House of Commons - DFID's Performance in 2008-09 and the 2009 White Paper

DFID's Performance in 2008-09 and the 2009 White Paper - International Development Committee Contents

2 Efficient use of DFID resources

Measuring effectiveness

5. DFID's Departmental Strategic Objective (DSO) 6 is to Deliver high quality and effective bilateral development assistance. This is assessed in both its 2009 Annual Report and 2009 Autumn Performance Report as "green'" on the traffic-light assessment system, indicating "strong progress". In our report last year, we emphasised that, as part of the process of evaluating effectiveness, DFID must ensure that lessons on what works and what does not are learned and that programmes and spending are modified accordingly to ensure cost-effectiveness.[5] Progress in this area is discussed below, together with other aspects of effectiveness.

THE PARIS DECLARATION

6. The Paris Declaration is seen as an important measure of aid effectiveness.[6] It is an international agreement, facilitated by the Organisation for Economic Cooperation and Development (OECD), which was signed by over 100 Ministers and Heads of Agencies in 2005. It commits signatories to achieve better development outcomes from aid, based on five principles:

Ownership: partner countries exercise effective leadership over their development policies and strategies, and coordinate development actions;
Alignment: donors base their overall support on partner countries' national development strategies, institutions and procedures;
Harmonisation: donors' actions are more harmonised, transparent and collectively effective;
Managing for results: managing resources and improving decision-making for results;
Mutual accountability: donors and partners are accountable for development results.

We explored the extent to which donors co-ordinate their aid delivery effectively in support of the Paris principles in our 2008 Report on Working Together to Make Aid More Effective.[7]

7. DFID's Annual Report states that it is on target to meet the Paris Declaration targets on aid effectiveness (although many other donor countries and multilaterals are not). Results from the 2008 Paris Monitoring Survey show that seven of the 10 targets that apply to donors have been met by DFID, while the remaining three are "on track".[8] In response to our written questions on the Annual Report, DFID stated:

Our recently published action plan "Beyond Accra: What action should DFID take to meet our Paris and Accra commitments on aid effectiveness by 2010?" identified three priorities for action to ensure DFID meets all the targets. These are improving the predictability of DFID aid; improving transparency of aid, including getting more aid on budget; and increased use of mutual accountability mechanisms at country level.[9]

However, the UK Aid Network questioned the timeliness of data for reporting DFID's progress against DSO 6 and the Paris targets:

[…] given that the results of the 2008 Paris survey covers DFID performance up to March 2008 and the Annual Report did not present much more additional data than the Paris survey, there is limited data presented on DFID performance on many areas of aid effectiveness (eg use of programs, aid on budget, use of country systems, joint work with donors etc; with predictability the major exception) for the last year. This includes a lack of reporting on DFID's performance in meeting commitments made in the Accra Agenda for Action in 2008. It is clear that DFID's own internal performance reporting on aid effectiveness needs to be supplemented in the future.[10]

8. DFID's Autumn Performance Report stated that, as the next Paris Declaration Survey will not report until the third quarter of 2011, DFID is planning to produce its own aid effectiveness reports for its programmes in "early 2010".[11] It is important that DFID's aid effectiveness reports, due to be published shortly, include suitable quantitative data to ensure that the Department is able to monitor and report on its own progress against the effectiveness indicators associated with its departmental objectives in advance of the final Paris Declaration Survey in 2011.

9. Witnesses also expressed concern that the White Paper contained insufficient detail on what would happen on aid effectiveness post-2010. BOND told us:

[…] with the Paris Declaration reaching its target year and expiring in 2010 and signatories way behind in delivering on their promises around ownership, harmonisation and other areas, it was hoped that the White Paper would focus more on how the Paris targets are to be achieved and the principles that should be at the heart of a post-2010 agenda.[12]

The Permanent Secretary's view was that there would have to be "an assessment of performance in 2010" and that "the international system will have to come together and agree on what to do next. At the moment, there has been no agreement yet as to what targets will prevail after 2010".[13]

10. The Paris Declaration targets are due to be met this year. We are concerned that nothing has yet been agreed between donors on future targets for aid effectiveness. We therefore urge DFID to be at the forefront of efforts to create a new internationally recognised set of targets to ensure that the effectiveness of aid disbursals by all donor countries and multilateral bodies continues to be monitored.

