Britain has poured hundreds of millions of pounds from its poverty relief fund into Pakistan’s version of Amazon, Chinese restaurant chains, online gambling websites, five-star hotels and luxury shopping malls, The Times can reveal.
CDC Group, the government’s private equity division, claims that it “makes a lasting difference to people’s lives in some of the world’s poorest places” by investing in local businesses that then create jobs.
Analysis of hundreds of its investments, however, reveal that foreign aid money has gone to companies catering for the comfortable middle classes including dozens in large, fast-growing economies such as China and India.
The revelations will put pressure on Priti Patel, the international development secretary, to justify plans to quadruple the amount of aid money flowing through CDC from £1.5 billion to £6 billion — a move criticised by an MP last month as “an ideological attempt to privatise our aid”.
Last night Theresa May urged Ms Patel to clamp down on how aid is spent after The Times revealed that the Department for International Development (Dfid) was spending £1 billion a year on consultants and had handed tens of thousands of pounds to hire TV stars. Ms Patel is to review all Dfid aid contracts and will force contractors to publish salary figures, but she remains steadfast in her support for CDC.
Projects that have received investments from CDC or CDC-backed funds since 2012 have included:
•Several large shopping malls in Nigeria, often with accompanying gated communities, and a chain of electronics stores selling iPhones and flat-screen televisions in Egypt.
•Daraz, the Pakistani version of Amazon, and an Indian online fashion retailer called Jabong. They have received £32 million between them in direct funding from CDC.
•Restaurant chains in Vietnam, India and Peru and a Chinese budget hotel franchise called 7 Days.
•An African e-commerce company which has also been backed by Goldman Sachs, Axa Insurance and other multinationals and an online gaming platform in Singapore which has been valued at $2.5 billion.
•Outdoor advertising businesses in Ghana and China and a company that supplies Imax cinema equipment in the Far East.
CDC, formerly the Commonwealth Development Corporation, changed its mission statement in 2012. After earlier criticism it pledged to focus on riskier development projects that would otherwise struggle to raise funding and to only invest in South Asia and Africa. However, previous commitments to private equity funds mean that money is still being used to fund businesses in wealthy countries including China and several in eastern Europe.
A spokesman said that its direct investments in online retailers including Daraz, Jabong and the Africa Internet Group were justified because of the jobs that they supported. CDC acknowledged that it could sell its interest in private equity funds to which it had committed itself before 2012 but which were making fresh investments in businesses that it would not otherwise choose to invest in.
However, Diana Noble, the outgoing chief executive, said she had concluded that this would represent poor value to the taxpayer. Another investment, Feronia Inc, which runs palm oil plantations in the Democratic Republic of Congo and has received £26 million of British aid money, has been criticised by a coalition of charities over claims that it is illegally occupying land and pays workers less than $2 a day.
CDC also retains longstanding investments in a Brazilian fitness chain, a Mexican tourist resort, a cable TV provider in Kyrgyzstan and a group of private boarding schools in Kenya, analysis of its holdings shows.
A report by the National Audit Office in November found that CDC was struggling to show that its work made a lasting impact on people’s lives in poor countries. Tim Jones, policy officer at Jubilee Debt Campaign, said: “These cases show that money which should be used for poverty reduction is being directed at private companies benefiting wealthy consumers. In many cases the use of private equity funds means that CDC has no control over where the money ends up. Aid money should be supporting public services and infrastructure, not private profit.”
CDC has long faced criticism over the extent to which its investments have an impact on alleviating poverty rather than simply generating good returns. Once it has committed to a private equity fund it cannot control the fund’s individual investments and the only alternative is to sell its interest.
Although pay has been reduced in recent years, staff continue to receive high salaries. Ms Noble received more than £300,000 last year. The group’s 145 staff received an average of about £90,000 last year in basic pay, with a further long-term bonus worth an average of more than £19,000. CDC said that the average salary had since fallen to £82,000.
Since the start of 2014 investment funds which CDC has backed with $338.4 million have made investments in more than a dozen big construction schemes. These include two residential units in Nairobi, Kenya — Westpoint Heights and Westlands Place — which were backed by a fund with $20 million of CDC money in 2014. A brochure for Westpoint Heights, which uses the slogan “only the best will do”, boasts that it will be a gated community of two-bedroom apartments with “state of the art fittings”, while Westlands Place describes itself as “Nairobi’s premier city-living concept” with a “rooftop party terrace”, gym, 24-hour reception and a private water supply.
CDC said that “construction employs a large number of people, typically with low skills, and is an excellent way to improve job quality”.
A Dfid spokesman said: “We have radically transformed CDC over the last five years to ensure their investments are targeted where they are needed most and have greatest impact for the world’s poorest.” The department said that it would continue to hold CDC to account.
Article original published in The Times (9.12.2016)