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Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



Mr Colman

  20. I understand, talking to parliamentarians who were here for the Wilton Park Conference last week run by the CPA on anti-corruption, that legislation has now passed through the Kenyan National Assembly and has been signed by the Kenyan Government to actually deal with many of these reform issues. Does it mean there will in fact be a reassessment because this has been accepted by the World Bank and IMF in terms of the wish for DFID to re-invest back into Kenya?
  (Mr Lowcock) We are constantly assessing the situation in Kenya. On corruption the test that we and others have been seeking to apply is not so much the promises but the actions. The proof of this particular pudding is still in the eating so we have not taken or announced any decisions to increase our support to Kenya. Corruption was not the only issue actually which was a cause of disagreement, if you like, between Kenya and the donors; there were others as well.

  21. Could you explore other areas of good governance which was a problem in Kenya then, beyond that of corruption?
  (Mr Lowcock) Yes, there were a number of areas in the Government's arena which we were concerned about. In some areas the Government of Kenya has made some important reform progress which we welcome, for example they have taken a number of steps to try to have greater integrity in public procurement processes and to try to strengthen financial management systems (for some of which we have been providing technical assistance). But there were other measures, for example re-structuring of the telecommunications industry where the Government made very clear commitments and which were seen as symbolic of their broader commitment where there were still problems. One of the key issues for us also is the overall shape of public spending. We have been very keen to try and encourage the Government of Kenya to put more of its—admittedly tight—budget into primary education, primary health and so on. That in the budget last week was one of the things we were looking at very closely. We try and look at an overall picture but we are not yet at a stage where we think that there is justification for resuming budget support.

  22. You do not think the problem lies in the fact that only 15 per cent of the Kenyan budget is coming from overseas aid as opposed to 50 per cent in the case of Uganda?
  (Mr Lowcock) It is the case that Kenya is less reliant than some of its neighbours on aid. On the other hand they could have access to a lot more aid if the international community were convinced that they would spend it on getting kids in school and so on. Most Kenyan children do not complete primary school. If there was a policy framework which gave us confidence to put more money into that to address that—in addition to what we are doing—we would be very happy to do it.

  23. Clearly a lot of things we have been discussing come under the overall heading of good governance, financial audits, management audits and questions my colleagues have been placing. Is there any reason why, if you like, there was not an area within the annual report which addressed the issue of good governance and anti-corruption. Is this something you are thinking of addressing in terms of future annual reports?
  (Mr Manning) I think it is largely a question of space here. We can and do publish information on the various activities we undertake in relation to corruption. We have an interesting programme of development not least across Whitehall; we will certainly consider whether we should put something more explicit in the next report.

  24. You mentioned that one of the criteria that you have been investing in a country that my colleague Mr Walter was asking a question about, is whether a particular country or state is a reformer. Would you be able to define how you identify reformers? What are the definitions around what is a reformer?
  (Mr Manning) I think that is in a sense an impossible question. It is a continuum, is it not, between non-reformers, countries in conflict, to the other end of the spectrum, countries which have adopted full reform packages. Most countries lie somewhere in between. They do not happily sit in categories. You always have to end up reaching a balanced judgement as to where countries are. We do not, however, pull out of non-reforming countries completely; that is not the Government's policy. The Government's policy in non-reforming countries would certainly be to try and promote change and also to try to get services to the fore; if not through government channels through other channels. Zimbabwe is a very good example right now where we are still trying to get HIV/AIDS activities through NGO routes and feeding the population, obviously, as well, through NGO routes. We do not just walk away which I think is quite an important message in the non-reforming context. We also, obviously, try and get—the Secretary of State works very hard at this—countries to the starting line of reform by trying to tackle causes of conflict. She has spent so much of her time recently on the DRC, Sudan and Angola to try and get those countries—which have amazing prospects given their natural resources—to the starting line.

  25. When we visited Nigeria we were particularly asked to look at four states that DFID has chosen as reforming states. What were the sort of common, if you like, criteria used in terms of choosing those four states out of the 36 states in Nigeria?
  (Mr Manning) I am sure we conducted an assessment; we certainly did in India. Some of these states we had worked in before so we had a good basis; some, I think we added to our list. We did look carefully and we now have an office in Abuja, as you know, which gives us better eyes and ears on the ground. We did look to see whether there was, as we saw it, some commitment to improvement and some basis from which improvement could be made. But we will have to get back to you on any more detail on the background to that.[11]

  (Mr Chakrabarti) I think there is an interesting example from Russia on how we choose, if you like, locations which are reforming within an overall state which might not be reforming as fast as we like. In Russia we moved from quite a scattered programme under the Know How fund to focussing around two Oblasts, two provinces in effect. We ran a competitive process to try to find the most reformed states, if you like, and set some criteria to try to test their commitment to poverty reduction plus their policy intent. Two states emerged the winners. It is quite interesting because other states in Russia thought they were going to get this prize because they had previous associations with us; they did not. That has changed the rules of the game, I think. It is worth looking at for how we choose locations elsewhere, I think.

