Written evidence submitted by Christian
Aid
1. INTRODUCTION
1.1 Christian Aid is a Christian organisation
that insists the world can and must be swiftly changed to one
where everyone can live a full life, free from poverty. We work
globally in over 40 countries for profound change that eradicates
the causes of poverty, striving to achieve equality, dignity and
freedom for all, regardless of faith or nationality. We are part
of a wider movement for social justice. We provide urgent, practical
and effective assistance where need is great, tackling the effects
of poverty as well as its root causes.
1.2 We welcome the opportunity to provide written
evidence to the International Development Committee on the Department
for International Development's work in 2009-10. We warmly welcome
the committee's interest in the work of CDC, and have responded
specifically to the call for evidence on this. We have also responded
on the work of DFID in Sudan, India, Sri Lanka, Iraq, the occupied
Palestinian territory and Brazil. It is not always appropriate
to make general comments about whole regions, but we have included
limited general comments on DFID's work in the Middle East and
Latin America.
2. CDC GROUP
PLC
2.1 CDC is part of the UK's international development
programme and its activities should thus be consistent with the
International Development Act 2002, which requires development
spending to be likely to relieve poverty and contribute to human
welfare and sustainability.
2.2 However, it is currently extremely difficult
to tell how the company's activities affect people living in poverty.
Even CDC itself has - as the Public Accounts Committee has noted[21]
- only limited evidence of its effects on people and the environment.
This, in turn, is connected to CDC's investment model. It channels
some 134 funds through 65 different fund managers and so its ability
to monitor and influence the roughly 800 companies in which it
invests is limited, as CDC admits.[22]
2.3 This lack of transparency around the way
that CDC uses public money, supposedly for the benefit of some
of the world's poorest people, is at odds with the government's
stated concern for accountability and transparency.
2.4 Christian Aid is especially interested in
the company's impact on developing countries' tax revenues, because
tax is a crucial resource for those countries to lift themselves
out of poverty. It has been shown to strengthen countries' governance
and policy stability, as well as providing revenue for investment
in public services.[23]
Christian Aid believes that CDC should know about the tax payments
and practices of those companies in which in invests, and that
it should be open with the British public about how much tax those
companies are paying - and where.
2.5 As an example of the current lack of such
transparency, CDC's latest Development Review reports that it
received details of the taxes paid in developing countries by
179 companies - only one quarter of those in which CDC invests.[24]
Similarly, the company has in the past made claims about its tax
contribution to developing countries which it then struggled to
substantiate.[25]
2.6 CDC should publicly declare the identities
of the companies in which it invests on a country-by-country basis.
It should also use its influence as an investor to encourage its
investee companies to declare financial details of their operations
for each country in which they operate. Support for such country-by-country
reporting is enshrined in DFID policy through the 2009 White Paper[26]
as well as in the European Commission Communication on Good Governance
in Tax Matters.[27]
2.7 Such publication would allow the public and
the company's owner, DFID, to properly scrutinise its record.
It would also have the benefit of setting an example for other
companies trading internationally to follow.
2.8 Furthermore, such publication would help
to answer the many disturbing allegations that CDC routinely invests
in companies which exploit artificial structures in order to avoid
tax in the developing countries in which it invests. The 2009
DFID White Paper affirms that, "we all suffer from weak financial
regulation, the financial impact of imbalances in trade, and the
action of tax havens". It also made a commitment that, "CDC,
which has sought to avoid unco-operative jurisdictions in the
past, will in future only commit capital to new funds and direct
investments in jurisdictions substantially implementing the international
tax standard. CDC will review all existing investments in jurisdictions
committed to, but not yet implementing, the international tax
standard, following the next G20 Summit in September 2009."[28]
2.9 Christian Aid is concerned by reports that
almost half of CDC's subsidiaries are in tax havens, which - quite
apart from the likely impacts on the tax revenues received by
poor countries - makes it impossible for the public to scrutinise
their finances.
2.10 That CDC generally invests through fund
managers (rather than directly) does not justify less transparent
reporting of the company's tax record. If CDC's current investment
model does not permit such transparency then it is the investment
model which should change.
2.11 DFID must ensure that CDC is fully transparent
about its tax impact on developing countries, and that of its
investee companies, as a matter of urgency.
3. DFID IN SUDAN
3.1 DFID has been an important and influential
donor in Sudan, both in supporting the ongoing humanitarian response
in Darfur and in providing support to southern Sudan since the
signature of the Comprehensive Peace Agreement between Khartoum
and southern Sudanese rebels in 2005. Along with other donors,
DFID pledged significant support to southern Sudan at the 2005
Oslo donor conference.
3.2 However, Christian Aid has concerns about
the use of World Bank managed pooled funds in Sudan. Both the
Multi Donor Trust Fund (MDTF) and the Sudan Recovery Fund have
failed to disburse quickly enough. In the case of the MDTF, the
World Bank's cumbersome procurement practices have made it extremely
difficult to access the fund. Five years after the MDTF's establishment,
almost no funding had reached health facilities through this mechanism,
and other sectors have fared little better.
