Privatised aid

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Alex Cobham from Christian Aid rightly calls for Britain's Department for International Development (DfID) to help developing countries to strengthen their ability to collect tax revenue (Frontlines, Socialist Review, June 2008).

But it's worth noting that a major factor complicating this laudable aim is the government's decision four years ago to privatise the management of DfID's development fund, CDC, into a newly created private equity firm, Actis.

Actis was set up using £5 million of public money and headed by former CDC managers. In its first year it reported a $14 million net profit, after paying an average $220,000 salary for its 192 employees and $1.84 million for its senior partner. (It has to return 80 percent of its profit to the government but that agreement ends next year.) Actis has since become a leading private equity fund manager specialising in emerging markets.

Private Eye has reported extensively on this privatisation, seeking (thus far fruitlessly) details of how the seemingly very low Actis sale price was arrived at, and how much public money the CDC continues to pay it to manage development funds. While Actis still officially answers via the CDC to DfID over investment policy, its main directive from successive development secretaries has been to promote private sector investment, a task it has taken to with enthusiasm. Helping developing countries maximise tax revenue does not however appear to be high on the list of priorities. In fact reports suggest that Actis is rather more inclined to advise investors on minimising their tax exposure through offshoring and similar approaches.

The Actis case draws out the fundamental contradiction in Labour's aid and development agenda. While it may well be sincere in wanting to see an end to poverty in developing countries, its slavish devotion to neoliberalism and promotion of market "solutions" tend to undermine its efforts.

This circle can't be squared. To truly make poverty history, we need to be prepared not to pander to big business, but to take it on.

Ben Drake