  26. I agree. Where do politics come into working with reformers? Where the only reformers are linked with opposition political groupings do you work around opposition politicians? Of course, there is the interesting situation in Kenya.
  (Mr Chakrabarti) I went to Kenya in November and for the first time in many visits to Kenya we were speaking openly with civil society opposition members and not being taped by anyone either. It was quite an interesting change in how Kenyan society has freed up in that sense. We were working with those groups around government issues.

  27. Do you work with opposition politicians?
  (Mr Lowcock) Generally people in our offices have very wide contact in the countries where they work. To come back to the example you are raising on the corruption issue in Kenya, Transparency International, the local branch, are doing a lot work. At the request of the Government of Kenya, the attorney general, we financed some work to put in place new legislative and institutional arrangements to design them. The work was primarily done by very able Kenyans whom the Government would certainly not view as their prime supporters. As Suma says, this is one of the ways in which Kenya has actually changed over the last ten years.

  28. Elsewhere? Other political groups? In other countries?
  (Mr Chakrabarti) As a general rule our offices are now talking to a wide spectrum of society and not just fixed round government.
  (Mr Manning) In terms of our activity, we are looking particularly at the institutions. A lot of work goes on with legislatures, with accountancy, audit professionals and so on to try and build systems which will be useful to any set of politicians who want to use them.

  29. So you see yourselves working with parliaments as well as with governments?
  (Mr Chakrabarti) Yes, we do. In Kenya it has been quite interesting, the whole issue of corruption legislation and so on where a lot of the discussion has been with government MP's and with opposition MP's with the parliamentary committees involved, and so on.

   Chairman: Hugh, you wanted to ask a question about something.

Hugh Bayley

  30. I was very interested in what you were saying, Suma, about the competition to identify reforming states in Russia. I would like very much if the Committee could have a note explaining how you set the criteria and how you ran the competition. You obviously do think it is a good programme; you said you may use it in other areas. A lesson has been learnt from it.
  (Mr Chakrabarti) I thought it was very innovative in the way we decided where to focus.

  31. I think it is good because it focuses the recipients' minds on why we are giving the money and what they have to deliver in return for the cash received.
  (Mr Chakrabarti) It was good that the federal government in Moscow was willing to go down this route. It will be an interesting test for us in India or China if we want to choose another province or state to work in; whether the federal governments there would be up for this or whether it would be a much more directed process. There could be quite a long dialogue on this.

  32. Could we have something on paper, please?[12]

  (Mr Chakrabarti) Yes, of course.