3.3 Recognising the failure of these funds, DFID
has set up its own pooled fund - the Basic Services Fund - which
other donors have also supported. However, DFID has never committed
to maintaining the management of this vital fund on anything more
than a year-by-year basis. This lack of predictability makes it
very difficult for recipients of the funds to plan ahead and be
as effective as possible in their work.
3.4 DFID should make a longer term commitment
to the Basic Services Fund to end this lack of certainty and ensure
that the aid it provides can be used most effectively. In future,
it should exercise extreme caution about channelling finance through
World Bank managed basket funds.
4. DFID IN INDIA
4.1 There has been much recent public discourse
on the future of UK aid to India. UK politicians have questioned
the continued relevance of an aid programme in a country with
such high rates of economic growth, and the Indian Finance Minister
has been quoted as telling parliament that India has no need of
UK aid.
4.2 However, poverty in India is defined by inequality
and exclusion. According to the data in the DFID 2009-10 annual
report, the proportion of the Indian population in poverty (42%
= 456 million people) compares unfavourably with the 36% in Afghanistan
(itself the world's second poorest country). This is a very strong
argument both for continued - but targeted - aid to India, and
for robust UK government engagement with India's government about
the inequalities that cause and characterise poverty there.
5. DFID IN SRI
LANKA
5.1 DFID's aid to Sri Lanka is very important
in a country where poverty and conflict is a significant feature.
However, DFID must be careful that its choice of partner does
not exclude local NGOs to the benefit of large international NGOs.
5.2 Sri Lanka is a good example of a country
where local organisations have been able to access areas and parts
of the population that others cannot, particularly in humanitarian
emergencies. Supporting such organisations would enhance the effectiveness
of DFID's aid by ensuring that its programme reaches those in
remote or hard to reach areas, and would enhance accountability
to local society.
6. DFID IN THE
MIDDLE EAST
6.1 Many people in the Middle East live in poverty
and are affected by conflict, and the vast majority live in countries
where basic human rights are not upheld. DFID's bilateral aid
and other engagement will be most effective if it maintains a
clear focus on poverty reduction through targeting the causes
of poverty. This means also supporting civil society organisations
in addressing the accountability deficit in the region. DFID's
financial aid will be most effective when complemented by wider
government policy engagement to support fulfilment of human rights,
broader participation in decision-making and more equitable distribution
of resources.
7. DFID IN IRAQ
7.1 Poverty and insecurity in Iraq increased
after the 2003 US-led invasion. Christian Aid now understands
that DFID is considering cessation of its bilateral aid to Iraq
- despite the fact that poverty rates remain very high in many
parts of the country, and instability persists. Whilst it is correct
that Iraq can and should make good use of its natural resource
wealth, government and civil society institutions need considerable
support and strengthening before external support such as DFID's
aid - which has been demonstrated to have a positive impact -
is withdrawn.
7.2 We would therefore also recommend that DFID
considers increasing its support for accountability mechanisms
both within government and for external actors such as civil society
organisations to hold government to account.
7.3 Given the ongoing political instability,
and in terms of human security, DFID should maintain its support
and engagement in Iraq. Such investments now will increase the
likelihood of the laudable aim of a prosperous Iraq developing
in the medium to long term.
8. DFID IN THE
OCCUPIED PALESTINIAN
TERRITORY (OPT)
8.1 In the West Bank and Gaza, the Israeli occupation
and blockade ensure that poverty persists. The UK's bilateral
aid programme to the West Bank is very important and must be maintained.
In order to improve the effectiveness of this aid, the government
should ensure that it is focussed on the causes of poverty amongst
Palestinians, which are fuelled by the ongoing occupation of the
West Bank and the blockade of Gaza.
8.2 Civil society organisations play an important
role in poverty alleviation amongst the Palestinian population,
and DFID's aid should support them in this, alongside the significant
and very valuable bilateral aid that it provides to the Palestinian
Authority in the West Bank. To maximise the effectiveness of this
bilateral aid, a strong civil society is also key in ensuring
that accountability mechanisms can function properly.
8.3 DFID's provision of humanitarian aid during
and after violence, such as experienced in Gaza in January 2009,
is critical. However, aid alone will not tackle the triggers for
instability and impoverishment. Ultimately, the effectiveness
of DFID's aid will be greatly increased if supported by real and
significant diplomatic pressure to ensure that a viable solution
to the conflict is found.
9. DFID IN LATIN
AMERICA
9.1 Following the withdrawal of DFID's presence
in Latin America, its only remaining staff in the British embassy
in Brasilia should continue to play a major role in monitoring,
evaluating and engaging with governments, civil society organisations
and agencies working in Latin America. Since the Cold War, the
region has experienced, arguably, the most significant transformations
in democratic transitions, wealth creation and repositioning in
geopolitical importance. However, in spite of far-reaching changes,
enormous challenges still prevail as Latin American countries
attempt to eradicate poverty and reduce inequality in a climate
constrained world.
