Department for International Development Annual Report & Resource Accounts - International Development Committee Contents

Written evidence submitted by the Jubilee Debt Campaign


1. Jubilee Debt Campaign (JDC) welcomes the International Development Committee's inquiry, most notably its coverage of the operations of the CDC Group. We would like to focus our evidence on this aspect. We have only recently started investigating the CDC Group's activities, but we aim to build our expertise and public information work on the group in coming months.

2. We have been aware of the CDC Group primarily through its outstanding developing country debt portfolio. We are aware that CDC Group is not currently a debt creating entity. However, our interest in the CDC Group was sparked earlier in 2010 when we met a Nigerian activist, Dotun Oloko, who presented us with information about CDC's investments in Nigerian companies. These investments were connected with individuals allegedly involved in widespread corruption and with serious financial mismanagement, ultimately leading to a Nigerian government bail-out of several Nigerian banks.

3. We are also aware, through research undertaken by investigative journalist Richard Brooks of Private Eye, War on Want and others, of serious problems with CDC's projects including:

  1.   a focus on profitability to the detriment of development;
  2.   depriving developing counties of much needed tax revenuel
  3.   lack of analysis of development impactsl and
  4.   an ongoing failure of oversight and standards, transparency and accountability.

These persistent problems with CDC's operations point to a systemic failure in CDC's "development" model requiring a fundamental re-think.

4. JDC hopes to form stronger analysis and recommendations on CDC in coming months. However, we suggest that there is more than enough information in the public domain to call on the Department for International Development (DfID) to fundamentally re-assess its relationship with the CDC Group and the operating model of the Group. In particular this should include the following elements:

  1. -  A comprehensive review of the private equity model employed by CDC, the sectors which it supports, the funds it channels investments through and the countries it focuses on. We strongly suggest alternative models are considered which allow better accountability and control. Better oversight by DfiD is essential;
  2. -  Much stronger development standards, with clear poverty targets - for instance all investments must meet stated human development needs and analysis must be expanded to include context sensitive assessment;
  3. -  Better methods of consulting civil society in the UK and the developing world, and establishment of a complaints mechanism for those impacted;
  4. -  A framework for monitoring and evaluating CDC's operations and impacts including an annual, public evaluation of projects;
  5. -  A review of the pay structure and incentives offered to staff by CDC;
  6. -  A tax standard in CDC's investment code and mandating of all funds receiving CDC support to publicly publish their accounts on a country-by-country basis.


5. Jubilee Debt Campaign is part of a global movement working for full cancellation of unpayable and unjust developing country debts, by fair and transparent means. As such it is also interested in advocating for financial reforms which would make for a more responsible and pro-development lending system. It is a company limited by guarantee (number 3201959) and a charity registered in England and Wales (number 1055675). See for more details.


6. Our central concern relates to the model used by the CDC Group, especially since its partial privatisation in 2004. The theory behind CDC's "development" approach is that many developing countries are failing to attract capital flows sufficient for economic development. CDC provides such capital, thus directly leveraging additional private capital and indirectly proving that such investments can be profitable and safe, thus encouraging further capital into like projects. We agree that lack of sufficient capital is a real problem for many developing countries, though it is equally important to ensure that capital remains in the country concerned, something CDC mitigates against for instance through its approach to tax (see below). Hence the quality of the investment is the real key, something to which we do not believe CDC pays sufficient attention.

7. In fact, we believe that CDC misunderstands its own model, and actually invests in developing country projects which have no difficulty in raising capital, but which are simply highly profitable for CDC. The CDC confuses profitability with development. This is perhaps not surprising, given that the incentive structure of CDC is based around profitability rather than development impact.

8. One proof of this is demonstrated by the spread of CDC investments by sector. Agriculture - the sector which CDC traditionally supported - has now fallen to only 5% of CDC's portfolio. This is extraordinary at a time of global food crisis, when lack of investment in small scale agriculture has caused enormous suffering across the world. The World Bank and several UN agencies have lamented the lack of agricultural investment in recently years. CDC could have played a key role in changing this picture. Similarly, investment in infrastructure has fallen to below 8%.