ACCOUNTABILITY

11. The White Paper made new commitments on transparency, scrutiny and accountability, including an undertaking to provide a sum equivalent to 5% of budget support for building accountability of aid disbursals.[14] In oral evidence, the Permanent Secretary said that this commitment resulted from a multi-donor evaluation of budget support which had found that, "in some ways, by doing budget support, we had become too close to governments, that we […] had lost contact with the need to hold governments firmly to account".[15] She also provided additional details on how the 5% allocation would be spent, including to strengthen parliaments, civil society and the media, and other accountability institutions such as national audit offices.[16] The UK Aid Network welcomed the 5% commitment but emphasised that it "must be delivered strategically […] following in-depth analysis of the gaps in accountability in individual countries—especially through engagement with civil society—and by coordinating with other donors.[17]

12. We welcome DFID's new commitment to allocate a sum equivalent to 5% of budget support towards strengthening accountability mechanisms for aid expenditure within developing countries. We have consistently argued for increased resources for institutions of accountability in developing countries, particularly parliaments, but also civil society and the media. We recommend that, in response to this Report, DFID provide us with further information on how this funding will be allocated.

EVALUATION AND IMPLEMENTING LESSONS LEARNED

13. We have often stressed that we are interested in "what works" in development assistance. In last year's inquiry into DFID's Annual Report, we held an evidence session with the Independent Advisory Committee on Development Impact (IACDI) to learn more about how this new body was assisting DFID to improve the evaluation of its work, draw lessons from the evaluations, and then implement them. Our Report said that: "At a time when DFID's budget is increasing, it is important that spending decisions are taken on the basis of evidence of what works, so that money is used cost-effectively".[18]

14. In his latest annual letter to the Secretary of State, the chair of IACDI, David Peretz, welcomed DFID's new Evaluation Policy published in June 2009 but noted some remaining concerns surrounding the management and resources of DFID's Evaluation Department. The letter went on to note that "Action on [the] two outstanding issues and implementation of the other proposals made last year as well as the recommendations of our quality review should lead to a major improvement in the quality and effectiveness of DFID's evaluation work and its use in improving DFID's development impact".[19]

15. We explored during oral evidence with the Permanent Secretary the extent to which DFID is capable of measuring the specific impacts of its country programmes.[20] Individual DFID programmes are internally assessed each year on a one to five scale (one indicating it is meeting all of its objectives and five none of its objectives). We were told that DFID has recently taken a "quite aggressive" stance towards poorly performing programmes:

[If a] project is scoring four or five for six months you are basically sent off to restructure and do something about it. If, after six more months, you cannot restructure and start to deliver better results we have been quite actively managing those projects out of the portfolio and just saying: "Look, if it is not working we can use the resources somewhere else; let's call it a day and move on" […].[21]

This approach of moving away from programmes which are failing to meet their objectives is illustrated by the fact there are currently 875 "major investments" that are reviewed each year compared with 1,030 four years ago.[22] Mark Lowcock, Director General, Country Programmes, acknowledged that:

Probably, in the past, we were not fast enough on our feet to close things when they were not going well enough; there is obviously a balance to be struck because we are trying to do different things in difficult places and you will often struggle early on in a project, but we probably let things go on too long in some cases, and we have tried to get better at dealing with that. In almost all of our country programmes we have had cases where we started something and did not pursue it, or we dramatically redesigned it.[23]

16. However, Saferworld cautioned against pulling out of programmes too quickly:

DFID should be prepared for occasional failures and flexible enough to respond to changing circumstances, if necessary by adapting programmes and their timeframes and by recognising that lasting impact can only be achieved and measured over the long-term. This approach may be at odds with increasing political pressure to show immediate and tangible results, but it is the only way such complex and sensitive work will be successful and, ultimately, represent true value for money.[24]