John Barrett

  33. Given that country strategy is right to focus on poverty reduction, already this morning we have heard examples in Nigeria about very wealthy people in a country not paying tax. Earlier on India. India are spending substantial sums on arms while we are sending out aid. Then corruption, the ministerial Mercedes being bought. What seems to happen is that as aid increases, the potential for corruption increases. Is there not a danger that the Department effectively looks through rose-tinted spectacles? There are, in some instances, tens of millions of pounds being salted away from developing countries into individual's bank accounts. We hear reports of people questioning the wisdom behind it. How does the Department use the limited resources they have in the form of muscle to force countries where there are concerns about money being salted, going into bank accounts and sometimes coming back over to this country? Are you able to follow that money, follow an audit trail, and make sure that the resources that are being used are delivering what they are there for?
  (Mr Chakrabarti) I think at a general level we are not interested in putting finance through government systems who have no commitment whatsoever to change and where corruption is rife and the ruling elite are not trying to change it. We need to see some commitment, some desire to move in the right direction. Nigeria is a very interesting example because here is President Obasanjo who firstly is very, very committed to change. He made a speech on 12 June to the Commonwealth Parliamentary Association talking about corruption very openly in Nigeria and what he has been trying to do. So he is worthy of support in our view because he has really made a commitment. The question is whether we can get the systems underneath him to ensure that corruption is caught and stopped. That is part of what we try to do in our dialogue with these countries, to try to make sure that our money—not just our money but also Nigerian's own money—does not get salted away. That is part of the policy dialogue we have with every major recipient. Would you like to say a word on the systems we implement?
  (Mr Lowcock) On the question of following resources that have left countries for banks in Europe or other developed countries, there have obviously been a few high profile cases in the press of success in attracting some of that money back—Nigeria being the obvious example—and the international legal framework for that has improved in recent years. Richard knows a lot more about that than I do. We do invest in strengthening institutions in developing countries which are charged with trying to tackle this problem. It is not just in Kenya where we are trying to build up the anti-corruption effort, but also in most of the other countries in Africa where we are providing budget support. That is a key part of our programme.
  (Mr Manning) Perhaps I should say that we have developed a very constructive relationship with the Home Office. You will be aware of the very high profile Abacha case, for example to make it easier for developing countries to find their way through the various legal routes they need to do if they wish to sue for recovery of assets held in the UK where there is evidence of malpractice. We have done road shows with the Home Office in Pakistan and elsewhere under that programme. I think it is constructive. But I think you also have to look more fundamentally at this issue. After all, why are people salting away money in Europe? They are doing so because the local opportunities for deploying capital productively are not very good. You have very weak markets; you have poor property rights and all the rest of it. The figures for capital transfer of Africa are horrific. A very important part of the agenda is to change the local enabling environment so that it is worth the while of Nigerians and others to keep their savings in the country and have remunerative ways of deploying that. So there is a big agenda that the World Bank tends to lead on in financial market reform within developing countries. Of course, avoiding over-valued exchange rates and other incentives that necessarily mean you want to get your money out of the country are a very important part of that. You have to work on both ends.

Mr Robathan

  34. In response to Mr Manning, if I might say so, I do not think the issue is about the investment opportunities in, for instance Nigeria, although that it is important. The issue is: whence cometh the money? With something like $18 billion a year oil revenue and over two thirds of the population living on less than a dollar a day, that is the issue. Not where you invest the money, if I might say so. Could I go back, Mr Chakrabarti, to your point about President Obasanjo who quite rightly is saying the right things because the Select Committee visited Nigeria earlier this year, not three months ago? I, in particular—but I think everyone else as well—was quite frankly appalled by the level of corruption. We did interview the anti-corruption commission, whatever it is called. Whilst I think their intentions were good, when they came out with the fact that seven cases of which two were border policemen who had allowed an American into the country without a visa for a bribe, I think we were slightly disturbed because of course the words are right but as Mr Lowcock said earlier it is actions that are important. It is difficult when you have a country where most people have dirty hands, if I can put it that way. Progress is painfully slow and at the same time as that is happening money is continuing to be salted away.
  (Mr Chakrabarti) I think that beyond the seven cases which I agree do not sound like a huge number, there are things that the Nigerians are doing which are worth commenting favourably on. They have introduced anti-corruption legislation which has been difficult elsewhere to get through. They have a commission which looks at reform in this area as well. We are working with the financial systems reform which is going to be the key, I think, to try and track down some of this money that has gone and to try to stop it happening in the future. I think the picture is a bit more mixed than just saying that Nigeria is still operating as it was five or ten years ago. I think the President has made an effort. It will probably not be enough. I think we would agree with that. We need to push harder.

Tony Worthington

  35. At the beginning of the session the chairman praised DFID and I would go along with that, but I think we should also recognise that when DFID is being praised it is probably NGOs that have been delivering the goods in the country and that the NGOs are being praised. The reason I am asking that is in all our talk about budget support one of the qualities of this country is that I think it has a range and depth of NGOs that is unparalleled anywhere. They basically—not always but basically—deliver. Do you not have any apprehensions that in the move towards budget support what you are going to be doing is weakening the NGOs which are delivering?
  (Mr Chakrabarti) I do not have that apprehension because as Richard said earlier programmatic support—whether it is budget support, balance of payment support—has been a feature of DFID's and ODA's life for many, many years, during which time the NGOs have gone from strength to strength. I agree with that observation. This has already been tested, if you like, over the last 20/30 years and has not led to any shifting away from appreciation of NGOs and what they do. I think NGOs have also increasingly become very effective in policy dialogue. They have actually joined this whole process of—not of the budget support so much—the shift towards discussing Poverty Reduction Strategy papers, the discussion around the education initiative that the World Bank is pushing (as Richard outlined earlier). Oxfam has had a very good report recently on trade. The NGOs have moved upstream too in terms of policy work in the same way as we have. I think this has been to the good.
  (Mr Lowcock) Could I add a couple of points there? Firstly, were we reducing our support to the NGOs I think your point would have a lot more force. In fact, our support for the NGOs is very substantial (£200 million or so) and has increased in recent years. Secondly, the objectives we are trying to achieve through budget support are not ones that the NGOs would claim that they can achieve through their structures, I think. For example, in Uganda one of the key successes of budget support is to get virtually every child in primary school through the Government system. Every country wants to have public systems which enable every child to be educated. No-one would make a proposition that you can sensibly try to achieve that through thousands and thousands of NGO programmes. This is a core function of the state. There is complementarity between the support we attach a lot of importance to and are very proud of for NGOs, and what we are doing in other ways through the work of the Department.
  (Mr Manning) I think you can add to that we perhaps see an increasing role for NGOs, if you like, in the raising of people's ability to argue for their own rights with governments as opposed to service delivery. I think there is quite a debate in the NGO community about where you position yourself in that spectrum.

