CDC was created in 1948 as the Commonwealth Development Corporation. Its current mandate is to boost economic growth by investing in businesses in developing countries. Since restructuring in 2004, CDC almost exclusively relies on the 'fund of funds' investment model, thereby making almost all of its investments indirectly via fund managers.
There has been mounting criticism that CDC does not have sufficient development impact. In October 2010, the Secretary of State for International Development announced that reforms to CDC were required and we decided to undertake an inquiry.
We found that although CDC has increased its net assets by £1.5 billion since 2004 and has contributed to employment and the tax base of developing countries, its development impact has been insufficient for a Government-owned company whose net investments count as Official Development Assistance. We are concerned that some of the investments CDC has made are ones the private sector would have made anyway. Over half of its investments are concentrated in four middle-income countries. Too few of its investments have been in sectors which most benefit the poor such as agriculture, infrastructure and small and medium enterprises.
In order radically to increase CDC's development impact we recommend that CDC be split into two parts. The first part would primarily use the 'fund of funds' method and co-investment (through equity), and other financial instruments as appropriate, to make investments in developing countries. The new second part would have a mandate to make innovative investments in 'pro-poor' sectors. The profit from the first part of the business would fund or subsidise the second.
CDC should be more transparent to facilitate greater accountability and public oversight. We believe the remuneration of CDC's executives is excessive and that high quality staff could be secured for lower salaries.
CDC has an important role to play. However, CDC's mandate should be changed from economic growth to incorporate a specific focus on poverty alleviation. DFID should become a more active shareholder of CDC and undertake closer oversight of CDC in future. CDC should retain its expert status and should remain complementary to the other DFIs, whilst sharpening its development impact and poverty alleviation focus.