DFID in 209-10 and the Resource Accounts 2009-10

Written evidence submitted by Christian Aid

September 2010

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 [1] – 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. [2]

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. [3] 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. [4] Similarly, the company has in the past made claims about its tax contribution to developing countries which it then struggled to substantiate. [5]

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 [6] as well as in the European Commission Communication on Good Governance in Tax Matters. [7]

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." [8]

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

9.1 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.  

9.2 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.

9.3 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. 

9.4 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.

9.5 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.