners and middle classes, despite a mandate to invest in high-risk, under-served markets to benefit poor and marginalised sections of society. Whilst supporting private sector investment in low- and middle-income countries (LMICs) is critical to building thriving local economies, the nature of these investments – including where they are made, to whom, and on what terms – must be scrutinised to ensure genuine transformative impact.

Bond’s report, ‘Locally led development and development finance institutions: the case of BII’, calls on development finance institutions (DFIs) such as BII to adopt a locally led approach to development – a key precondition for sustainable economic development that can also help to reduce countries’ dependence on development assistance in the medium term.

As a co-host of the upcoming Global Partnerships Conference in May, where shifting the power to local actors will be a key theme, BII is being called upon to align its current strategy, governance, operations and investment portfolio with a locally led approach to development. Bond’s report offers practical recommendations to enact this change: including by engaging local stakeholders, civil society and communities in decision-making, and prioritising investments in locally owned businesses in low-income countries.

Ahead of the launch of its new strategy, expected later this week, this report demonstrates the need for BII to ensure locally led development is at the heart of its future work, and set a powerful precedent for DFIs worldwide.

The report concludes that:   

1. Local agency remains weak in development finance decision-making, with decision-making power concentrated within BII’s Investment Committee and Board. Bond finds limited engagement with local stakeholders, including civil society in partner countries, and limited requirements to align investments with national strategies on development and climate.
2. Resource allocation favours large, foreign- and offshore-domiciled actors over local businesses, with only a small share of investments to locally owned and embedded businesses, domiciled in partner countries – directly undermining locally led development, economic transformation and decolonisation.
3. Investments have a limited focus on those most in need. Only a relatively small proportion of BII’s portfolio is invested in least developed countries (LDCs), fragile and conflict-affected states or its own ‘alpha’ (most in need) countries.
4. BII’s focus on export-led growth overlooks resilience-building in local markets. Export-led growth strategies do not consistently deliver inclusive development outcomes addressing local challenges, and – in the case of agriculture trade investments – may even risk increasing reliance on imported food and vulnerability to global market shocks.
5. Smaller businesses and the informal economy are insufficiently supported – despite forming the backbone of economies in countries that BII invests in. Small businesses face costly loans, and BII and its intermediary investees lack incentive to support the informal sector, where poverty is most concentrated.
6. BII prioritises growth over transformation – meaning while investments in private healthcare, education, and export-oriented agriculture do contribute to job creation and infrastructure expansion, these do not consistently help countries to become more self-sufficient, or focus on local needs and priorities of the most marginalised communities.

Sandra Martinsone, Policy Manager and report author, at Bond, the UK network for NGOs said,

“Today’s report highlights significant shortcomings in BII’s current approach to support the world’s most marginalised communities. DFIs such as BII play a significant role supporting local businesses where private investors are absent. But there is no justification for luxury hotel chains, private schools, upmarket housing, fossil fuel fertilizer companies, and businesses owned by billionaires to be part of BII’s investment portfolio. BII should not continue to hold these types of investments if they are not serving clear development purposes.

 Now, BII and other DFIs must step up to reimagine their future role in the global development system, committing to ambitious ways of doing to support locally owned, inclusive, sustainable economic transformation in low- and middle-income countries. A locally led and owned development approach must be at the heart of BII’s new strategy, and be embedded in its structure as a measure of its future impact and success.”

ENDS.

Notes for editors