Written evidence submitted by Save the
Children
INTRODUCTION
Save the Children is the world's leading independent
children's rights organisation. We're outraged that millions of
children are still denied proper healthcare, food, education and
protection and we're determined to change that.
This document is intended to address some specific
issues which form the basis of the inquiry. It is not intended
to address comprehensively the issues discussed in DFID's Annual
Report. Rather, it draws on our programmatic experience and interaction
with DFID to suggest concrete actions that will maximise the effectiveness
of DFID's work. These recommendations are especially pertinent
in light of the ongoing aid reviews being undertaken by the Department.
Save the Children's submission focuses on two of
the key areas of investigation by the Committee. These are aid
effectiveness, including questions of accountability and transparency,
and the work of CDC. In both of these areas, our submission sets
out clear recommendations that DFID should take into account going
forward to ensure that the world's poorest people benefit most
from the reforms underway. These recommendations are as follows:
Aid Effectiveness
In pursuing its aid effectiveness agenda, DFID must:
- · Continue
to promote developing country ownership;
- · Ensure
that accountability to the UK taxpayer is not at the expense of
effectiveness for the recipient;
- · Support
a progressive and ambitious successor to the Paris Declaration
at the 2011 High-Level Forum;
- · Focus
on results whilst acknowledging the wide range of challenges faced
in developing country contexts, the need for long term approaches
and space to allow for innovation and learning.
CDC
- · CDC
must prioritise direct investment to projects with demonstrable
impact on poverty reduction, rather than those measured solely
on the basis of financial performance. If necessary, CDC's business
model should be adapted to facilitate this.
- · CDC
must actively consider the social and environmental impact of
its investments and must adhere to more robust guidelines to ensure
that this is done.
- · CDC
must ensure that its investments are not channelled through tax
havens, which deprive developing countries of revenues that are
urgently needed to invest in the MDGs.
- · CDC
must be fully transparent about the companies in which it invests.
In line with DFID's wider emphasis on accountability, this information
should be publicly available.
Aid Effectiveness
1. Save the Children welcomes critical examination
of DFID's reinvigorated focus on aid effectiveness and value for
money. These are issues which dominate the Department's 2009-2010
Annual Report and current DFID discussions, especially in the
context of the bilateral and multilateral review processes. These
foci, plus the UK Aid Transparency Guarantee and language of accountability,
imply positive shifts in the clarity, direction and efficiency
of DFID's spending. However, the primacy of these objectives also
raises concerns that more substantive issues of programme content
and achieving long-term transformative change may be marginalised.
2. Here we outline three key areas of concern, which
we hope the IDC will fully consider in the course of its review:
Aid Effectiveness: for us or for them?
3. For the last five years DFID's work on aid effectiveness
has been highly influenced by a consideration of "effectiveness"
as defined by the 2005 Paris Declaration[183]
(i.e. harmonisation, alignment, ownership). However, the change
in government and fiscal constraints appear to have prompted a
shift of focus, away from this agenda and towards accountability
and value for money.
4. This shift is demonstrated within DFID's 2009-10
Annual Report which discusses the effectiveness of bilateral aid
in the context of the International Development (Reporting and
Transparency) Act 2006 and not in relation to any of the broader
Paris and Accra principles.[184]
5. Using the 2006 Act as the basis of assessing aid
effectiveness is sufficient in so far as it enables consideration
of the management of aid, its transparency and monitoring. Importantly
this Act also discusses the need to ensure that 'aid supports
clearly defined development objectives, agreed between those providing
and those receiving the aid'. However, the Act does not require
reporting on donor harmonisation or alignment.
6. Of even greater concern is that despite recognising
the need to consider how aid supports recipients' development
agendas (see the introduction of Chapter 4) this particular element
is only considered in the Annual Report in so far as it discusses
DFID's contribution to poverty reduction budget support (which
only accounts for 27% of DFID's bilateral programme[185]).
In doing so, the report does not consider two of the central aid
effectiveness principles enshrined in the Paris Declaration, namely
ownership and harmonisation.
The independent Aid Watchdog: transparency and
accountability - to whom?