9.2 DFID LAPPA (Latin America Programme Partnership
Agreement) has been, and should continue to be, a cost effective
partnership between DFID and 12 British development agencies,
including Christian Aid. This mechanism gives DFID the potential
to continue to influence, learn lessons from, and engage critically
with governments, agencies and civil society organisations that
are working towards increased equity, in line with the Millennium
Development Goals. Continued access to, and contact with, this
important part of the world remains critical to DFID's international
reputation and its commitment to being a leading player in global
development.
10. DFID IN BRAZIL
10.1 DFID's continued interest in Brazil is very
important. We support DFID's decision to work alongside the Brazilian
government as its geopolitical importance increases, and its ability
to influence global debates about development, including low carbon
development models, grows. Brazilian experience and organisations
now play a key role in south to south development co-operation
in parts of the developing world which remain priorities for DFID,
including in Lusophone Africa.
10.2 It is particularly important that DFID supports
the Brazilian government in its role as a key player in negotiations
on the United Nations Framework Convention on Climate Change.
10.3 However, contradictions between the Brazilian
government's stance on climate change and the domestic energy
model that it is pursuing should be of concern to DFID. For example,
a heavy emphasis on biofuel production and large-scale monocropping
is increasing rather than decreasing carbon emissions, has negative
impacts on local food production and is of wider detriment to
the environment. Brazilian companies are now investing large sums
into palm, sugar and eucalyptus production in rural areas, leading
to displacement and disempowerment of rural communities.
10.4 Brazil continues to be one of the most unequal
countries in the world, in spite of progress made in tackling
poverty and reducing inequality through direct cash transfers
to the poorest families, for example through the Bolsa Familia.
Black and indigenous people are over-represented amongst the poor
and DFID should express concern regarding the extent to which
tackling this is a priority for the Brazilian government.
10.5 Brazilian civil society organisations and
human rights defenders face considerable obstacles, and we again
emphasise the importance of DFID's support for civil society organisations
and their role in holding governments to account.
September 2010
21 Investing for Development: the Department for International
Development's oversight of CDC Group plc, House of Commons Public
Accounts Committee, session 2008-09. Criticism by the National
Audit Office and Public Accounts Committee has prompted reforms
intended to improve CDC's attention to its effect on poor people
and the environment but Christian Aid's impression is that more
fundamental changes may be needed before CDC will truly prioritise
its effects on people and their environments. For instance, even
the company's latest Development Review shows that the company
has evaluated the social and environmental impact of only 20 of
the 134 funds. Of these, only seven were done by people who did
not work for CDC. Furthermore, the Review itself implies that
the evaluators did not have the information they needed in to
assess non-financial criteria such as social and environmental
ones. "The understanding which CDC seeks from its evaluations
includes the extent to which CDC's capital contributed to poverty
alleviation and macro-economic growth. An understanding of this
sort requires clearer focus on the nature of the fund that is
possible from the data provided by typical annual monitoring reports."(CDC
Development Review 2009, page 58.) Back
22
p64, CDC Development Review 2009: "Through the intermediated
investment model, CDC is one step removed from portfolio companies
and has limited ability to control what happens on an ongoing
basis. CDC accordingly is not in a position to check compliance
with all standards at portfolio companies but relies on its fund
managers to do so: and CDC's fund managers in turn may not always
be in a position to exercise control or significant influence
over their portfolio companies." Back
23
D. Brautigam, "Introduction: taxation and state-building
in developing countries" in Taxation and State-Building
in Developing Countries Capacity and Consent, Edited by D
Brautigam, O Fjeldstad and M Moore, Cambridge: Cambridge University
Press, 2008. A stable, transparent, even-handed tax system is
perceived by investors as a sign of established "rule of
law" R Bird, J Martinez-Vasquez, and B Torgler, "Societal
institutions and tax effort in developing countries", In
The Challenge of Tax Reform in the Global Economy, edited
by J Alm and J Martinez-Vazquez Germany: Springer-Verlag, 2006 Back
24
CDC Development Review 2009, page 3. Confusingly, the company
reports on page 17 that it received tax data from 463 companies. Back
25
When the company gave evidence to the Public Accounts Committee
on 15 December 2008, it repeated its claim that its investee companies
pay around £250 million a year in tax and other charges to
local governments. Two committee members asked the company to
explain how it had arrived at the figure but in a letter from
to the committee dated 9 January 2009, DFID said that CDC needed
more time to gather information to substantiate its tax claim.
Christian Aid does not know whether the company eventually provided
the information. Back
26
DFID (2009) "Eliminating World Poverty: Building our Common
Future", London: DFID Back
27
European Commission (2010) Tax and Development: Cooperating with
Developing Countries on Promoting Good Governance in Tax Matters,
SEC(2010)426 Back
28
IBID. Back
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