This need for caution in the response to programmes which were apparently performing poorly was acknowledged by Andrew Steer, DFID's Director General of Policy and Research:

We have to be very careful not to pull out of a sector. That is exactly what the development community did when it became too difficult in agriculture about 15 years ago, when rates of return in rural development projects were really not very good, and the share of donor money going to agriculture and rural development fell from 13% down to 1%, and we now have a big problem because of that. Much smarter would have been to say the problem is just as important as ever it was but we had better learn what we did wrong.[25]

Witnesses in other inquiries, particularly our current inquiry into DFID's Programme in Bangladesh, have highlighted the need for DFID to take the long view. For example, in relation to increasing the tax base, witnesses believed that such efforts should be seen as long-term investments over 10 to 25 years rather than something which could be achieved in three or four years and that donor support should reflect this.[26]

17. We fully accept that DFID should close programmes which are clearly not fulfilling their objectives. On the other hand, it must be careful not to pull out of work which is meeting obvious development needs but where, for legitimate reasons, the impact is not immediate. Work which DFID is undertaking in areas such as governance, security and tackling corruption has to be seen as long-term projects which may not show an immediate return. A balance therefore needs to be struck between identifying programmes which are clearly not meeting their objectives and those which have to be allowed a five or even ten-year period in which to show results.

Efficiency and spending targets

18. As part of the Comprehensive Spending Review (CSR) 2007, DFID identified scope to generate Value for Money (VfM) gains of £492 million by 2010-11. The 2008 Pre-Budget Report announced a £5 billion increase in the Government's overall VfM target for 2010-11, with DFID's contribution being an additional £155 million, taking the DFID target to £647 million.[27] The Annual Report detailed £168 million of VfM savings in 2008-09, up from £159 million the previous year. It also stated that "We are on track to achieve our overall CSR VfM target […] by the end of 2010-11".[28] The Autumn Performance Report notes that in 2009-10 DFID is on track to deliver cumulative savings of £446 million against a target of £323 million.[29] Despite these required efficiency savings, analysis by the Institute for Fiscal Studies at the time of the 2009 Budget indicated that (assuming future spending reductions were spread evenly between departments) only DFID would see its budget increasing in real terms in coming years, with all other departments facing real reductions in their expenditure.[30]

19. NGOs have in the past welcomed DFID's continued commitment to targets, although Oxfam has raised concerns that DFID's efficiency savings "should not become aid cuts under another name".[31] However, DFID has stated that the efficiency drive "will not affect major UK aid commitments or the aid going to the poorest", and that it "will not jeopardise front line projects".[32]

20. The 2009 Budget Report indicated that £110 million of DFID's savings over the CSR period would be made by "shifting more resources to countries where UK aid will have the greatest impact, helping to lift an estimated additional 100,000 people out of poverty".[33] We were concerned that savings generated in this way might result in allocations favouring countries with good governance while neglecting those countries that may be in the greatest need.[34] However, DFID assured us that their efficiency calculations indicated that the marginal impact of aid was far greater in fragile states, which justified increased activity in these areas.[35] We discuss DFID's increased focus on working in fragile states in Chapter 4 below.

Tackling fraud

21. The NAO pointed out that DFID is exposed to a significant degree of risk because of the nature of its operations. One key risk is the potential for fraud and corruption in the countries in which it, or its delivery partners, operate.[36] The 2008 NAO report Operating in Insecure Environments noted the increased risks when "aid workers are not able to monitor programmes closely" and where DFID is slow to identify corruption due to "limited project monitoring".[37] It said that these challenges will become more critical as DFID increases its use of partners to deliver projects in fragile states. The 2009 Cabinet Office Capability Review of DFID found that "financial and risk management is improving" but identified that "away from the centre, in country offices it was not consistent enough".[38]

