The blurred lines of UK international development

The blurred lines of UK international development

The Commonwealth Development Corporation arm of the UK government aims to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”, but critics say its shortcomings reveal a deeply flawed model of development aid.

(Gavin Houtheusen/Département du développement international)

The UK government is making moves to increase the share of its development funding for the private sector. Plans for an eight-fold increase in the funding cap for its development finance institution are currently being waved through parliament. This may seem like quite a technical detail but, make no mistake, therein lies the devil.

The Commonwealth Development Corporation (CDC, formerly the Colonial Development Corporation) aims to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”. It does so by using development aid to free up other, generally private investment, by using techniques common to the world of finance.

The CDC’s track record is interesting, to say the least. It has invested development funding into luxury hotels, gated communities, shopping malls, expensive fee-paying schools, private hospitals, restaurant chains and advertising companies. While it is a public company, 100 per cent owned by the Department for International Development (DfID), the CDC is expected to make a profit.

Between 2004 and 2007, it made annual returns on investment as high as 40 per cent. Amongst other dubious expenses, this money was used to pay the astronomical salaries of its executives (over £1 million in the case of the former chief executive).

If using public money to extract wealth from developing countries in this way and at this rate seems suspect to you, your moral compass is working. Beyond morality, there is next to no practical proof of the effectiveness of these investments in contributing to their stated aim: alleviating poverty in the world’s poorest countries.

We are told the CDC is a reformed beast that is no longer prone to past excesses. After being caught in compromising positions a few too many times (some examples of which are summarised here), reforms took place in 2010.

Refocusing investments on countries that have the most poverty, executive pay cuts and a focus on job creation were amongst these reforms. However these reforms have not changed the general culture of the organisation. For instance, 35 CDC employees still make more than the UK’s Prime Minister. Make no mistake though: these people are amongst Britain’s best and brightest, fighting poverty in ways we can only attempt to understand…or so they would want us to believe.


Job creation

The main way in which the CDC claims to benefit developing countries is through job creation. It says it has contributed to the creation of over a million new jobs in the past year alone. That is an impressive figure. However, as a recent briefing by Global Justice Now highlights, it is grossly misleading. Indirect jobs, calculated based on estimates of the possible knock on effects of investments, account for 97 per cent of that figure.

A recent study by the Trade Union Development Cooperation Network (TUDCN) warns of an over-reliance on self-reporting. Indeed, employment figures are provided by the CDC’s investment partners, including their fund managers, and have not been independently audited or even verified by the CDC itself.

When it comes to the quality of the jobs created, even the manufacturing of homemade figures is abandoned. Not a single provision is made for the monitoring of the quality of these new jobs. In order to raise the profile of employment issues, best practice should include workers’ representatives on the board of directors of development finance institutions, such as the CDC.

Needless to say, the CDC’s efforts fall well below best practice. Neither in the host countries, nor in the UK are workers’ organisations consulted at any point in the process. In fact, evidence suggests that the ability of workers to organise into unions, collectively bargain or even raise a complaint is at times undermined. There is a blatant contradiction between the use of employment creation as the primary tool for attempting to alleviate poverty and the CDC’s contempt for workers’ rights.


Further shortcomings

The TUDCN study, entitled The Development Effectiveness of Supporting the Private Sector with ODA Funds, highlights further shortcomings of the CDC in other key areas. Further to a lack of consultation with workers, the governments of developing countries are also kept out of the loop on decision making and do not have a say. In addition, it is widely recognised that tax havens have a negative impact on developing countries. It is astounding then that the CDC legitimises them by channelling 75 per cent of its investments through jurisdictions that are amongst the 20 most secretive including the Cayman Islands, Guernsey and Luxembourg.

The organisation’s poor transparency record is compounded by its poor reporting standards and the cost of access to project evaluations is flagged as a major deterrent to stakeholders in developing countries. The study also revealed that the CDC does not perform on-site evaluations when investing through funds. Furthermore, the CDC has failed to set up independent complaint mechanisms for those it claims to be helping.

These shortcomings reveal a deeply flawed model of development aid. Profit-driven investments have little incentive to invest in contexts of crushing poverty, even when shored up by public money.

Where investments are possible, the structure of private equity tools favour shortcuts that result in questionable development results and often promote inequality. Using scarce development funds for this purpose denies a wealth of tried and tested methods that have been shown to be much more impactful on the lives of people in developing countries.

This change may come as no surprise to those that know of Priti Patel, the UK’s Secretary of State for International Development. Controversially named by the Theresa May government, Patel had previously called for the scrapping of DfID, of which she now finds herself in charge. Upon her appointment, she vowed to use UK aid to promote its national interests. The UK faces uncertainty over the future of its access to European markets.

In a haste to unlock new markets, it has been announced that renewed attention will be given to old relationships with countries in the Commonwealth. Colonial history tells us there has only ever been one winner in this relationship.

However, we do not need to look that far back, this recent report shows that developing countries remain net creditors to the developed world to this day. While the UK has laudably declared that it will continue to dedicate of O.7 per cent of its GDP to development assistance, this effort may become meaningless without a true commitment to an effective use of these funds.

Unfortunately, this development is not an isolated one. It occurs in the context of additional prominence being given to the role of the private sector in development internationally. In line with the trade liberalisation mantra, countries are encouraged to pick private sector champions and promote their interests at home and abroad. Stripped of the ability to build any such champions on internal markets, developing countries are destined to remain confined to the lower echelons of value chains.

Tax avoidance and austerity measures mean that cash-strapped governments are looking to the private sector to invest in the development effort. The power imbalance that sees the revenues of multinational enterprises dwarf the GDP of developing countries, bears witness to an instrumentalisation of public policy-making by private interests – the exact opposite of what should be happening. Under these conditions, the blurring of lines between public and private interests will only worsen the social, economic or environmental problems we face.