SR2002: DEPARTMENT FOR INTERNATIONAL DEVELOPMENT

Departmental Investment Strategy

1.   Summary

DFID long term investment Strategy

1.1   DFID's aim is the elimination of poverty in poorer countries. We pursue this through the promotion of sustainable development and in particular, as set out in the 1997 and 2000 White Papers:

• building development partnerships with poorer countries; 
• working more closely with the private sector, civil society and the research community
• working with and influencing multilateral development organisations; 
• working with other Government Departments to promote consistent policies affecting poorer countries; 
• using our knowledge and resources effectively and efficiently.

DFID is also responsible for the payment of overseas pensions.

1.2   Capital investment takes a very small share of DFID's new resources, some 1.3% of total spending planned for 2003/4. It consists of:

• shareholdings in international financial institutions (IFIs) (value at 31/3/02 £1.7bn), which we hold as a necessary part of being members of these institutions and in order to influence their policies and investment priorities. We envisage no substantive change and only small calls on existing capital pledges over the SR period, running at £18-20m pa.
• our ownership of CDC, formerly the Commonwealth Development Corporation (investment and loans at 31/3/02 £0.3bn and £0.9bn respectively), an autonomous public corporation promoting the reduction of poverty through commercial investment. No new public investment in CDC is planned over the period.
• administrative capital (net book value of tangible and intangible fixed assets at 31/3/02 £68m). Investment over the SR2002 period is mostly for information systems and ICT infrastructure. We have to complete the ongoing Abercrombie House refurbishment project and to finance external works on 1 Palace Street as required by the lease. There are also expected to be small investments in accommodation and equipment overseas. The total value of this investment is expected to be between £25m and £30m pa.

Link to DFID PSA

1.3   The work of the Department, including key objectives and operational targets, is explained further in DFID's Public Services Agreement and Service Delivery Agreement respectively. Box 1 shows our key Public Service Agreement objectives for the period of the Investment Strategy. This is a significant presentational change from the SR2000 PSA, which was structured more around themes such as focus on poverty, health and education. The new structure provides clearer links to the way that programmes are organised and will help ensure accountability for outcomes, while retaining the thematic approach through indicators and in the SDA. In the new structure, of DFID's three categories of capital investment, investment in IFIs comes under Objective 4 and CDC under Objective 5. Administrative capital is mostly a central expense which is not charged out by programme, though there are modest accommodation and equipment costs in overseas offices.

Progress against these objectives under the present DIS

1.4   The current DIS focused on the same three areas as envisaged for SR2002 (para 1.2). The position is as follows:

• New capital investment in IFIs is expected to be consistent with SR2000 plans, with only small calls on capital for the mature IFIs, totalling some £10m over the period, and £48m for the European Bank for Reconstruction and Development (EBRD), again in line with SR2000 plans. These investments are separate from the financing we provide for periodic replenishment of their concessional funding arms which is no longer to be treated as part of capital investment. We remain committed to supporting these institutions, whose size and status make them key players in international support for poverty reduction and economic development.
     
• Progress has been made with the restructuring of the CDC, in particular through passing the public sector loan portfolio to DFID because it was judged to be likely to reduce the attractiveness of CDC to potential PPP investors, unfamiliar with public sector loan business. Considerable work has been done on the future form of CDC and the best way in which to engage with the private sector in support of the objective of promoting private investment in poorer developing countries.
     
• The largest elements of our administrative capital investment for SR2000 were for the enforced move of our main London HQ to 1 Palace Street (1PS) and refurbishment of our East Kilbride HQ building. The 1PS move was completed to budget and timetable at the end of 2001 and the East Kilbride project is also on track, although as it is not due to be completed until early 2005 there will be £11m of spending in the SR2002 period. Major IT projects included a new desktop for all DFID throughout the world, and associated system upgrades, completed in mid 2002; new contract and HR systems due for roll-out in late 2002; a new fully web-enabled internal web-site InSIGHT, successfully launched last year; and major new broadband links to overseas offices via satellite.

Progress proposed in the DIS for the SR2002 period against objectives

1.5   Linkages between capital proposals and our PSA objectives are:

• Objective 1: Poverty reduction in Africa 
• Objective 2: Poverty reduction in Asia

Investment directly related to these two objectives will be limited to minor investments in accommodation and equipment needed for the effective operation of our overseas offices.

• Objective 3: Reduced poverty in Europe, Central Asia, Latin America, the Caribbean, the Middle East and North Africa

Most investment under this objective will help build up the capital of the European Bank for Reconstruction and Development in fulfilment of existing commitments; no new commitments are expected to be made.

• Objective 4: Increased impact of key multilateral agencies in reducing poverty, and effective response to conflict and humanitarian crises

Investment is limited to small increases in the called-up capital of International Financial Institutions; over ninety per cent of this is likely to be under existing commitments. We are considering joining the IDB's Multilateral Investment Facility, with a possible first payment of around £2m in 2005/6.

