DfID Accused Of ‘Inviting Scandal’ With Plans To Quadruple Private Equity Aid Arm

DfID Accused Of ‘Inviting Scandal’ With Plans To Quadruple Private Equity Aid Arm

Date: 9 December 2016

Aid campaigners have accused DfID and the government of ‘inviting scandal’ by trying to divert billions of pounds more of UK aid money through its private equity arm despite repeated criticisms that it hasn’t been able to demonstrate its development impact. The accusations are made in a new briefing that has been submitted to members of the Bill Committee who are currently considering the government plans.

The CDC group is the controversial private equity arm of the British overseas aid programme. Wholly owned by DfID, CDC has been repeatedly criticised by various independent bodies for supporting projects with questionable development impacts for poor communities, such as luxury hotels, shopping malls and expensive fee-paying schools. 

The briefing argues that, “DfID is essentially asking parliament to pre-approve increased funding for its controversial investment arm before presenting a worked through strategy or plan for how this money will be spent and how taxpayers will be assured that it helps meet the official mission of this spending: ending global poverty. This raises serious concerns as this bill could clear the path to a massive diversion of public aid money towards private businesses – without sufficient transparency, accountability, or proof of impact. 
Nick Dearden, the director of campaign group Global Justice Now said: “Since 2008 there’s been a series of reports that raise critical questions about CDC’s fundamental approach to using UK aid money. CDC appears to be throwing money at luxury hotels and shopping malls in countries in Africa and Asia, with – unsurprisingly – no evidence to show that any of this wealth is trickling down to the poor and marginalised communities who should be benefitting.

“Taxpayers are proud of the fact that the UK has made a strong, legal commitment to aid spending, but they would be horrified to see that money being used to shore up luxury developments rather than supporting real needs like robust public health and education services in the global south.”

In November the government introduced a bill in parliament that would allow it to raise the amount of aid money being channelled through CDC from £1.5 billion to £6 billion – which is roughly half the current annual aid budget. The bill would also allow the limit to raise to £12 billion without the need for further primary regulation.

The new briefing ‘Inviting Scandal – DFID’s dangerous plans to expand its controversial equity arm’ lists some of the controversial investments including:

  • Private health centres in India
  • Expensive fee-paying schools in Kenya
  • An upmarket shopping mall and luxury apartments in Kenya
  • Palm oil plantations in the Democratic Republic of Congo mired in labour scandals.

The report also outlines a series of other problems with its investments in private equity funds, including:

  • Many funds are based in tax havens – 28 of CDC’s 38 new investments since 2012 are located in offshore jurisdictions.
  • The nature of these investments removes accountability for aid spending from the Secretary of State for International Development.
  • There is little understanding of development impacts on the part of these funds – at best development is assessed on the basis of vague calculations of jobs created.

MPs raised concerns about the bill during its second reading in the House of Commons on 29 November, and it has now progressed to committee stage. A date for its third reading has not yet been announced, but is expected in a matter of weeks.

The briefing recommends that the Commonwealth Development Corporation Bill is not passed. It also argues that “DfID’s relationship with CDC be opened to a fundamental review as we do not believe that CDC is currently performing a justifiable role in the eradication of global poverty.”