Thursday, December 08, 2016

Foreign Aid and Profiteering

The Commonwealth Development Corporation (originally the Colonial Development Corporation) seeks the cap on government funds to its private equity arm, CDC Group, to be increased from £1.5 billion to £6 billion with the possibility of increasing the cap to £12 billion in the future. The Department of International Development (DFID) 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.

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. The CDC appears to be chasing a return on investments and wealth creation through high risk investments. Its investment in poverty reduction projects in Africa and Asia has reduced significantly. 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%.

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 investment portfolio shows an increase in investment in infrastructure and financial institutions.  The support for financial institutions and private medical care raises further concerns to the role of CDC Group in the international development aid arena.

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.

War on Want explained, “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…” The CDC was involved in Feronia, a business venture in the Democratic Republic of the Congo, bankrolling a shady palm oil company embroiled in allegations of a land grab from indigenous tribes; labour abuses and corruption.  

Any charity that has applied for DFID funding know the painfully rigorous, hoop jumping processes they 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, time-frame, outline of value for money, impact monitoring, evaluation criteria, number of direct and indirect beneficiaries?

 This the UK’s economic development aid model – abuse of labour rights, displacement of indigenous people from their land, corrupt practices and the enrichment of a few elites.

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