• Objective 5: Developing evidence-based, innovative approaches to international development.

No significant capital investment is required for this objective during SR 2002, though new corporate systems are being developed in conjunction with our partners (e.g. World Bank etc.) to enable progress to be captured and shared

• Administrative capital

Investment will focus on enhancing effectiveness and efficiency through improved and more resilient information and communications systems, powerful interconnected Knowledge Management and facilitation of flexible working patterns. This is expected to cost around £40m.

Investment in new corporate systems, including electronic data and records management and a new worldwide management information system, is expected to total some £20m. Investment in accommodation and other equipment is expected to cost a further £20m (the balance of Abercrombie House upgrade in 2003/4-2004/5 £11m, periodic maintenance, especially external works required under the lease to 1 Palace Street etc £6m, miscellaneous equipment £3m).

Table 1: Total Investment by Objective 2003/4-2005/6

This planned investment substantially exceeds the Departmental limits for capital expenditure (Capital DEL) set out in DFID's 2002 Spending Review Settlement (£11m, £18m and £14m for the 3 years from 2003/4). The difference is accounted for by the non-operating income which DFID anticipates receiving as Appropriations in Aid during the Settlement period.

2.   Current asset base and asset disposal strategy

Asset base

2.1   DFID's assets, other than current assets, consist of the three categories identified in para 1.2 and outstanding long term aid loans of £0.6bn. The position on management of these assets is described below.

International Financial Institutions

2.2   Our investments are governed by existing agreements associated with our membership of the IFIs. Our policy, objectives and priorities for these institutions are kept under regular review to ensure that we are as effective as possible in influencing them towards greater effectiveness and appropriate policies. Within the period of SR2002, new investment is almost entirely governed by calls on existing capital commitments; other than this, changes in value will reflect only balance sheet and exchange rate movements.

Commonwealth Development Corporation

2.3   CDC is an autonomous public corporation. We are not putting new money into CDC at present. The Government has decided to take forward the Public/Private Partnership announced in 1997 by separating CDC into a management company and an investment company. Parliament is being informed of the Government's plans.

Administrative Capital

2.4   Administrative capital includes the investment in 1PS and AH buildings which, with further overhaul of equipment at year 10, will have a life of 20 years. Refurbishment works have been undertaken utilising "full-life cost" calculations, and in accordance with Gateway guidance. New IT corporate systems have indicative lives of around 5 years, and the improved resilience and enhanced infrastructure has an average life expectancy of 5-6 years. IT projects are undertaken using PRINCE and ISDM methodologies and equipment has been purchased competitively.

2.5 Service Level Agreements are in place and monitored closely; detailed statistics are held on Help Desk calls, and analysed to ensure sound maintenance and replacement practices. There is no material maintenance backlog.

Outstanding loans

2.6   These loans are governed by long term agreements. They are closely monitored to ensure that repayments are being maintained and the treatment of repayments follows established rules.

Asset disposal strategy

2.7   Retention of assets in the IFIs is fully consistent with our objectives since they are essential to having an influence on these important elements of the international system. We therefore do not plan to dispose of any of these assets during SR2002.

2.8   Policy on investment in CDC is kept under review; current policy is to maintain but not increase our level of funding in CDC. Following the planned restructuring of CDC, DFID intends to offer equity in a management company formed by reorganising CDC as soon as conditions permit.

2.9   Our only asset disposals are limited quantities of furniture, and redundant IT equipment. Our PCs go to an NGO, which re-furbishes them and then places them with educational organisations in developing countries. This well established process is monitored by our Imfundo team and is a very modest contribution to our development programme. We negotiate trade-ins for most of our other redundant IT equipment, ensuring that any companies involved have environmentally sound disposal policies.

Receipts

2.10   Over the period we expect there to be a continuing flow of loan repayments, estimated at £86m, £65m and £52m in 2003/4 -2005/6. This (and certain amounts written off under debt agreements) will reduce the stock of debt from £1,167.5m at 31/3/03 to £963.8m at 31/3/06.

Table 2: Planned receipts

3.   New investment plans

3.1   The only IFI where we foresee a possible further capital increase during SR2002, ie going beyond calling up existing committed capital, is the Caribbean Development Bank, where there may be a request for an increase in capital starting in 2004. If we decide to retain our present proportionate share, our estimate of the cost in 2004/5 and 2005/6 is £0.3m pa. We have allowed for this in the new investment figures but this would be subject to further review. As noted above, we are also considering joining the IDB's Multilateral Investment Facility - if we did so we might expect to make a first payment of some £2m in 2005/6. All other IFI investment is likely to be in fulfilment of existing commitments.

