Inviting Scandal – DfID’s dangerous plans to expand its controversial private equity arm
Type: Campaign briefings
Date: 9 December 2016
Campaigns: Aid
Our new briefing reviews recent CDC investments and shows how serious questions remain about its impact on poverty reduction. It shows that there is still little evidence to support its current development impact claims which are largely based on assumptions – rather than proof. It argues that dramatically increasing its size and influence is a premature and potentially dangerous move.
Introduction
The CDC Group is a company owned by the Department for International Development (DfID). Its purpose is to fight poverty by investing, often via private equity funds, in private businesses in developing world economies. A bill currently making its way through parliament aims to increase the amount of aid money which DfID can give to CDC Group, up to a limit of half of the current annual aid budget – perhaps even more.
Global Justice Now opposes this bill. We believe that CDC Group’s controversial history makes it an inappropriate body to be receiving aid money. Despite a full review of CDC’s activities launched in 2010, we are concerned that CDC fundamentally confuses profit-making and development. This leads CDC to invest in, for example:
- Private healthcare in India
- Private education across Africa
- An upmarket shopping mall and luxury apartments in Kenya
- Palm oil plantations in Democratic Republic of Congo, failing to provide decent wages and services to workers
Perhaps unsurprisingly many of these projects are profitable for CDC. But their development rationale is exceptionally weak, premised on an outdated belief in ‘trickle down’ economics.
In spite of reforms since 2012, CDC’s investments in private equity funds remain a major part of CDC’s operations, amounting to £238 million new commitments in 2015. These funds are particularly problematic because
- Many funds are based in tax havens – 28 of CDC’s 38 new investments in funds since 2012 are located in Mauritius, the Cayman Islands, Guernsey, and Luxembourg
- The nature of these investments undermines the accountability of the Secretary of State for aid spending
- There is likely to be even less understanding of ‘development’ on the part of these funds than CDC itself – at best development is assessed on the basis of vague calculations of job creation
We believe that no additional funding should be given by DfID to CDC, and in fact DfID’s entire relationship with CDC should be fundamentally reconsidered. Although a case can be made for supporting local business as one part of a much broader aid strategy, CDC fails fundamentally to fill that role.
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