The bleak future of British foreign aid
Boris Johnson may have held back for now from merging Britain’s Department for International Development (DfID) into the Foreign Office, but that could prove a shallow victory for campaigners if aid money continues to be used to bolster Britain’s financial and foreign policy interests – a trend already well underway as funds are handed over to City of London corporations and used to cement trade deals with developing countries.
In particular, there’s a little known institution which could give us a glimpse into what Johnson’s international development policy might look like. CDC Group is a company wholly owned by DfID which ploughs aid funds into private schools, private hospitals and fossil fuel related industry across Africa and South Asia. Formerly known as the Colonial (then Commonwealth) Development Corporation, CDC Group exist to stimulate the private sector in developing countries.
A decade ago, CDC was an institution that seemed to be immersed in scandal year after year. It attracted sustained criticism that its investments were more focused on securing high financial returns than dealing with poverty, were opaque, made extensive use of tax havens, and that its executive salaries were astronomically high for an organization with a development mandate.
CDC oversaw a portfolio of dubious investments ranging from luxury hotels and shopping centres to gated communities and elite hospitals. It appeared to work on an outdated notion of trickle-down economics – as long as profits were made, wealth would ultimately reach the poorest.
In 2011, then Secretary of State for International Development Andrew Mitchell set out a new vision. His reforms were supposed to make CDC more ‘socially and environmentally responsible’, with fewer investments in ‘harmful tax regimes’ and greater transparency.
At the time, CDC channelled virtually all of its money through third party investment funds, which made investment decisions seemingly divorced from any understanding of how to eliminate poverty. Mitchell promised to ditch the model, cutting out the middle people and instead investing directly in private sector projects in developing countries.
Mitchell’s reforms were largely successful in assuaging the criticism that CDC was facing. But it became clear that the government’s reform had not been purely about improving CDC’s reputation, but a much broader reorientation of British aid.
Mitchell and his successors saw in CDC the future of British aid; in their view, the extension of markets and private sector investment to every corner of the world was the best way of tackling poverty. CDC was the vanguard of aid spending and development thinking. As such, in 2016, the government rushed a bill through parliament to radically increase the amount of aid it could spend through CDC from £1.5 billion to £6 billion.
What were the result of these reforms, nearly nine years on? The answer, sadly, is that the new look CDC is far too similar to the scandal-riven institution of a decade ago.
While it does indeed invest more money directly, CDC still makes as much use of private equity funds (around £2billion) as it did before. Its direct investments, while potentially more accountable, are often just as inappropriate as the private equity fund investments, focusing too often on the private sector provision of what should be public services, on finance and far too often on fossil fuel-related projects.
CDC continues to make high returns on its investments, averaging 9.2 per cent since the reforms were initiated. Two-thirds of the companies and funds on which CDC owns more than 20 per cent, are based in tax havens. And 48 employees continue to earn more than the Prime Minister. There is far too little transparency around much of its work, and CDC still appears to judge its success in terms of jobs created – without emphasis on the type of jobs, or indeed whether its investment actually made any difference to those jobs being created.
The real proof of the pudding is in the types of projects CDC invests in. Sadly, there are still far too many ‘trickle down’ enterprises on its books, including an upmarket cosmetic surgery clinic in India where nose surgery would set you back around £1,000 as well as a series of elite ‘world class’ schools. But beyond these clearly problematic projects a ‘market knows best’ logic continues to dominate CDC’s thinking.
Setting up low cost schools in Kenya and Uganda might sound like a good solution for ‘filling the gap’ short-term in education provision. But the problem is that those private schools will not vanish in 10 years’ time, rather they will compete with the public sector, skim off the brightest or better off pupils and remove incentives for a decent, comprehensive, universally accessible education system.
It gets even worse when you realize that that the chain of schools CDC has supported have been dogged by claims of exclusion of disadvantaged children; violation of health and safety and labour conditions; and a severe lack of transparency and accountability. The situation became so serious that authorities in Kenya and Uganda actually tried to stop the schools operating.
In healthcare, CDC supported the Abraaj Growth Markets Health Fund, which invests in private healthcare around the world. Although these investments are supposedly intended to build new hospitals, it appears that Abraaj mostly funded existing private hospitals which can’t cater to the poorest.
Again, it gets worse. In June 2019, the Financial Times reported that the Abraaj CEO Arif Naqvi had allegedly ‘personally misappropriated’ more than $250 million. Naqvi was arrested in the UK in April 2019 and was placed under house arrest pending potential extradition to the US. He has also been sentenced in absentia to three years’ imprisonment in a separate fraud case in the United Arab Emirates.
Then there’s the palm oil concession in Democratic Republic of Congo, run by a company called Feronia. This land, originally part of Belgian King Leopold’s colonial territory, remains hotly contested by local communities, and protestors claim to have been met with violence by Feronia security personnel. Most seriously, last year a member of Feronia’s security personnel was accused of murdering a critic of the company’s activities. Despite this CDC continues to regularly pump money into the company to save it from collapse.
Finally, there’s CDC’s investments in fossil fuels, including recent investments in a company which operates coal-burning cement factories in East Africa, a company which owns a petroleum pipeline in Cameroon, and a company which owns a heavy fuel oil-burning power plant in Benin.
This litany of problematic projects goes beyond a few ‘bad apples’, and forces us to look at the structure of CDC. Its model of mobilizing private sector investment, particularly in countries where corporate regulation and taxation systems are weak or underdeveloped, makes a just and equitable outcome very uncertain to say the least.
A green development bank, properly accountable and able to support the public sector as well as help create a well-regulated and taxed private sector, could play a role in development. That’s the argument we make in a Global Justice Now report released this week, where we propose what such an institution could look like. But it’s a long way from where we currently are.
Sadly, things are going to get worse before they get better. Mitchell’s vision of CDC as the vanguard of UK aid is getting ever closer. Now, funds from DfID itself increasingly reflect the problems at CDC: aid spending poured into gigantic corporations, used as leverage to ‘help’ middle income countries sign post-Brexit trade deals with us, and used to cement the City of London as ‘financier’ to the developing world.
The route out of this is for us to fundamentally rethink what we mean by ‘development’. Whereas now the word has become nearly synonymous with getting capitalism to work in developing countries, it was originally far more associated with overthrowing imperial and corporate dependencies that kept poor countries poor. Aid was, at its best, seen as one means of achieving that.
Reclaiming a progressive notion of development in an era of globalization means going back to first principles, including looking at how countries can escape the dictates of international markets and transnational corporations to map out their own, democratically mandated, path to genuine independence.
For us, this should include scrapping notions of ‘aid’ which smacks of a ‘white saviour’ form of charity, and re-examining the way that poverty was radically reduced here (taxation, public services, economic planning, democratic accountability).
The Conservatives have come up with their own vision for ‘development’, and worked out how aid could contribute towards that vision. If internationalists wish to counter this, to reinvent development as a form of social justice, we can’t simply tamper round the edges – we need our own vision, based on the struggles of activists across Africa, Asia and Latin America – and a strategy for how we get there. CDC would require very radical changes to play a useful role in that strategy.
The future of British development funds is one of the topics at Together We Are Powerful: Reclaiming our world from corporate control, on Saturday 28 March in London.