9. Our contention is that investments in such sectors has been abandoned on the basis they are not profitable enough. They have been replaced by investments in more profitable areas such as "consumer" and "financial" sectors. Currently CDC invests 20% in "financial" and 14% in "consumer" sectors.[157]

10. The marginalisation of low return investments is exemplified by the Mpongwe project in Zambia's copper belt. The project, which was originally financed by the Commonwealth Development Corporation, and turned thousands of acres of dry bush into productive arable land for a return of 8%-10%. In spite of this, in 2008 CDC sold off its remaining holdings in the Mpongwe Development Company resulting in the company's liquidation. This has had a negative impact on co-operative land development.[158]

11. The sale of the Mpongwe Development Company is noted by the BBC as being part of a new approach by CDC: "Former officials detect a new commercial ethos, with talk of projects now being considered old hat - today the talk is of deals. Investment in estates like Mpongwe belong to yesteryear."[159]

12. Financing is instead being redirected to projects that are likely to provide faster maturing, higher returns. Examples of this include investment in the established Indian company Moser Baer and underwriting of The Palms shopping mall in Nigeria.

13. In 2007, CDC operating as part of a consortium, invested $35 million in Moser Baer to enable the company to broaden its business to include the production of photo-voltaics for use in solar panels.[160] This investment from CDC was provided even though Moser Baer was already highly profitable given its position as the world's second largest manufacturer of optical storage devices and with subsidiaries in India, Japan, Europe and the US, resulting in the employment of some 6,000 people.[161] Ergo, it is questionable whether CDC investment is offering significant developmental benefit to the project.

14. With regard to The Palms shopping mall, CDC provided investment of $40 million.[162] While the project has resulted in employment and the production of tax revenues, critics believe that the project does little to reduce poverty. John Hilary of development charity War on Want stated at the time: "The Palms shopping centre is designed to cater for the wealthiest, most affluent Nigerians who can go and shop there - It's not actually going to be providing very much for the poor at all. If CDC's money is meant to be going towards development and poverty reduction it's unclear really how that is going to be achieved through a shopping centre in Lagos."[163] The Palms shopping mall demonstrates the failure of the trickle down theory which appears to lie at the centre of CDC's approach. The Mall was a success for the developers and sparked a series of similar ventures in Nigeria. This may be good for those rich enough to get into property development - and would not necessarily have required development finance. We understand, however, that those working in the mall recently had to undertake strike action over their poor wages and working conditions.

15. The same story is told by the geographical spread of CDC investments. CDC is very proud of the fact that it now invests a greater proportion of funds in poorer countries than any other Development Finance Institution (DFI). But a closer looks raises serious questions about how much this commitment means.

16. CDC directs a growing proportion of its investment, nearly two thirds (up from around a quarter), to the rapidly emerging economies of Nigeria, South Africa, India and China.[164] While these countries certainly contain a significant percentage of the worlds poor, they also independently attract considerable foreign investment.

17. Today, the importance to CDC of returns over other considerations is highlighted in a National Audit Office (NAO) report: "CDC has argued that an increasingly higher focus on poor countries might destroy value in CDC by delivering lower investment returns, resulting in less capital available for investment in later years, or financial losses that would harm CDC's reputation with partner investors. CDC believes that there is limited capacity in these countries to accept further equity investment."[165]

18. Fund managers interviewed by the NAO questioned the "breadth of development benefits that DfID hopes CDC can deliver." This is because "they doubted whether higher risk and lower return investments were compatible with a commercial business model."[166] CDC and DfID are concerned that low income countries do not have the capacity to absorb substantial further private sector investment. This assertion was rejected by the NAO, which notes that alternative indicators suggest that Sub-Saharan Africa is not near investment saturation with enterprises complaining more about lack of finance than in other regions.[167]

19. Serious concerns have been raised about the direction in which "profit maximisation" leads CDC. One example is Globaleq, a company which facilitates privatisation of energy services in developing world countries. In 2006, War on Want documented how Globeleq's operations had had detrimental impact on poor people, including vastly increased prices in Uganda which sparked protests and a court case, and the development of environmentally damaging forms of energy.[168] In 2007, Globeleq sold its North African, Asian and Latin American companies, at large profit, according to Richard Brooks. In 2009 the legal ownership was transferred to the Actis Infrastructure Fund, but "CDC continues to be a key stakeholder in Globeleq's business as a material investor in Actis Infrastructure Fund".[169] Again we are concerned this further reduces accountability.

