Campaign success: Mitchell to overhaul CDC

International Development Secretary Andrew Mitchell has announced an overhaul of the controversial CDC Group.

The announcement came in a statement to Parliament on Tuesday. Jubilee Debt Campaign and other campaign groups including War on Want have been calling for such a decision for some time.

JDC welcomes this decision and will continue to campaign to ensure that in the future, CDC Group really does help the fight against poverty, rather than simply generating huge profits.

What is the CDC Group?
The CDC Group is a private limited company owned by the Department for International Development (DfID), set up as the Colonial Development Corporation in 1948. At one time the Group supported innovative projects, often focussed on agricultural development.

Following a scandalous partial privatisation in 2004, however, in which part of CDC was sold off at well below market value to the very people who at that time controlled the Group, CDC has seemed far more interested in making money than fighting poverty.

The Development Secretary has recognised this, stating that CDC has become focused on “the greatest return for the least risk. This was not consistent with concentrating its efforts in the regions of greatest development need.”

Problems with CDC
The CDC currently works by using ‘fund managers’ across the world to invest money in businesses in developing countries. Too often, this means that CDC and DfID have little control over how the money is used.

This partly explains why CDC uses tax havens – thus depriving developing countries of taxes they desperately need for development. As of December 2008, CDC investments were being channelled through 72 subsidiaries, 40 of which were situated in tax havens. The use of tax havens also clouds CDC's operations in secrecy. 

The CDC model also confuses profitability with development. That’s why its investment in agriculture – the sector which the Group traditionally supported – has now fallen to only 5% of its portfolio. This is extraordinary at a time of global food crisis, when lack of investment in small scale agriculture has caused enormous suffering across the world.

Instead CDC invests 20% of its portfolio in the 'financial' industry and 14% in the 'consumer' sector - including a shopping mall in Ghana. Similarly, CDC invests two thirds of its funds in the rapidly emerging economies of Nigeria, South Africa, India and China.

While these countries certainly contain a significant percentage of the world’s poor, they also independently attract considerable foreign investment. Is CDC helping development here, or simply investing where there are profits to be made?

Moreover, CDC does almost nothing to analyse its impacts on poverty, as the Parliamentary Public Accounts Committee found in 2009, reporting “there is limited evidence of CDC’s effects on poverty reduction.” CDC seems to have a limited understanding of development, often simply equating profit-making with development.

All of this has led to the scandalous situation in which the head of CDC, Richard Laing, was paid almost £1million in 2007, while another executive paid £530 for a one night stay in Hong Kong.

The Daily Mail reports on CDC expenses in September

Radical reform is needed
We hope that the recently announced overhaul will put an end to the enormous problems with CDC – but this will only happen if the review is wide-ranging enough. We continue to urge Andrew Mitchell to ensure the following principles are incorporated into CDC’s activities:

• All companies it invests in must pay their taxes and not use tax havens
• Its investments must improve environmental and labour standards
• It must be guided by a strong set of anti-poverty standards, and conduct regular, public evaluations showing how it fights poverty
• Pay and incentives for staff must depend on its success fighting poverty, not its profits. No-one in this field should earn £1million a year!
• It must invest in under-invested areas of the economy like agriculture – not compete with private investments
• It must become more accountable to DfID, Parliament and the public

Andrew Mitchell’s statement suggests many of these problem areas will be reformed. More worryingly, he has suggested that CDC might again become involved in effectively lending to countries – something which will need to be strictly controlled given that some developing countries still owe money to CDC for projects completed many years ago.

We will continue to update you on developments in this campaign in the coming months.