22. DFID's Internal Audit section provides a biannual fraud report to its Departmental Audit Committee. In 2008-09, while a number of frauds were investigated, there were no cases reported where an individual loss exceeded £250,000.[39] DFID told us that, to date, there was nothing "that has caused us to consider any big systemic risks on fraud".[40]

23. We questioned officials about whether DFID adopted a consistent approach to tackling risk and fraud across the organisation, including in its country programmes and the different sectors in which it works.[41] They told us that some sector specific risks had been addressed as part of the Department's recent portfolio reviews of the health and education sectors. In addition, DFID is:

[…] complementing [this] with a piece of work which is looking specifically at riskiness within portfolios so we are looking at how do we think about that risk and return equation across portfolios. It is something which justifies further work. We are doing quite a lot of work on it and I should think over the coming months there will be more we can say about how we then translate that into a set of management tools in the Department.[42]

DFID also highlighted its "bigger investment" and increased focus on audit and detecting fraud, this being an area of the budget that would be protected from current and future efficiency savings, particularly given the White Paper commitments to increase work in fragile states.[43] However, it was acknowledged that "most" cases of fraud were discovered because "a member of staff or someone we work with has brought it to our attention".[44]

24. We are concerned that DFID may not yet be taking the threat of fraud as seriously as it should. Indeed, there seems to be an over-reliance on staff reporting cases of fraud rather than DFID taking action to mitigate such risks before they arise. We recommend that, in response to this Report, DFID provide us with more information on the steps it is taking to ensure that it has a robust, consistent and strategic approach to fraud in all its country programmes and in all sectors in which it works.

Procurement

25. Direct procurement of goods and services accounts for only a small proportion of DFID's total funding. Its budget is mainly spent indirectly, through partner organisations and joint funding mechanisms. The Office of Government Commerce's (OGC) Procurement Capability Review (PCR) of DFID carried out in 2008 noted that it typically procures £330 million of goods and services directly, but spends around £4.7 billion annually through third parties.[45]

26. The PCR found that DFID demonstrated examples of good procurement practice, such as prompt payments and good management of direct procurements, but suffered from inconsistency and lack of a clear and comprehensive procurement strategy. Similarly, there was a lack of consistent methodology for risk assessment when delegating procurement to third parties, a significant finding given that DFID spends such a large amount of its development funding in this way and that it made clear in the White Paper that its work through multilateral bodies would increase.[46]

27. Overall, of the nine indicators of "performance excellence" assessed in DFID's PCR, six were classed as "development areas" and three as "urgent development areas".[47] DFID subsequently published an improvement plan setting out how it would address the PCR recommendations.[48] Its 12-month PCR Stocktake Report in July 2009 found that DFID had "moved a long way since its first PCR" and that DFID's Board and its senior staff had made "significant progress" in facilitating the delivery of improved commercial capability.[49] Notably, the Autumn Performance Report stated that gains had been achieved:

[…] through collaborative procurement and in 2008/09 the total savings recorded (as provided by the Office of Government Commerce (OGC) Buying Solutions) amounted to £802,915. DFID continues to achieve savings by channelling expenditure through collaborative framework arrangements and the savings achieved in 2009/10 will be included in DFID's 2010 Annual Report.[50]

28. DFID confirmed during oral evidence that as a result of the PCR it has "embraced" the concept of thinking of all its funding as procurements and that procurement outside the £330 million spent directly was now being treated in a far more strategic manner. A new procurement Head of Profession has been recruited; DFID's procurement function has been restructured; and the procurement function is now actively working with country programmes and multilateral agencies.[51] However, gaps in terms of procurement expertise in country still exist. DFID noted that:

Traditionally, we have had people in country offices who were part qualified as local contracting officers so they were qualified to do basic local procurement. The challenge as part of the [procurement] strategy is do we have people managing the programmes who can think more strategically about the overall value and commercial approach. The answer is it is work in progress at the moment. It is one of the things the strategy says we need to get to grips with. The guy who we have heading procurement has started working with two or three country offices in particular to see how that might work, and I think there will be more to say over the next year or so on that.[52]

29. We welcome DFID's change of approach to procurement in that all its programme expenditure is now subject to proper procurement procedures rather than just the small part of the budget which direct procurement represents. DFID has indicated that improving these procedures is a work in progress. We would expect our successor committee to review progress on procurement practice when it looks at the next DFID Annual Report.

