CDC Group reforms dilute UK aid's poverty reduction mandate, say NGOs

Civil society organizations in the United Kingdom have expressed concerns about reforms to the country’s development finance institution, CDC Group, which they say will “further dilute the poverty reduction mandate of UK aid.”

In an open letter, 12 NGOs said the Nov. 25 move to rebrand CDC Group and widen its mission appears to “entirely remove” the organization’s poverty reduction mandate — an allegation the government and organization have denied.

The changes seem to repurpose the institution to focus “solely on private sector investment and profit making, rather than development goals and poverty reduction,” according to the letter, whose signatories include Christian Aid, Global Justice Now, the Catholic Agency for Overseas Development, and the Trades Union Congress.

In April, CDC Group is set to become British International Investment, or BII — dropping any remaining reference to “development” from its name — amid an overhaul of the institution that will see it focusing on infrastructure investment and entering new markets in Southeast Asia and the Caribbean. The organization directed Devex’s request for comment to the Foreign, Commonwealth & Development Office, its owner.

“This move will further dilute the poverty reduction mandate of UK aid,” said the letter. “Furthermore, increased funding for BII will lead to damaging reductions in other grant-based areas of UK aid spending, already cut by over £4 billion this year, and will reduce the proportion of the UK’s international climate finance being delivered as grants,” it added.

“Ultimately, this means that more UK aid will be directed to projects, countries and sectors that provide an economic benefit to the UK, rather than to the world’s most marginalised communities,” the letter continued. It argued that the remaining aid budget should be “prioritised for agencies with a proven track record of delivering on development goals.”

By law, U.K. development assistance must be spent on reducing poverty, but the letter said CDC Group invests in “projects with only the most tenuous relation to poverty reduction, in the hope that the economic benefits will trickle down to the world’s most marginalised communities.”

“No country in the world has ever escaped poverty without reliable, long-term investment,” said an FCDO spokesperson in response. “Reliable and honest sources of finance are needed in low- and middle-income countries to prevent them from taking on unsustainable debt and make them freer, wealthier, and more secure.”

CDC Group will “act as a key delivery vehicle to drive investment and economic opportunities across Asia, Africa, and the Caribbean, including in some of the world’s poorest countries,” the spokesperson added.

The open letter also touched on climate finance concerns. “The decision to spend £3 billion in international climate finance (ICF) through BII will similarly reduce the proportion of UK ICF that is provided in the form of grants,” it said. The letter added that CDC Group’s “track record” means that climate finance is unlikely to be focused on adaptation or in the lowest-income countries.

Many experts are concerned by the proportion of climate finance skewed toward loans — which add to debt — instead of grants. International finance is also lacking for measures aimed at adapting to climate change, as opposed to mitigating carbon emissions. These shortcomings have been compounded by the failure of wealthier nations to deliver the $100 billion that vulnerable countries say is needed to start adapting to climate change and to maintain trust in the diplomatic process for dealing with a warming planet.

CDC Group is set to become a key tool of U.K. international policy under Foreign Secretary Liz Truss, who has said that investment and “economic partnerships” will be the focus of the United Kingdom’s new development strategy.

“The BII will help deliver £8 billion a year in U.K.-backed financing by 2025, up from 1.5 billion [pounds] last year,” Truss said in a recent speech. She said the group is an “honest, reliable alternative, providing infrastructure finance and support for the green transition.”

CDC Group is a source of division in the U.K. development sector. Its work has support from influential economists, often based in think tanks, but has also long been opposed by some in NGOs.

The letter made a number of requests to FCDO. These include ensuring that CDC Group’s mandate “is rooted firmly in poverty reduction, the closing of inequalities and tackling the climate crisis” and that the institution stop investing aid in private equity funds.