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Big companies should not profit from aid

30 November 2012

DfID is using public money to back multinational corporations in exploiting developing countries, argues Alex Scrivener

Jesus rails against the Pharisees for giving a tenth of their spices, but neglecting "the more important matters of the law - justice, mercy, and faithfulness" (Matthew 23.23). Sometimes, I wonder what he would have said about rich countries such as the UK, and our politicians who constantly boast about our "generosity".

We give only 0.6 per cent of our national income to the poor in the developing world, while benefiting from a global trade system that ensures that people in those countries will never escape the poverty trap.

Yet the sad truth is that much of even this paltry sum is being spent to promote the interests of UK plc, not the poor. Take the recent controversy over "poverty barons". The Sunday Telegraph ran a series of stories on aid spending, starting with the revelation that the Department for International Development (DfID) spent nearly £500 million last year on private consultants. Many of these people earn six- or seven-figure incomes.

The International Development Secretary Justine Greening, who was new in post, quickly ordered an internal inquiry. While hiring consultants is sometimes justified when in-house expertise does not exist at DfID, it is clearly wrong that we are funding British companies such as Adam Smith International to promote free-market ideology to cash-strapped African governments. Back in 2001, this firm was given £250,000 to write a pop song to promote the privatisation of the water supply in Tanzania.

The real scandal, however, is not so much the extent to which DfID's work has become outsourced to consultants; it is the underlying assumption within Government that big business holds all the answers to the problem of tackling poverty, and that our aid money should therefore be used to support these corporations rather than going to the poor more directly.

In Bangladesh, for example, DfID is funding a World Bank project that promotes new "special economic zones", and which envisages giving tax-breaks to multinationals. Existing zones in Bangladesh, which host brands such as Nike, Adidas, and Walmart, enforce strict restrictions on trade-union activity, and allow companies to pay workers as little as £1 a day.

Only in August, dozens of people were hospitalised in the Ishwardi Export Processing Zone in Bangladesh, after police attacked workers who were protesting about their conditions. This case shows how the belief that only investment by multinational companies can help countries beat poverty can lead to a situation in which British aid money supports the violation of basic labour rights. 

IN 2010, Ms Greening's predecessor, Andrew Mitchell, announced that a new "Private Sector Department" would be established within DfID. Speaking at the London School of Economics in October that year, he promised to "recast DfID as a government department that understands the private sector".

It turns out that this policy is not just about helping multinationals: in the name of supporting low-carbon energy, there is a plan to spend £130 million of public aid-money to prop up highly profitable private-equity and hedge-fund investments in energy infrastructure in poor countries in Asia, Africa, and Latin America.

In the official project documentation of this fund, DfID says that it wants the fund to "avoid being perceived as being too developmental in nature because of the risk of otherwise deterring private-sector investors who are looking for good financial returns".

So, because DfID wants to attract support from the financial sector, money that is supposed to be helping the poor is actually going to facilitate high-profit investments by millionaire hedge-fund managers in London. What is worse, as the funds will be controlled by a commercial fund-manager, there will be little or no transparency about what this money is used for. 

NONE of this is to say that support should not be given to small, community-level businesses. A positive example is the assistance given to local co-operatives in Malawi by the Scottish government. But the current obsession with involving big business in development is not only harmful, but potentially comes at the expense of proved (often public-sector) solutions in health and education.

For example, at the same time as cutting funding to the Centre for Progressive Healthcare Financing, which focused on achieving universal public health-care, DfID put more than £12 million into a joint project with a number of other agencies promoting for-profit public-private partnerships in health.

What we need now is a rethink about what aid is really for. It should be unacceptable for this money to be used to support the commercial interests of large companies.

In the UK, we are already the beneficiaries of a deeply unfair economic system, which gives our companies advantages over local producers in the developing world. International trade rules force poorer countries to open their markets, which are then flooded with cheap imports, leading all too often to the collapse of domestic agriculture and industry.

While the best aid we can give to the poor is to change this system, the least we should do is to ensure that our aid budget is spent to help rectify these injustices rather than to reinforce them.

Alex Scrivener works as a campaigner at the World Development Movement (www.wdm.org.uk).

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