DFID’s CDC Bill is ‘shameful’

On 6 December 2016 War on Want was called to give oral evidence to the Commonwealth Development Corporation Public Bill Committee.

The Department of International Development (DFID) has put forward the CDC Bill requesting that the cap on government funds to its private equity arm, CDC Group, be increased from £1.5 billion to £6 billion with the possibility of increasing the cap to £12 billion in the future. This request is being made amidst growing criticism of DFID’s controversial new position on international development and against the CDC Group’s use of tax havens and its connection to labour and land rights abuses in the global South.

We were clear in our evidence that War on Want holds the view that private equity firm, CDC group should not be tasked with carrying out overseas development aid where its primary goal is to secure a return on investments rather than alleviating poverty. 

From oral evidence presented, what became clear was that the mechanisms for accountability between DFID and CDC are not so important to the government officials sitting on the panel. While some questions were raised about levels of transparency and accountability especially in relation to CDC Group’s use of tax havens and some of its investment choices, the panel were satisfied with the vague, ambiguous and non-committal responses from both the CDC Group and DFID. Even the fact that  DFID has made the request for the increase in the cap in the absence of any strategic plan or portfolio of investments submitted on the part of the CDC Group didn’t even raise eyebrows in the room. This is concerning for a number of reasons including the fact that CDC appears to be chasing a return on investments and wealth creation through high risk investments.

The National Auditor’s Office report on the CDC Group showed that it was able to average a rate of return of 10.3% since 2012 – far outstripping its target of 3.5%.  Its investment in poverty reduction projects in Africa and Asia has reduced significantly. In 1988, just under 50% of CDC Group investments went to agribusinesses in Africa (the Zambian Mpongwe agribusiness has long been held as a jewel in the CDC Group’s crown but whose funding was pulled to support profit generating projects).  Ten years on, investment in agriculture dropped to just over 20% while investment in infrastructure went up to about 35%. By 2004, 10% was going to agriculture, and just over 10% was going to infrastructure and Telecoms and IT projects. In 2009, support for agricultural projects was down to 5% and investment in consumer products rose from nothing to 14%. The other big loser was investment in infrastructure projects (such as roads, cargo depots and water distribution) which fell from 35% in 1999 to 8% in 2009. Its new portfolio as presented to the National Auditor’s Office shows an increase in investment in infrastructure and financial institutions with job creation as its key focus. 

At the hearing, the CDC Group and DFID tried to present that its investments were about supporting economic development in the poorest parts of Africa and South Asia. However, when pushed on its projects in South Asia, the CDC Group revealed that whilst 49% of its investments were in support of businesses and job creation in the poorest states of India, 52% went to support financial institutions and private medical care in the wealthier or middle-income states like Maharashtra, for example. It has been shown that India, classified as a middle income country, is able to offer 71% on investment returns. The support for financial institutions and private medical care raises further concerns to the role of CDC Group in the international development aid arena. Despite this though, DFID’s Rory Stewart, when pushed on the CDC Group's role, said that that the CDC Group was about doing good in the world and ensuring high rates of return on investments. 

The CDC Group’s existing portfolio is evidence that poverty is just a thin veil for wealth creation for elites. How is investing in the building of a shopping mall in Ghana or a gated property development in an upmarket, wealthy suburb in Kenya addressing poverty? Is it possible that what they are actually doing is using UK tax payers’ money to make a profit off the backs of poor nations – specifically nations that have  being on the receiving end of British colonialism (The CDC Group was initially known as the Colonial Development Corporation)? 

A further striking feature of the hearing was the lack of any rigorous due diligence, accountability and transparency mechanisms in place between DFID, CDC Group and Parliament. Any charity that has been brave enough to venture down the road of applying for DFID funding would know the painfully rigorous, hoop jumping processes we have to go through to submit an application for funding, get the funding and then report on the use of funds. Yet DFID is perfectly content with the CDC Group not having a strategic plan for how it will spend the first £6 billion, let alone the full £12 billion. Can you imagine if an NGO went to DFID and asked for a lump sum of funds with no proposal, logframe, outline of value for money, impact monitoring, evaluation criteria, number of direct and indirect beneficiaries – the list is endless? And yet the response from the floor when War on Want raised this was “Well, you are not owned by DFID”. Surely the response should be that because DFID owns the CDC Group and because it is wholly funded by UK tax payers money, they should be applying more rigorous measures to ensure transparency and accountability. Why should we allow the CDC Group to be left alone to do its business, take its big risks and not be risk averse, lose some money in the process – after all it is our money, isn’t it?

If there were stricter due diligence processes in place we wouldn’t have seen the CDC involved in Feronia – a business venture embroiled in allegations of a land grab from indigenous tribes; labour abuses and corruption.  

A community member in Lokutu, where Feronia operates, is surprised to find a land survey marker placed without the prior consent of affected communities (Photo: Oskar Epelde)

Feronia raises key issues for the CDC Group and DFID which need answering: did DFID know about Feronia and turned a blind eye or worse still, supported this? Or did it not know this was happening raising critical concerns over DFID’s oversight over how tax payers’ money is being utilised? Feronia also holds a mirror to the CDC Group’s claim that it is about poverty reduction through investment in business, stimulating economies and creating jobs and asks the very real question – is this the economic development model that we, as UK tax payers, should be handing over our money to – a model that abuses labour rights, displaces hundreds of indigenous people from their land and engages in corrupt practices that enriches a few elites?

If you are as concerned as we are about the increase in the cap on the CDC Group within the dysfunctional relationship that currently exists between it and DFID, then get your MP to vote against the increase on the limit that DFID wants to give to the CDC Group.