What's the point of 0.7% aid target if it gets spent on malls and luxury hotels?

21 July 2015

The news that the Department for International Development (DfID) is ploughing an additional £735m into its private sector investment arm, the CDC group, should serve as a serious wake up call for the slumbering development sector.

For years now, criticism of the government's aid policy has been muted by fears that it could play into the hands of the anti-aid brigade and undermine the "greater good" of achieving the target of spending 0.7% of national income on overseas aid. When the government enshrined the 0.7% target in law earlier this year, it was met with a chorus of praise and celebration from the sector. The chief executive of Save the Children called it a "historic decision that will save millions of lives", while Oxfam's head of policy said he was "downright ecstatic" at the news.

But for quite a while now, more critical voices have been trying to shift the focus onto how this money is spent. Concerns have been raised at the amount of money going into private sector schemes that seem to favour the interests of corporate 'partners' more than those of the supposed beneficiaries.

For example, at Global Justice Now, we've long called on DfID to pull out of the New Alliance for Food Security and Nutrition, a project that seeks to help huge agribusiness corporations like Monsanto gain access to African food markets and undermine local small-scale farmers. The UK government is putting £600m into the scheme, which has been slammed by the independent aid watchdog ICAI as “little more than a means of promotion for the companies involved and a chance to increase their influence in policy debates”.

There are many other examples of projects like this but the CDC, the recipient of this week's bonanza, is by far the longest running and most expensive scandal in the history of UK aid. Established as the Colonial Development Corporation back in 1948, the idea of the CDC is to invest in 'pro-poor' private sector projects. The reality is often very different, with recent investments including a luxury housing and shopping complex in Kenya and five star hotels in Nigeria. Despite being categorised as aid spending, CDC managers were accused of being more interested in maximising returns than the development impact of the projects they were financing.

But while the CDC has been reformed a few times since the days of Empire, most recently by then development secretary Andrew Mitchell, who slammed the fund as having "lost its way", the CDC has an uncanny ability to revert to form every time.

Mitchell set out to improve the development impact of the fund by forcing the CDC to invest in poorer countries and move it away from the highly intermediated "fund of funds" model to engage in more hands on direct investments. It was hoped that this that would allow for more accountability and move the emphasis away from generating returns and towards maximising development impact.

While the CDC has invested more in low income countries since 2012, it is becoming clear that the reforms have failed to fully break the CDC's bad habits. Last year, the fund raked in a massive 14.2% profit on its investments that continue to include 31 companies active in the oil and gas sector. Far from abandoning the fund of funds model, it also put an extra £88.1m into funds managed by largely unaccountable third parties. Of the money that was invested directly last year, almost 40% was put into the financial sector through multinational banks like Standard Chartered.

Even where the CDC is investing in seemingly virtuous sectors like education, it is more often than not funding those who wish to privatise and profit from public services. For example, CDC has invested in a company called Bridge International Academies which is making big profits on the back of extracting school fees from people earning just $2 a day.

And despite all the talk of transparency, the CDC remains a big user of tax havens. At the end of 2013, three quarters of the CDC's fund investments were channelled through secrecy jurisdictions.

All of this should have prompted the government to think twice before pouring yet money into the CDC. Instead, Justine Greening has chosen to reward the fund with a jackpot of £735m.That is more than DfID spends on education, water and energy put together.

The unfortunate reality is that faced with the twin pressures coming from large development charities on the one side and the rabidly anti-aid Tory right on the other, the government's policy has been to try and placate both sides by sticking to the 0.7% but spending it in an ideologically-driven, private-sector led way. This would be fine if it actually worked, but unfortunately it hasn't. At best, it diverts resources away from the kind of aid that really works (for example investing in public services). At worst, it has led to outright corruption, as was the case when Nigerian politician James Ibori successfully embezzled large amounts invested by the CDC.

So we are left watching the spectacle of the UK government throwing billions of pounds at white elephant projects that tick all the right political boxes but fail to make the lives of people in the developing world any better.

The question all of this should raise for people working in the development sector is what was the point of hitting the 0.7% at all?

For decades, the development sector has been obsessed by the 0.7% target. Now we have not only met it, but have it enshrined into law, it is time to finally wake up to the fact that something has gone terribly wrong with the way the UK spends its aid budget.

Spending 0.7% on aid but wasting it all on corporate pork barrel projects or on companies that are profiting from poverty is like spending a pay rise entirely on jam doughnuts and burgers, you have spent more money but you have done yourself no good at all.



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