  36. When the Permanent Secretary said that we had been doing this for a long time and it has not affected the NGOs, in fact the figures are that really the amount of budget support which has been achieved is pretty small and is only now coming through. The image I have is of you putting money directly into government departments. You are not saying that that should be done by Oxfam, that should be done by Marie Stopes, you are not saying those things. You are saying to the Government department that you agree with their goals and it is over to them how it is done, but you will keep an eye on it. Is that right?
  (Mr Chakrabarti) I think in broad terms that is a new political economy, if you like, that we are moving to. You are saying that we are getting much more supportive of our national government's policies and programmes because that is what ownership is about. Yes, we would where those governments are reforming and have a Poverty Reduction Strategy that is worth the paper that it is written on and it has been through a civil society discussion process and therefore emerged stronger for that. Yes, we would like to put more finance through budget support in those situations, provided the fiduciary risks are protected.

  37. One of the assets of the NGOs is that they are linked to the British people and the link with the British people is particularly in terms of "Here is what NGO X is doing here. Will you help to support this work?" I appreciate why you are doing it, but are you convinced that really you are taking the NGOs with you in terms of ensuring that what is a quality British product will be able to continue to the benefit of that country rather than what seems to be a danger that a DFID office of the future will be full of accountants rather than project managers or people with skills in education and so on. Do you not see the point that is there?
  (Mr Chakrabarti) I can see where you are coming from. I am just saying that I do not think that is where we are going to arrive at because in order to have a policy dialogue with any country, even if we are providing budget support, you do need people with knowledge of education and health and other things; you cannot just have knowledge around the accountancy system. It is not just accountants we want, we want the sectoral skills we have, I think. In terms of the NGOs, I have come back to DFID after six years away and the major NGOs have all told me they are very supportive of this shift towards Poverty Reduction Strategy papers, towards direct budget support. They are also even more supportive to the shift of taking development in the round, if you like, looking at trade, conflict, issues that the old ODA could not do; were not tooled up, we did not have the responsibility to do that. They have been very supportive of all that, that shift. Moreover, as I said earlier, they themselves have been looking at those issues in a way they never used to before. On the finance I think we are actually providing a very large sum of money to the NGOs directly, if I am right. We have these agreements with some of the leading NGOs which are state-of-the art in terms of the sort of relationship we should be having with them.

  38. I can see that in the case of the major NGOs—the Oxfams, the Christian Aids and so on—but I notice you said the major NGOs. Do you not think there is a danger that the smaller more specialist organisations get lost in this?
  (Mr Chakrabarti) It is worth mentioning, as you know I am sure, that we still maintain a Civil Society Challenge Fund which is precisely about smallish projects for NGOs who do not have these partnership agreements that we are signing with the majors. We are keeping a window open which is easy to use and we try to limit the hassle and transaction costs. I think the other point which is important is what happens within the country. We do not see the budget support operation as meaning that we have a blind approach to development. We know the private sector is important. We know civil society is important. It is not the case that our offices are not going to have any contacts or activities in these areas outside government. What we are saying is that in terms of financial transfers to government if the necessary criteria are met, providing aid through the budget is a way of developing their systems rather than imposing the systems that come from a project approach. Hence the virtue of working in this way. It is not a substitute for working with civil society, working with politicians, working with the private sector.

  39. From which countries have you withdrawn budget support?
  (Mr Chakrabarti) I think there is Kenya, which we talked about earlier. Uganda for a time. Tanzania and Malawi. Those are the four which come to mind.

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