20. An additional example worthy of note is the support provided by CDC, through the Emerging Capital Partners (ECP), to Anvil Mining, a Canadian-Australian company accused of involvement in serious human rights abuses in the Democratic Republic of Congo. A report by Rights & Accountability in Development finds it "unacceptable that at the time CDC's investment was made, Anvil's role in the Kilwa massacre was under investigation by the Australian Federal Police".[170] ECP is the same manager responsible for some of the problematic Nigerian investments (below).


21. Tax avoidance is a legal activity that devalues administrative governance and accountability and reduces the efficiency of resource allocation in developing countries. As of December 2008, CDC investments were being channelled through 72 subsidiaries, 40 of which were situated in tax havens.[171] Tax havens are countries or territories that support laws that allow companies and individuals to operate opaquely and avoid paying tax. The UK government has repeatedly said that tax avoidance plays a detrimental role in development, for instance Stephen Timms as Treasury Minister said tax avoidance "costs developing countries billions each year in lost revenue - a major drain on often fragile economies and a genuine barrier to economic growth. These are vital resources for schools, hospitals and infrastructure."[172]

22. Nonetheless, DFID has defended the use of tax havens by CDC - which it refers to as "offshore financial centres" (OFCs) - on the grounds that if they were not used then CDC investments would be taxed twice: in the first instance, when companies that CDC has invested in are taxed, and again when the investment funds are taxed. Moreover, investing through offshore centres is considered a positive way of attracting third-party money into developing countries. In a memo to the Committee of Public Accounts in December 2008, DFID argued: "The use of offshore financial centres is a legitimate and widely-used practice undertaken by other Development Finance Institutions, which, like CDC, are committed to supporting economic growth in developing countries in the most effective and efficient way. Using OFCs actually means CDC delivers more money to the economies of poor countries by mobilising extra investment."[173]

23. CDC's use of tax havens have been well documented. For instance, CDC has provided investments, totalling £10 million to the Australian mining company Mineral Deposits Ltd, making it the company's largest single shareholder and giving it a place on the board.[174] This company operates in Senegal extracting gold from the Sabodala region, and ilmenite and zircon from the Grand Cote. While Mineral Deposits is actively mining the resources of Senegal, it paid just £20,000 in tax in 2009 and 2010 - ridding itself of £6million in tax charges according to Richard Brooks.[175] Instead profits are largely recorded in Mauritius where the tax level is nearer to zero, even though the company has no one working there.

24. This huge distortion of profits by a CDC-financed company is not isolated. Oando plc in Nigeria preserves profits through the payment of tax-free "technical" and "management" fees to CDC and co-investors.[176] In 2009 Oando recorded half of its total profits ($48.4 billion) through a company registered in Bermuda, even though it doesn't have any staff there. This deprived Nigeria of $15 million in taxes according to Richard Brooks.[177] The same source has also reported that CDC promotes and makes use of "tax holidays" which leads to "tax competition" that is ultimately detrimental to all developing countries.

25. The prevalence of tax avoidance among CDC's investments may be unsurprising given the private equity model actively pursued by CDC. Private equity funds often utilise tax havens as a means of maintaining profits, irrespective of the damage caused to local economic empowerment and development. But it is concerning, given that CDC is recorded as saying: "The norm of our business is that once [companies] generate profits they ought to pay tax. Indeed, part of the development thesis here is that by employing people, by generating profits on which taxes are then paid, which is then income for Government, that is creating the wealth that will defeat poverty."[178]

26. The use of tax havens clouds CDC's operations in secrecy. The fact that offshore tax havens double as secrecy jurisdictions where corrupt government officials are able to hide their illegal acquisition of their poor country's assets is significantly damaging to the growth and development of the looted nations, and as such warrants CDC ending their use of tax havens. We contend that the benefits of foreign investment facilitated by tax havens is far outweighed by the capital outflows which these havens also facilitate.