Staffing

RELOCATION

30. The Annual Report stated that, by March 2006, DFID had exceeded the target of 85 posts to be relocated from London to East Kilbride by three posts. The 2009 Budget announced plans to increase the overall target for relocating public sector posts out of London and the South East to 24,000 posts by 2010-11. Although no additional targets have been set for DFID, the Annual Report indicated that the Department was considering the relocation of further posts to East Kilbride and the Autumn Performance Report said that staff had recently been consulted on such a proposal.[53]

31. The Permanent Secretary told us that DFID had now committed to moving at least a further 50 jobs to East Kibride from London.[54] Richard Calvert, DFID's Director General of Corporate Performance, noted that it was considerably cheaper to employ a member of staff in Scotland than in London, but acknowledged that DFID needed to establish a clear business case for any further relocations.[55]

CURRENT AND FUTURE CAPACITY

32. The 2009 Cabinet Office Capability Review of DFID flagged up two key staff-related issues that needed attention: identification of skills gaps and how to fill them; and developing a clear strategy for ensuring that a rising budget and declining administration costs did not negatively affect capacity, effectiveness and VfM.[56] The Annual Report indicated that DFID was planning to cut its total administration expenditure by £8.9 million between 2008-09 and 2010-11, equivalent to a 5% reduction, primarily to be achieved through an £8 million reduction in staff costs.[57] The impact of staff reductions on DFID's ability to deliver its objectives has been a recurrent theme in our reports. Last year, we said:

It would be perverse if the administrative savings achieved by reducing staff numbers led to DFID's rising budget being spent less effectively and with less accountability. We have previously accepted that DFID cannot be exempt from Government efficiency targets but we believe the situation has changed. Our concern now is that DFID no longer has sufficient staff in place to ensure its increasing budget is used most effectively in support of poverty reduction and achieving the Millennium Development Goals. We recommend that the Government urgently reassess the staffing level DFID requires to deliver the objectives which it has assigned to the Department under its Public Service Agreements.[58]

33. We asked the Permanent Secretary whether the assessment she gave us last year, that the Department was "coping but struggling", continued to be the case. She told us:

I think I would probably still say we are coping but struggling. I think we have coped pretty well actually and we are on track to meet the efficiency targets that the Treasury has set for us. […] and I do not think we have compromised the quality of the aid programme at all.

She acknowledged that "we do see some of the strain on our staff. Some of our staff surveys show that people feel they are overloaded." She also recognised the limits staff restrictions placed on DFID's activities:

Could we do more if we had more staff? Definitely, there are all sorts of things and opportunities that arise that if we had more people we could say, "Yes, let's throw a couple of people at that issue" and really have a big role. Some of that would be on aid administration but also some of it would be on the bigger influencing agenda that has become a big part of who we are.[59]

A related point which is frequently made to us when we assess country programmes is that DFID staffing restrictions make it difficult for staff to travel outside capital cities to visit projects on the ground and limit their engagement with civil society organisations.[60]

34. The 2009 Budget and Pre-Budget Reports have highlighted that austerity will be required by all government departments throughout the current and next spending review periods. DFID officials assured us that front-line services would be protected by focusing efficiencies in administrative and corporate areas.[61] DFID also aims to "protect those bits of administration spend like audit and evaluation which ensure the quality and fiduciary soundness of what we do".[62]

35. We welcome DFID's assurance that front-line services will be protected from staffing cuts. However it remains important to ensure that efficient delivery of such services is not undermined by inadequate administrative and staff support. The new White Paper commitments have changed the focus of front-line services. Increased working in fragile states and tackling climate change are likely to be resource-intensive and will demand particular skills. We recommend that, in response to this Report, DFID provide us with more details on the staffing strategy it will adopt to ensure it can meet these new demands.

