Would companies receiving aid funds for pro-poor investments have invested anyway? As donor agencies are increasingly interested in sharing the costs and risks of private investments in developing countries to promote economic development goals, this is a key question they need to be able to address.
Competitive challenge funds are a popular format in many agencies, channeling resources to the private sector to bring about investments and activities with positive development impacts. Demonstrating additionality then requires showing that donor support either triggers private activities that would otherwise not happen at all, that it makes them better (e.g. by enhancing their viability or pro-poor impacts) or helps make them happen significantly sooner.
However, DCED (2013) and others show that assessment practices in many agencies may not allow them to make a convincing case for the additionality of their support. This is because assessment criteria are often limited or vague; assessment processes are often confined to brief justifications by companies; and typically no internal guidelines exist on how additionality is considered in project appraisals. There may be limited staff, and pressures to disburse funds. Although additionality cannot be ‘proven’ or ‘exactly measured’, it is possible to enhance assessments in practical ways – to make an informed judgement on additionality and to maximise the added value of public funds. This is what the new DCED good practice guidelines are about: They summarise eight practical criteria and principles that can help agencies to credibly demonstrate additionality in their partnerships with business – based on the experiences and lessons of a range of practitioners. You can read some of their feedback below. Download the full report here.
Click here to go to the main DCED Knowledge Page on Partnerships for PSD, with links to further publications and practical tools, as well as a directory of donor-funded challenge funds and similar cost-sharing mechanisms.
Feedback by practitioners
- “Significant paper, empirically rooted and of high practical relevance. Thanks!” Daniel Roessler, Austrian Development Agency
- “It is an excellent document…” Hugh Scott, Africa Enterprise Challenge Fund
- “Congratulations on the results of the study, which definitely tackles a central issue in PPP cooperation and gives agencies good ideas on how to better ensure additionality of their projects.” Susanne Sattlegger, Sequa/ DeveloPPP
- “The document gives a refreshingly realistic picture on the possibilities to operationalize the concept of additionality. Being comprehensive and structured and at the same time hands-on, it serves its purpose as a guiding framework for practitioners well.” Birgit Seibel, GIZ
- “Very interesting and useful report… I am already drawing on it in current discussions..” Caroline Ashley, Practitioner Hub on Inclusive Business
- “The report captures the subject matter well and appears to be thoroughly based on the information you currently have on hand.“ Dave Runganaikaloo, Maxwell Stamp PLC/ RAGS Challenge Fund
- “…it’s very good!” Amanda Jupp, Coffey International/ Enterprise Challenge Fund for the Asia-Pacific
DCED Webinar on Demonstrating Additionality in Private Sector Development
On 23 June 2014, the DCED held a webinar on Demonstrating Additionality in Private Sector Initiatives. The webinar addressed questions such as:
- What key criteria can agencies use to test whether a company could and would undertake a business project without public support?
- What practices can help agencies to make and communicate an informed judgement on additionality?
- How might changes in the design and management of challenge funds in particular help agencies to demonstrate additionality better?
The DCED Secretariat presented some highlights from the DCED report ‘Demonstrating Additionality in Private Sector Development Initiatives – A Practical Exploration of Good Practice for Challenge Funds and Other Cost-Sharing Mechanisms.’ This was followed by practical insights from James Carnegie of the Africa Enterprise Challenge Fund (AECF) and Christine Scott Dunkley of the Compete Caribbean Enterprise Innovation Challenge Fund (EICF).
You can view the full webinar recording here, or by clicking on the video below (we recommend selecting the full screen mode at the bottom right of the video).