27. As the private equity model gains prominence among DFIs, it is essential that a new set of rules be developed that constrict the legitimacy of tax havens. It is troubling that investment in the most impoverished countries should be dependent on tax avoidance mechanisms - especially as CDC claims to raise standards on investment in developing countries. DFIs should be seeking to develop legislation and expertise that will allow developing countries to catalyse funds within their domain rather than remove taxable funds. This should be an achievable outcome for CDC as they already support a number of funds located outside of tax havens.


28. Much of the detail of this submission has been publicly known for some time. As such we are surprised and disappointed that CDC has not developed more effective methods of measuring its development impact as a means of answering our concerns. However, in 2009, the Parliamentary Public Accounts Committee reported that "Although CDC invests more of its resources in poor countries than any other Development Finance Institution, there is limited evidence of CDC's effects on poverty reduction."[179]

29. CDC seems to have limited understanding of development, and often simply equates profit-making with development through the jobs and tax revenues CDC's investment creates. We have seen some of the problems related to CDC's investments producing taxes. As far as employment is concerned, it is difficult to test CDC's claims. First CDC does not appear to monitor the quality of its employment - the impact of jobs on poverty depends on who is being employed and on what wages. Second, CDC uses figures from the funds it invests in regardless of how small a share the CDC's investment represents. A small CDC share in an already profitable business which would have easily found other investors elsewhere, means the CDC has had no real impact on anyone's life, and the sole purpose of the investment has been making money for CDC and its fund managers.

30. The funds in which CDC chooses to invest often prove to be controversial. JDC first started working on CDC because of a case brought to our attention in Nigeria. CDC invests in Nigeria partly through Emerging Capital Partners (ECP). Through this fund, CDC invested in several recently privatised Nigerian companies associated with James Ibori, former Governor of Niger Delta state, who is currently accused of corruption. Several of the ECP-invested funds have been connected to Ibori including Notore, a fertiliser company. Notore is the same company which was the single largest debtor to Oceanic bank, another recipient of CDC money, which had to be bailed out by the Nigerian government for its large share of potentially toxic assets. These claims are currently being investigated by DfID, but Nigerian activists believe warning bells should have sounded much earlier. DfID was in fact notified seven months before the banks were revealed to have been collapsing but did little or nothing with the information provided.[180]

31. Another CDC fund is Actis, previously a part of CDC before its privatisation in 2004. That privatisation process alone should give grounds to question the private equity fund model. The privatisation of Actis in 2004 was a national scandal in which the company was sold off at well below market value to the very people who at that time controlled CDC and had, very unusually, underperformed by 30% the year before the sale. In 2005, what had been projected to be a "break-even" year, ended with a profit of $14 million for Actis. Actis partners not only shared personally in these profits, but some also received a one-off payment for concluding the deal. Although this case is now five years old, and well reported, the pay incentive structure in CDC - not to mention the funds CDC uses - are still excessively driven by financial returns.[181] We fail to understand how a development agency can expect to fulfil its duty of investing where others will not if those in charge of making decisions are personally incentivised, largely or wholly, by profitability.

32. The process by which CDC evaluates individual funds is opaque, and we are unclear as to how the CDC measures the fund's development credentials. We only know that different funds are attributed an environmental social governance "grade" by CDC. Contracting out the work of CDC to separate investment funds is bound to mean that quality control becomes more difficult. Given that these funds are not renowned for their positive development impact, we believe this model is inherently problematic and strongly suggest it be set aside. If the CDC is to continue contracting out its work, the manner in which the CDC chooses to invest in funds must be urgently improved and made transparent.

33. The focus on financial performance provides an abstraction of human development. It fails to fully acknowledge the context and ramifications of investment in low and middle income countries; for example, the extent to which women and vulnerable minorities are benefiting from economic development. Financial performance also ignores other relevant poverty reduction measures such as access to health care and education, food security, political stability and good governance to name a few, all of which need to be addressed if poverty is to be reduced. CDC must ensure that all projects conduct a thorough context analysis to ensure that investment is centred on projects that will benefit communities through comprehensive poverty alleviation, and not create harm to vulnerable and marginalised groups in the process.


34. DfID must take responsibility for a failure to adequately oversee and evaluate CDC, in the face of significant concerns being expressed publicly over a number of years. Despite the fact that DfID was not informed about important decisions in CDC's operations, such as the basis for the head of the CDC Richard Laing's scandalous £1 million pay package in 2007, DfID seems to have made no changes in the oversight model.