Exchange rates and hedging

36. As we explored in our 2009 inquiry into Aid Under Pressure, exchange rate movements over the last two years have resulted in additional costs to DFID. Many of DFID's country offices have experienced reductions in spending power against administration and programme allocations budgeted in sterling. Commitments to multilateral institutions denominated in currencies other than sterling have also been affected—for example, the £110 million of increased expenditure required to meet commitments made in euros to European Commission programmes in 2008-09.[63] Conversely, existing allocations to international financial institutions (IFIs) valued in currencies other than sterling have favoured DFID. The Annual Report noted a net unrealised exchange rate gain of £760 million in DFID funding for IFIs.[64]

37. The table below shows exchange rate movements for DFID's PSA countries between April 2008 and January 2010.[65] While part of the peak fall in sterling has been recovered, the effect on individual countries has been highly variable.[66]

Exchange rate changes in DFID's PSA countries

Percentage change in exchange rate (value of sterling in local currency)

Time period
	01/04/08 to 31/03/09	01/04/08 to 30/09/09	01/04/08 to 15/01/10
India	-7%	-3%	-7%
Ethiopia	-16%	6%	9%
Tanzania	-21%	-14%	-11%
Afghanistan	-25%	-21%	-20%
Bangladesh	-28%	-19%	-17%
Pakistan	-8%	6%	12%
Sudan	-19%	-9%	-7%
Nigeria	-10%	3%	7%
Ghana	2%	17%	17%
DRC	29%	51%	55%
Uganda	-9%	-9%	-7%
Mozambique	-21%	-9%	-7%
Kenya	-8%	-3%	0%
Malawi	-28%	-20%	-14%
Nepal	-9%	-4%	-7%
Vietnam	-21%	-11%	-6%
Rwanda	-25%	-16%	-14%
Sierra Leone	-25%	-1%	8%
Zambia	9%	4%	0%
Yemen	-28%	-19%	-15%
Cambodia	-25%	-14%	-13%

Notes: (i) The Zimbabwean Dollar is Excluded. (ii) Ranked by size of bilateral programme.

Sources www.oanda.com (interbank rate), DFID Annual Report and Resource Accounts 2008-09, Volume 1, 64-65

DFID has not traditionally entered into any hedging arrangements when setting office budgets. Nor does it adjust aid allocations in response to exchange rate movements or purchasing power, because of the need to maintain the predictability of its aid for recipient countries, and the administrative burden it would place on the Department.[67] However, recent experiences have illustrated the pressure that can result from exchange rate fluctuations. The NAO performance brief highlighted the example of Malawi where such pressures have led to some staff posts remaining unfilled or greater reliance on other donors, posing risks to the capability to manage programmes at a time when administrative budgets have already been cut.[68] Such pressures have not been limited to DFID: the FCO recently announced that, due to exchange rate movements, there was a shortfall in its 2009-10 budget of approximately £110 million.[69] Our colleagues on the Foreign Affairs Committee have explored the implications of this as part of their inquiry into the FCO Departmental Annual Report 2008-09.

38. DFID told us last year that it had been reviewing the costs and benefits of hedging, following the Treasury's advice that departments could ensure predictability in the sterling value of their obligations made in foreign currency by hedging these transactions, if the costs were met within existing allocations.[70] In the Annual Report, DFID made clear that it would not be undertaking any hedging to manage currency risk.[71] In oral evidence, DFID expanded on this, indicating that it might forward buy some euros, depending on currency markets this spring, for its forthcoming European Development Fund contribution.[72]

Impact of DFID's work through CDC Group plc

39. CDC Group plc (formerly the Commonwealth Development Corporation) is a public limited company wholly owned by DFID. It invests in private equity funds focused on emerging markets in Asia, Africa and Latin America. Its mission is "to generate wealth, broadly shared, in emerging markets, particularly in poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses".[73]