7. As a first step towards demonstrating accountability
and reform DFID has launched a new transparency guarantee and
independent aid watchdog. These initiatives aim to provide better
accountability to the UK taxpayer and to enable better recipient
country national planning though more accessible and timely information
on aid flows, including commitment and disbursement rates. More
visible information on aid flows is an important part of more
effective and accountable UK spending. It can also help civil
society organisations in recipient countries to hold governments
to account.
8. Nevertheless the emphasis on transparency raises
questions about the level of DFID involvement that will be required
within national level programming. If transparency implies accountability
to the UK taxpayer for every penny spent, with demonstrable returns,
then DFID will no longer be able to observe the Paris principles
of national country ownership and encourage such practices as
budget support. Accountability may result in greater conditionality
and increasing micro-management of DFID spending on the ground.
In some cases, the pressure to account in extreme detail for DFID
spending may lead to greater use of projects over which DFID can
retain close control. Although Save the Children recognises that
DFID is under pressure to demonstrate fiscal responsibility and
provide demonstrable results we would be very concerned if it
led to a reversal of recent improvements in coordination, harmonisation
and national level ownership and financial control.
9. Public commitments made by DFID play an important
part in ensuring transparency. In addition to the work that will
be undertaken by the new independent aid watchdog, it is therefore
important that DFID continues to report in detail against commitments
that it makes. Not only is this a key facet of accountability,
but monitoring progress in this way allows effective tracking
of the Department's investment in issues such as combating the
food crisis. Indeed, as part of its efforts on tackling hunger
under the umbrella of a £1 billion commitment to food and
agriculture, DFID's Nutrition Strategy commits to report annually
on progress made towards its target of reducing by 12 million
the number of undernourished children in the next five years.[186]
This is an instructive example of a reporting commitment which
must be upheld if transparency is to be at the heart of DFID's
approach.
Short-term Results or Transformation
10. As DFID's annual report makes plain, aid effectiveness
is in large part determined by results. Save the Children recognises
the importance of ascertaining robust results, which are able
to be monitored and which demonstrate the effective utilisation
of UK resources. However, we also appreciate that measuring results
and outputs must not eclipse the attainment of long-term human
development outcomes. To ensure transformative change and to demonstrate
results, many projects require long-term investment. We therefore
ask DFID to include flexibility within their monitoring framework
to enable long-term approaches, with space for innovation and
learning.
11. In conclusion, to ensure that DFID's aid effectiveness
agenda continues to build on the successes of the past, whilst
also demonstrating reform and renewal, Save the Children recommends
that DFID adopt four key approaches:
- · Continue
to promote developing country ownership;
- · Ensure
that accountability to the UK taxpayer is not at the expense of
effectiveness for the recipient;
- · Support
a progressive and ambitious successor to the Paris Declaration
at the 2011 High-Level Forum;
- · Focus
on results whilst acknowledging the wide range of challenges faced
in developing country contexts, the need for long term approaches
and space to allow for innovation and learning.
The Work of CDC
12. Save the Children welcomes further investigation
into the work of the CDC, the DFID-owned fund management company,
and we are glad to see that CDC will be presenting a new business
plan in March 2011. We understand that the CDC is seen as a key
part of DFID's strategy to reduce poverty through private sector
development, but we think that a number of changes need to be
made to the way CDC operates in order to ensure that its primary
objective matches that of DFID - poverty reduction.
13. First, we are concerned that the private
equity model under which CDC currently operates does not allow
CDC to direct investment towards projects that have particular
development benefits, such as projects that have a positive impact
on human wellbeing (for example, water and sanitation infrastructure),
or other development benefits such as job creation (for example,
favouring investment in labour-intensive industries such as agriculture
or construction, over investment in capital-intensive businesses
such as national resource extraction). The 2008/09 National Audit
Office (now called the Public Accounts Committee) report investigating
CDC noted 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'.[187]
The Public Accounts Committee also noted that remuneration arrangements
within the CDC "take too narrow a view of performance, with
too much emphasis on financial performance and too little on poverty
reduction."[188]
14. The primary objective of CDC's investments, however,
should be poverty reduction, with a goal of maximising returns
(beyond financial returns) for local communities. This may mean
adapting CDC's business model so that it is able to take on higher
risk and lower return investments that are rated highly in terms
of other development benefits. The Public Accounts Committee noted
that CDC's own fund managers questioned the "breadth of development
benefits that DFID hopes CDC can deliver"[189]
and doubted whether "higher risk and lower return investments
were compatible with a commercial business model."[190]
CDC's current operating model is also unique amongst other Development
Finance Institutions (DFIs), which tend to also offer loan financing
and technical assistance alongside equity investments.
