Foreign Aid Allocation Without Aid Transparency
Is the Commonwealth Development Corporation (CDC Group) making a game-changing contribution to the Sustainable Development Goals (SDGs)?
Co-authored by Dario Kenner, Lead analyst – Sustainable Economic Development, CAFOD, and Gary Forster, Chief Executive, Publish What You Fund
Without more transparency around Development Finance Institution (DFI) investments and their impact, how can governments and shareholders be confident that these institutions are delivering impact, providing value for money and ultimately contributing to the SDGs?
How is CDC contributing to the SDGs?
A few weeks ago, we organised an event with the UK’s All Party Parliamentary Group (APPG) for the SDGs. Chaired by Gillian Keegan MP, with a number of Members of the International Development Committee in attendance, the session focused on the contribution of the CDC Group to the SDGs. On 14 October 2017 the Department for International Development (DFID) approved an additional £3.5 billion in capital for CDC Group. In its 2017-2021 strategy CDC committed to contribute to achieving the SDGs.
CDC made a convincing case about their efforts to take on-board recent criticisms in the March 2019 Independent Commission on Aid Impact’s (ICAI) report on CDC’s investments in low-income and fragile states. They also did a good job of articulating their focus on impact. They explained how they are increasing resources to ensure they achieve their development results and make a positive contribution to the SDGs through things like job creation and taxes paid by the companies they invest in.
A transparent portfolio?
The issue is that without sufficient transparency we are relying on CDC to tell us what is going on. CAFOD is one of many organisations that monitor Official Development Assistance (ODA) spend to ensure it reaches the poorest. We need to know that CDC is systematically and rigorously making a contribution to the SDGs across its entire portfolio, not just the examples that were shared with the APPG or on the CDC website. In its 2017 and recently published 2018 Annual Review, CDC is increasing the detail of its reporting on areas such as patients served (health), students enrolled (education) and farmers reached (food and agriculture). We welcome these additional details, but we still do not know enough about whether it is the poorest who benefit. We also want to know whether the jobs that CDC creates are quality jobs: Do they pay a living wage? Are they long-term or short-term? Do they respect trade unions? Are they green jobs that are compatible with the SDGs? Is it people from vulnerable groups who get these jobs?
We do not know if at the key moment when CDC decides which companies to invest in that it bases this decision on how that company will achieve high development impact and contribute to wider SDGs. The ICAI review recommended that “CDC should incorporate a broader range of development impact criteria and indicators into its assessment of investment opportunities and ensure these are systematically considered in the selection process.” CDC has already made commitments on job quality, women’s economic empowerment and climate change so it makes sense for the criteria to start there and then be extended to wider SDGs.
Choosing the right ODA channels
Whether we’re talking about quality jobs, health or education the central challenge here is that CDC doesn’t operate in a vacuum – rather the UK Government should allocate its ODA budget through the channels that will most effectively alleviate poverty and contribute to the SDGs. As the former Secretary of State Penny Mordaunt said in March 2019 “We will not deliver the Global Goals unless we utilise every possible resource and every single advantage we have”. Tough decisions have to be made about allocating ODA. It could go to emergency nutrition programmes in Yemen through the UN System, or maternal health programming in Nigeria through bilateral channels. Of course, this situation is not unique to the UK; the majority of DFIs have governments or development agencies as shareholders who need to be able to determine and justify the most appropriate channels through which to spend ODA.
So what impact are DFIs making?
Publish What You Fund has previously written about our efforts to dig into the unique business models of DFIs such as CDC, with an aim to find opportunities as to where DFIs can be more transparent. We subsequently reported on the importance of DFIs being transparent about their impact. Then, following the launch of the IFC’s new AIMM system we wrote that if DFIs use these metrics – and the data arising from them – and none of this is made public, then a huge opportunity for improved learning, better coordination and ultimately improved impact will be lost.
We know that DFIs struggle to share granular impact and value for money information. In large part they put this down to challenges associated with commercial sensitivity and client confidentiality restrictions. But what does the world look like in a situation where this information can’t be shared? How does government continue to justify significantly re-capitalising DFIs without evidence to determine the impact of these investments and the cost of this impact? And what does that mean if DFI investments are actually more impactful at lifting people out of poverty than traditional aid mechanisms but the evidence to substantiate this can’t be provided?
Ultimately, until there is more transparency about how CDC operates and its development impact, it is impossible to answer whether CDC is investing in ways that make a game-changing contribution to the SDGs to end poverty and protect the environment across its entire portfolio.