40. We stressed in 2006 that CDC's portfolio of investments must continue to be carefully scrutinised for their overall contribution to poverty reduction. We highlighted that its social and environmental record was patchy and recommended close monitoring by DFID on how and where CDC invested to ensure its "development footprint" was a wholly positive one.[74] The NAO performance brief highlighted a number of further issues regarding CDC:

In 2008 the NAO reported that through strong financial performance with a portfolio more weighted to poor countries than other countries' development finance institutions, CDC will have achieved good VfM.[75] But the direct effects of specific investments on poverty reduction are harder to demonstrate. Whilst research suggests that investment can provide economic benefits for poor people, further evidence is needed on the extent to which it does so for the type of investments in CDC's portfolio. The NAO report recommended that DFID, as owner and overseer of CDC, seek fuller information on development and poverty impacts, and validated summary information on the extent of actual adherence to business principles for ethical investment.[76]

41. In April 2009, the Public Accounts Committee (PAC) published its report on DFID's oversight of CDC. This pointed to the lack of clear evidence of the impact of CDC's work on poverty reduction in the countries in which it operates. It also noted the conflict between pressure from DFID to engage more in low-income countries and the potential restrictions which CDC's business model, and DFID's performance incentives, may have on increasing work in this area.[77]

42. In July 2009 CDC published its first annual development report. The NAO found that most of the data in the report was provided to CDC by the fund managers investing CDC's capital in these businesses and was not "necessarily" audited or independently verified (although a committee of CDC's non-executive directors authorised and reviewed the monitoring and evaluation work).[78] The development report contains case studies outlining the benefits of CDC investments based on its evaluations of 12 funds. It also estimates that 3 million people were directly or indirectly supported by the work of CDC, and $2.2 billion of taxes were paid by investee companies in developing countries.[79]

43. We questioned DFID officials on whether CDC's new development report sufficiently captured the development impacts of its investments, particularly in the light of the recent NAO and PAC reports which recommended a tighter regime of oversight of CDC. The Permanent Secretary declared that she was "quite pleased" with the report. Officials noted that:

[…] it is important to say that the work of the International Finance Corporation at the World Bank, which is a kind of CDC equivalent, has looked at thousands of projects around the world and found that there is an 85% correlation between profitability and good development impact. […] I think there was clearly a gap before the requirement was in place to have the annual development impact report. They have done one and […] we were quite pleased with it. We did not think it was perfect. It is a goal for CDC to be a leader on environmental, social and governance issues and certainly, as the shareholders, making sure that is the case is a big priority for us.[80]

44. We welcome the publication in 2009 of CDC's first annual development report as a positive step in the right direction of greater accountability and transparency in its activities. However, we are not convinced that the link between profitability of CDC's activities and their positive development impact has yet been sufficiently demonstrated. More robust evidence is needed. We urge DFID to ensure that CDC is required to produce more detailed analysis in its future reports on the correlation between its investments and pro-poor development outcomes, including their social, environmental and governance impacts.

5 Second Report of Session 2008-09, DFID Annual Report 2008, HC 220-I, chapter five Back

6 DFID defines aid effectiveness in its 2007 Annual Report as "a measure of the quality of aid delivery and maximising the impact of aid on poverty reduction and development". Back

7 Ninth Report of Session 2007-08, Working Together to Make Aid More Effective, HC 520-I. The Paris principles are set out in para 7 Back

8 DFID, Annual Report and Resource Accounts 2008-09, HC867, Volume II, p 127 Back

9 Ev 75-76 Back

10 Ev 116 Back

11 DFID, 2009 Autumn Performance Report, Cm 7768, p 39 Back

12 Ev 49 Back

13 Q 32 Back

14 DFID, Eliminating World Poverty: Building our Common Future, July 2009, Cm 7656, p 126 Back

15 Q 6 Back

16 ibid Back