International Aid? – or Pollution for Profit

Mike Phipps looks into a new report from Global Justice Now into the shadowy activities of the government’s development bank

What is the international aid budget for – helping developing countries overcome poverty or subsidising UK businesses to make ecologically unfriendly profits? According to Doing More Harm Than Good, a new report from Global Justice Now (GJN), Boris Johnson’s government seems intent on the latter.

Despite a series of promises to improve over the last decade, the government’s little known development bank , CDC, continues to invest heavily in unaccountable private equity funds around the world, giving money to projects with dubious development impact to make a high rate of return. Already £6 billion of the UK aid budget is dispensed by CDC, and this will double in the next few years.

According to GJN, hundreds of millions of pounds of UK aid have been “invested in private school chains since 2016, £22.5 million invested in an upmarket private hospital which treats international patients, and repeated investments in Feronia Inc, a company that manages oil palm plantations in DR Congo and is facing an ongoing murder trial involving a staff member as well as allegations of significant health and safety failures.” The activities of Feronia have been subject to years of local popular protest.

But it is the money CDC is giving to fossil fuel projects that is the most shocking. Despite government claims to be aligning all aid spend with its commitments under the Paris Agreement, CDC has invested millions in polluting projects. These include $16.6 million in South African port operator Grindrod to facilitate the export of South African coal to China via Mozambique; $144 million in the coal-burning cement producer ARM Cement in 2016; and $39 million to build a power plant in Guinea, powered by heavily polluting heavy fuel oil.

The basis of these investments is not what is best for the world’s poorest, but what will ensure a high rate or profit for UK financial middlemen. Of the companies and private equity funds in which CDC owns more than 20%, two-thirds are based in tax havens. CDC is making nearly three times more profit on its investments than it is supposed to and in 2018 the average salary at CDC was £104,150 a year, with 48 employees earning more than the UK prime minister.

In 2019 the Independent Commission for Aid Impact gave the CDC an “amber/red” rating, finding that it had produced an “unsatisfactory achievement in most areas”. There is little evidence that CDC is making any impact on global poverty.

GJN calls for an entirely new set of priorities for CDC. It should strengthen universal public services and ensure equal access for all; support food sovereignty and put small-scale food producers and consumers at the centre of the global food system; and help developing countries manage a just transition to environmentally sustainable modes of development.

Three vital changes to the management of CDC are proposed: CDC should have an independent evaluation body which reports to Parliament. There should be a legally binding right-to-redress for communities who claim they have been negatively impacted by any investment. There should be no bonuses for directors or other staff based on the rate of return achieved.

Additionally, CDC should be allowed to invest in state-owned enterprises, mutual and co-ops. Above all, it should stop funding the private sector to deliver public services like health and education.

A Labour government would have put a stop to this scandal. Labour’s 2019 Manifesto called unequivocally for an end to all aid spending on fossil fuel production overseas. It specifically pledged to “undertake a root-and-branch reform of CDC, transforming it into a green development bank mandated to fight poverty, inequality and climate change.”

Labour’s loss has profound ramifications beyond the UK. The Tories will continue to use the aid budget – and CDC specifically – to the benefit of UK profit-making rather than the needs of the world’s most marginalised communities.