CDC: Fighting Poverty or Supporting Finance?
‘Aid’ or ‘development assistance’ from rich to poorer counties isn’t a simple matter. For a start it isn’t all about ‘gifts’ – a good proportion of aid consists of loans.
Then there’s the matter of how it reaches where it’s going – some goes directly to a developing government from our own government. But much goes through NGOs (‘charities’), international funds or institutions like the World Bank, or through private companies or banks.
What matters most is that the assistance is used ‘by the people and for the people’ of the country concerned. International assistance shouldn’t serve the interests of the country giving the assistance, but of the country and the people receiving the assistance. Many campaigners argue that this is a basic obligation that falls on rich countries who only got rich by exploiting the wealth of those who are now poor.
Today many rich countries have development banks that provide long-term finance to private business in poor countries – so-called Development Finance Institutions (DFIs).
The UK’s DFI is known as the ‘CDC Group’ (formerly the Commonwealth Development Corporation), which is a private limited company owned by the Department for International Development (DfID).
The CDC essentially aims to combat poverty by supporting private business, which it believes will then go on to power economic growth. It does this by investing in private equity funds based in developing countries, which in turn use this money to invest in private business in those countries.
The CDC is proud of the fact that between 2004 and 2008, nearly three-quarters of CDC’s new investments were made in poorer developing countries, with 64% in sub-Saharan Africa and South Asia. This is considerably higher than other DFIs, and more than the German, Dutch and French DFIs combined.
But this is not the end of the story. CDC’s method of poverty alleviation is controversial. Because the CDC employs a private sector mentality, and is proud that its investments make profit, critics have claimed that it ends up supporting not high risk, low return investments, but the very investments that the private sector would make in any case.
Indeed, there is a real possibility that CDC is merely using public money to pursue enormous profits. Chief Executive Richard Laing was taken to task by MPs last year for earning nearly £1 million in 2007 – most of it ‘performance related’. Staff have a very direct interest in ensuring projects make profit.
But profitability is a poor way to judge development. And when these projects are at ‘arms length’ in any case – mediated by fund managers with little or no knowledge of development – it quickly becomes impossible to assess the development implications of a project. These types of projects are, by their nature, opaque.
This is even more of a concern when projects take place in countries which have not developed means of regulating or supervising the activities of private companies. This is the starting point for our concern about CDC, and why we want to examine the organisation more in future.
The Parliamentary Public Accounts Committee said in 2009 that “there is limited evidence of CDC’s effects on poverty reduction.” They also criticised the lack of accountability the CDC has to the Department for International Development.
Little wonder then that some of the evidence that does emerge from the CDC’s portfolio is deeply worrying.
There are multiple examples of CDC investing in projects that avoid paying taxes, for instance, even though tax avoidance is one of the key ways that developing countries lose vast sums of money every year. As of December 2008, CDC investments were being channelled through 72 subsidiaries, 40 of which were situated in tax havens. Tax havens are territories that support laws that allow companies and individuals to operate opaquely and avoid paying tax.
Then there’s Globeleq – a company which CDC set up and continues to be heavily invested in. Globeleq is an international company which has, according to War on Want, poured aid money into the pockets of multinational power companies to take over power supply in developing countries.
In countries like Bangladesh and Egypt, state-run electricity distributors have ended up paying far over the odds for electricity from Globeleq because they have been forced to pay in foreign currency. Richard Brooks has also reported in Private Eye of a privatisation project in Uganda, which led to the impoverished Ugandans paying the second highest electricity tariffs in the world after Sweden.
These examples demonstrate some of the problems with the CDC’s model of ‘development’. Unfortunately, CDC is not a well known organisation in the UK. We think this needs to change.
Development money should be used to help empower developing countries and their people, whose rights have been trampled on for far too long. Too often, it is instead used to make those countries and people even more dependent on international markets and Western governments. The rules that govern development investment need to be radically changed. At the heart of these rules must be strong accountability to the people and countries development money is supposedly serving.