15. Second, we are concerned that CDC is not operating
with more stringent guidelines with regards to the social and
environmental impact of its investments. According to CDC's own
website it requires its fund managers to sign up to an Investment
Code, but there appears to be no discussion of how compliance
with the code is enforced, or whether investments have ever been
declined or withdrawn on the basis of concerns about social or
environmental sustainability. This means that DFID funds may be
finding their way to support companies that are guilty of gross
human rights abuses or environmental degradation; there is no
way of knowing. The Code itself is very vague, and appears to
only comply with the bare minimum standards on social and environmental
sustainability. Instead, we would like to see CDC taking a pioneering
role in selecting investments that meet high standards of environmental
and social sustainability, as these are both core components of
any poverty reduction strategy.
16. Third, we are concerned that CDC investments
are being channelled through tax havens, reducing the tax that
could be paid to development country governments. As of December
2008, CDC investments were being channelled through 72 subsidiaries,
40 of which were situated in tax havens.[191]
Tax havens are territories that support laws that allow companies
and individuals to operate opaquely and avoid paying tax. The
Tax Justice Network notes, from looking at the list of principal
subsidiaries of the CDC, it is clear that "…tax planning
is at the forefront of [CDC's] thinking, and that the planning
involved does result in less tax being paid in developing countries
than might be expected by their governments…"[192]
17. Fourth and finally, we are highly concerned about
the lack of transparency associated with CDC's investments. Even
though CDC is fully owned by DFID and is the beneficiary of public
funds, it is completely non-transparent about the companies in
which it invests. It is impossible for a member of the public
or a citizen of the country in which the investment is being made
to see even a list of the companies benefitting from CDC investment,
let alone the financial accounts for these companies. This lack
of transparency is unacceptable.
18. We agree that private sector development has
a role to play in poverty reduction. But the distance between
DFID's core objective of poverty reduction and the current operating
model of the CDC is too wide. In a time of fiscal austerity, we
should be concerned that as of 2008 CDC had £1.4 billion
of un-invested cash, and the pay of CDC's Chief Executive in 2008
- the head of an entirely publicly-owned body - was £970,000.[193]
We are also concerned to hear that, at the same time as it is
considering cutting a number of its programmes - including commitments
to double support to global education and to spend £6 billion
of new money on health services and systems - DFID is considering
putting a new infusion of money into the CDC for the first time
since 1995.
183 As agreed in Paris in 2005 and in the 2008 Accra
Agenda for Action, aid effectiveness should not only be determined
by results but by national ownership (i.e. enabling developing
countries to set their own strategies for poverty reduction and
wider development), through alignment (whereby donors align behind
national objectives), harmonisation (whereby donor countries coordinate,
simplify procedures and share information to avoid duplication);
mutual accountability (whereby donors and partners are accountable
for development results). Back
184
This shift also appears to be mirrored by the recent repositioning
of the DFID Aid Effectiveness team, away from the International
Division to the Corporate Performance Division. Although this
may be a welcome shift, placing aid effectiveness, multi-donor
alignment and so forth at the heart of DFID's corporate performance,
we have concerns that the move may indicate a new focus upon aid
effectiveness as determined by value for money and outcomes /
results.
Back
185
See DFID Annual Report 2009-10, p.70. Back
186
DFID, The neglected crisis of undernutrition, DFID's strategy,
March 2010, p. 27 Back
187
Public Accounts Committee - Eighteenth Report, Investing for Development:
the Department for International Development's oversight of CDC
Group plc, Session 2008-2009 Back
188
Ibid. Back
189
Ibid. Back
190
Ibid. Back
191
Jubilee Debt Campaign, "CDC: Fighting Poverty or Supporting
Finance?", 4 August 2010 Back
192
Tax Justice Network, "CDC: going offshore to help the poor?",
30 June 2009 Back
193
Public Accounts Committee - Eighteenth Report, Investing for Development:
the Department for International Development's oversight of CDC
Group plc, Session 2008-2009 Back
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