3.2   We have no plans in the SR2002 period for new investment in the CDC.

3.3   Following completion of our building upgrades in 2004/05, the majority of our administrative capital expenditure will be ICT linked. This programme is set out in our e-business strategy, which has been agreed with Cabinet Office OeE. There are three major components, each with a series of projects within them.

• The first (£18m) is a portfolio of new and enhanced corporate systems covering areas such as Electronic Document Management/Electronic Records Management, e-business, management information and Knowledge Management. These projects will improve the quality and extent of available information and will yield benefits through more efficient handling and storage of records and information.
     
• The second, CARIS (Contingency and resilience - £12m), covers increased bandwidth, a restricted network joined to GIS, clustered servers, a move to IP for communications and a wide cross-section of infrastructure and system improvements, including enhanced remote working. Good and reliable communications are of key importance given the spread of our operations and overseas offices.
     
• The third (£12m) covers the potential move to a thin client, all web enabled systems, central data warehousing, and a potential move from Novell and Microsoft to LINUS operating systems. These technologies offer a more cost effective operating framework for current and new systems.

3.4   The balance of our administrative capital investment will be on a range of medium and small projects to increase the efficiency of our staff and rationalise office accommodation needs (we plan to give up our second London office at the end of 2004/05). These include areas such as docking stations and wireless enabled laptops with shared workstations. We will be introducing remote monitoring of networks in 40 of our overseas offices and be standardising equipment and systems worldwide to allow successful operation of our systems without increased staff resources.

3.5   We will introduce voice recognition systems and VC-enabled PCs. Internationally we will considerably expand our VC network allowing multi conferencing, e-learning for SAIC and secure VC conferences. We will introduce a two-level security system and are working with the FCO on a potential biometric access system. We will expand our asset control system to include access control on valuable items (e.g laptop computers), which will all have recognition chips in future years.

Resource Budgeting Implications

3.6   In line with other Government Departments, DFID introduced Resource Accounting and Budgeting (RAB) from 2001/2. RAB aims to show the full economic costs of Government activities, thereby providing a better basis for deciding on the allocation of resources. For capital expenditure, this involves showing the cost and consumption of capital (depreciation) over its useful life.

3.7   The resource budgeting implications of our new proposals alongside those of our existing assets and asset disposal strategy are brought together in Table 3 below.

Table 3: Resource Budgeting consequences 2003/4-2005/6

These charges were calculated on the basis of a capital charge rate of 6% per annum. The Treasury have recently announced that the capital charge rate to be applied from 2003/4 will be 3.5%: the figures will need to be revised accordingly. The above charges are partially offset by negative capital charges incurred in respect of creditors and outstanding provisions.

3.8   Looking beyond SR2002 we expect to continue to want to make modest additional investments in the IFIs and to need to invest in administrative capital in order to maintain and enhance our effectiveness. These investments will be offset by loan repayments, which will slowly decline as the stock of debt falls. None of this requires setting indicative budgets at this stage; it will continue to be a very small proportion of our use of resources.

4. Procedures and systems

4.1   We have not experienced significant problems or delays in the implementation of our capital plans in recent years. In particular:

• IFI investment has followed the planned pattern and timetable;
    
• our major accommodation project of moving our main London HQ went to schedule and budget;
     
• refurbishment of our Scottish HQ, which is at an early stage, started on schedule and is currently expected to come within budget.
    
• Our IT projects, with one exception, have all been on budget and close to programme. The enhanced overseas communications and links project (EOCL), implemented jointly with the FCO, has been delayed slightly as a result of the main Private Sector partner, Global Crossing, filing for Chapter 11 bankruptcy protection. Appropriate measures are in place to minimise the delay and provide alternative resilience at minimal additional cost.

4.2   Capital investment has in practice been higher than originally set out in the CSR and SR2000. The provisions for administrative capital in the 2000 Settlement did not include the full costs of moving our main London HQ: the required funding was secured, with Treasury agreement, through transfers of funds from programme expenditure through the Parliamentary Estimates process.

4.3   Within DFID, capital expenditure allocations are agreed as part of the annual Resource Allocation Round, following scrutiny of proposals at Management Board or Board Committee level. The small amounts of non-administrative capital investment are in principle considered in the same way as programme expenditure, since adding to the capital of IFIs is seen as an alternative to other, resource, spending. The figures in Table 1 above serve as a basic framework for allocations, but there may be some divergences to respond to changing priorities.

4.4   All plans for significant investments in office accommodation or new ICT projects are discussed and approved in the Knowledge and Communications Committee established in 2001. Management of administrative capital projects follows central guidelines and OGC Gateway, SPRITE, PRINCE and other recommended procedures. These include comprehensive economic analyses and Risk Assessments, which are closely monitored throughout the project life.

Back to top