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 future of CDC, and warmly welcome the committee's interest
in this area. This submission is an addition to the evidence on
CDC that we have already provided to the Committee as part of
its inquiry into the work of DFID in 2009-10.
- 1.3 We have focussed our remarks on the Committee's
request for evidence on: the reforms proposed by the Secretary
of State for International Development on 12 October 2010 and
the feasibility of achieving desired results given the CDC's current
resources, including staffing; and the extent to which the proposed
reforms will be sufficient to refocus CDC's efforts, especially
with respect to poverty reduction.
- 1.4 Our earlier evidence on CDC is copied
at the end of this document, for the Committee's convenience.
- 1.5 We are happy to provide further evidence
on any of the subjects covered in this submission via Melanie
Ward, Senior UK Political Advisor on meward@christian-aid.org
or 020 7523 2467.
2. THE FUTURE
OF CDC
Christian Aid makes the following, additional points:
- 2.1 Christian Aid welcomes the focus of DFID
on - amongst other things - whether CDC could do more to help
developing countries with work to adapt to climate change while
mitigating their contribution to the problem.
- 2.2 While Christian Aid acknowledges that
the use of public funds, including those invested by CDC, to leverage
private investments will be crucial in the global fight against
climate change, we believe that further evidence is needed to
assess the extent to which these leveraging mechanisms can actually
result in pro-poor outcomes, especially in terms of adaptation
and access to energy for the poorest.
- 2.3 In this context, if CDC is to explore
ways in which public funds can leverage private finance for climate
adaptation and mitigation, it will be crucial that these mechanisms
are made consistent with poverty reduction objectives. We believe
that the development and application of rigorous social and environmental
safeguards will be fundamental to ensure the pro-poor outcomes
of investments.
- 2.4 When public money is used to leverage
private sector investment for climate change, it is Christian
Aid's view that in the context of the UK's responsibilities under
the UN Framework Convention on Climate Change, only the public
element of the CDC investment should count towards meeting the
UK's international financial obligations.
- 2.5 It is, however, vital that all of
CDC's investments - not just those with a "climate change"
badge on them - are both environmentally sustainable and pro-poor.
- 2.6 It is impossible to say whether the reforms
proposed on 12 October will achieve sufficient focus of CDC's
work because the proposals are currently so general.
- 2.7 Christian Aid welcomes Andrew Mitchell's
suggestion that CDC should reduce the proportion of its investments
made via third party fund managers. This would help the company
to exercise more active control over, and to have more information
about, the way in which investee companies use UK public funds.
That, in turn, should allow CDC to be more transparent and accountable
for the way in which it is investing public money - a shift which
is highly desirable and in line with government thinking about
the vital importance of transparency.
- 2.8 A key test of any proposed reform of
CDC is the extent to which it will create genuine transparency
around the ways in which public money is being invested and how
those investments are contributing to poverty reduction and sustainable
development, not least through tax payments.
- 2.9 In particular, if CDC's structure and
investment model do not permit transparency around the tax payments
which it and its investee companies make in the countries where
they operate around the world, then the structure and investment
model should be changed.
- 2.10 Christian Aid is surprised that DFID
feels the need to even ask, in its consultation on CDC, whether
it is appropriate for the company "to operate or invest in
jurisdictions that do not meet international standards of transparency
and exchange of information". Given the way that such secrecy
jurisdictions facilitate corruption, tax evasion and other highly
damaging forms of crime against developing countries, CDC should
have an unambiguous, well-publicised policy of avoiding them.
This would set a welcome example for other multinational investors.
- 2.11 Finally, it is worth noting that since
Christian Aid last submitted evidence to the Committee (see below),
in which we argued that CDC's investee companies should be encouraged
to report their accounts on a country-by-country basis, the European
Commission has launched a public consultation on the introduction
of such reporting for multinational companies within Europe, the
detail of which can be found here: http://ec.europa.eu/internal_market/consultations/2010/financial-reporting_en.htm.
3. CHRISTIAN
AID'S
EVIDENCE ON
CDC FROM THE
IDC'S INQUIRY
INTO THE
WORK OF
DFID IN 2009-10
- 3.1 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.
- 3.2 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 notedi
- 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.ii
- 3.3 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.
- 3.4 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.iii Christian Aid
believes that CDC should know about the tax payments and practices
of those companies in which it invests, and that it should be
open with the British public about how much tax those companies
are paying - and where.
- 3.5 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.iv
Similarly, the company has in the past made claims about its tax
contribution to developing countries which it then struggled to
substantiate.v
- 3.6 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 Papervi
as well as in the European Commission Communication on Good Governance
in Tax Matters.vii
- 3.7 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.
- 3.8 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".viii
- 3.9 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.
- 3.10 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.
- 3.11 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.
REFERENCES
I
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.)
ii 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."
iii 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
iv CDC Development
Review 2009, page 3. Confusingly, the company reports on page
17 that it received tax data from 463 companies.
v When the company
gave evidence to the Public Accounts Committee on 15 December
2008, it repeated its claim that its investee companies pay around
£250m 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.
vi DFID (2009) "Eliminating
World Poverty: Building our Common Future", London: DFID
vii European Commission
(2010) Tax and Development: Cooperating with Developing Countries
on Promoting Good Governance in Tax Matters, SEC(2010)426
viii IBID.
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