35. DfID must institute a comprehensive set of development standards by which the CDC must operate and evaluate its projects. These should be based on DfID's own standards and include impact assessments for all projects. They should also include an effective context sensitive assessment, comprising a study of economic and pro-poor development indicators, and identify emergent political, economic, ecological and social issues. Understanding the dynamics of a context will better enable CDC to gain a more holistic understanding of investment impacts, thus ensuring projects are in the best interests of communities as a whole and not just a minority of people. For example, a context-sensitive assessment will enable CDC to evaluate the extent to which economic developments create insecurity through conflict (eg tensions relating to access to employment and resources arising from economic migration), crime and corruption.

36. We hope the proposals for improving CDC's monitoring and evaluation will make an enormous difference to the production of transparent information on the CDC's operations. But we also believe DfiD should require CDC to undertake a thorough review of its transparency and bring forward a set of proposals to transform its public accountability. This should include disclosure of impact assessments.

37. Finally, we are deeply concerned that CDC fails to engage with civil society organisations North or South who, in many cases, have decades of experience which would enable CDC to improve its development impact. In future we believe all projects must include consultation with Northern and Southern civil society organisations before approval, as well as a complaints mechanism for those potentially affected by projects.


38. On the basis of this submission, we believe DfID needs to institute the following reforms at CDC:

  1. -  A comprehensive review of the private equity model employed by CDC, the sectors which it supports, the funds it channels investment through and the countries it focuses on. We strongly suggest alternative models are considered which allow better accountability and control. Better oversight by DfiD is essential;
  2. -  Much stronger development standards, with clear poverty targets - for instance all investments must meet stated human development needs and the current analysis must be expanded to include context sensitive assessment;
  3. -  Better methods of formally consulting civil society in the UK and in countries in which CDC invests, and establishment of a complaints mechanism for those impacted;
  4. -  A framework for monitoring and evaluating CDC's operations and impacts including an annual, public evaluation of projects;
  5. -  A review of the pay structure and incentives offered to staff by CDC; and
  6. -  A tax standard in CDC's investment code and mandating of all funds receiving CDC support to publicly publish their accounts on a country-by-country basis.

157   CDC Group, Overview, last accessed September 2010 Back

158   BBC Radio 4, CDC, 15 July 2008, Back

159   Ibid Back

160   Ibid Back

161   "About Moser Baer India Ltd", Overview, Back

162   CDC Group, The Palms, Nigeria: Creating modern shopping for Nigeria with new goods and services, Back

163   BBC Radio 4, Op cit Back

164   Public Accounts Committee, "Eighteenth Report: Investing for Development: the Department for International Development's oversight of CDC Group plc" (2009) 

165   National Audit Office, "Investing for development: the Department for International Development's oversight of CDC Group plc" (2008), Back

166   Ibid Back

167   Ibid Back

168   War on Want, "Globeleq: the Alternative Report" (2006),


169   Globaleq, "History", last accessed September 2010: Back

170   Rights & Accountability in Development, "Memorandum of Evidence to the Joint Committee on Human Rights", (2009),  Back

171   Public Accounts Committee (2009), Op cit Back

172   Treasury Minister Stephen Timms quoted in "CDC: Haven help us", Private Eye, Issue 1259, 2 April 2010 Back

173   Public Accounts Committee (2009), Op cit Back

174   Richard Brooks, "Poverty Relief: Looting in Senegal", Private Eye, Issue 1260, 16 April 2010 Back

175   Richard Brooks, "That's Rich", Private Eye, Issue 1270, 3 September 2010 Back

176   Richard Brooks, "Haven help us", Private Eye, Issue 1259, 2 April 2010 Back

177   Richard Brooks, "That's Rich", Private Eye, Issue 1270, 3 September 2010 Back

178   quoted in BBC Radio 4, Op cit Back

179   Public Accounts Committee (2009), Op cit Back

180   Jubilee Debt Campaign, et al, "Memorandum to Secretary of State for International Development: Concerns over alleged corruption in CDC-backed companies in Nigeria"(June 2010)


181   Richard Brooks, "That's Rich", Private Eye, Issue 1270, 3 September 2010 Back

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