Inquiry into the 2009-2010 annual report and account of the UK's Department for International Development
Memorandum on CDC

The International Development Committee is appointed by the House of Commons (the lower house of the UK Parliament) to examine the expenditure, administration and policy of the Department for International Development (DfID) and its associated public bodies.

Following DfID’s July 2010 publication of its annual report and accounts, the Committee invited submissions to its inquiry on DfID’s activities, including “The work of CDC, a DFID owned fund management business, which invests in the private sectors in developing countries especially Africa and South Asia.”

The submission by The Corner House and Nigerian anti-corruption campaigner Dotun Oloko focuses on CDC’s support to private equity funds and concerns over alleged corruption in several investments in Nigeria made by CDC-backed funds.

CDC now invests solely through private sector fund managers – it describes itself as a “fund of funds” – an approach that makes it hard to scrutinise its investments publicly, subject them to parliamentary oversight or to assess whether and to what extent they alleviate poverty. CDC invests primarily in countries with the largest concentrations of the world’s millionaires (China, India, Nigeria and South Africa).

The submission details eight failures of DfID’s “hands off” approach to CDC and concludes that “CDC is not fit for purpose as a development finance institution” because:

• its impacts on reducing poverty (a legally-binding requirement for DfID) are minimal and largely unproven;
   
• its monitoring and oversight of the private equity funds through which it invests is rudimentary, relying too heavily on self-certification by fund managers with a financial interest in reporting positively;
   
• its approach to evaluating projects encourages investments that yield high returns at the expense of poorer people’s livelihoods, if not whole economies.

The submission recommends that DfID require CDC to:

• move away from its “fund of funds” approach and use instead a wide range of financial instruments, including loans and advisory services, to service low income countries that don’t attract private sector investment.
• establish poverty impact indicators recording the outcomes of specific investments for identified groups of people, against which fund managers should report annually. The indicators should capture the positive and negative, macro and micro, impacts on poverty alleviation for poorer people.
• carry out independent, project-specific evaluations of the poverty reduction impacts of all companies in which CDC is invested.
• strengthen CDC’s Investment Code by requiring adherence to international human rights obligations, including labour standards.
• require adherence to its Investment Code by any co-investors in partnered investments.
• invest only in funds and companies that do not make use of tax havens or secrecy jurisdictions.
• refocus its investments on Small- and Medium-Sized enterprises with strong linkages to poorer people and focused on meeting their needs.

An Annex to the submission summarises serious concerns over whether or not two CDC-backed private equity funds complied with CDC’s Investment Code when they invested in several Nigerian companies reported to be “fronts” for the alleged laundering of money said to have been obtained corruptly by the former Governor of Nigeria’s oil rich Delta State.

The Annex details many questions about the due diligence performed by CDC and the two funds given the links that Nigeria’s Economic and Financial Crimes Commission and other law enforcement agencies have alleged between the companies and associates of the Governor. (See also Memorandum to Secretary of State for International Development.)

The Committee heard oral evidence, published the written evidence submitted to it, and went on to hold an additional Inquiry specifically on The Future of CDC.