Press Release - Investing for development: the Department for
International Development's oversight of CDC Group plc
5 December 2008
CDC Group plc, the government-owned fund management business
tasked to invest in private businesses in developing countries, has
exceeded the financial and investment targets set for it in 2004,
when it was restructured. CDC has secured a good return on public
funds, in a portfolio weighted towards poor countries, and to that
extent it has achieved good value for money. But the Department for
International Development (DFID) needs better information to show
how far profitable CDC investment contributes to poverty reduction,
and to confirm improved monitoring of compliance, according to a
National Audit Office report released today.
CDC’s assets grew from £1.1 billion in 2004 to £2.7 billion in
mid-2008 – an average annual rate of growth of 24 per cent. CDC now
has £1.4 billion in cash, more than it has invested in developing
countries. CDC has committed to investment totalling £1.7 billion
over the next few years. But it has previously over-estimated the
rate at which cash would be needed by its fund managers.
Over seventy per cent of CDC’s portfolio is targeted on poor
countries, compared with seven per cent of foreign investment
overall. Since 2004, CDC has increased its investment in China,
Nigeria, India and South Africa, which now account for two thirds
of its portfolio - countries which contain most of the world’s poor
people, but which also attract inward investment from other
sources. DFID needs evidence on how far CDC’s investments add to
total private investment.
To ensure that good financial returns contribute to development
without adverse consequences - such as environmental damage or poor
health and safety - CDC espouses sound ethical business principles.
CDC’s reporting to DFID on their implementation, however, has been
selective, saying nothing about levels of compliance with them. By
mid-2008, CDC had evaluated the development and poverty impact of
four of the funds it invests in, but these evaluations lacked
depth. CDC is now continuing its evaluation work, focusing on new
investments made since 2004.
DFID and CDC have put in place a sound governance model, although
there have been concerns over how it has worked in practice.
Reporting and monitoring of executive pay, for example, should have
been stronger. DFID approved a pay framework designed to
incentivise good performance, especially financial performance.
Following performance which exceeded benchmarks, CDC awarded
executives pay packages well above thresholds set in 2004 as
requiring prior consultation with DFID. DFID has been working with
CDC to improve the oversight of remuneration, and to remove
ambiguities in the original agreement.
Tim Burr, head of the National Audit Office, said
today:
"By achieving strong financial performance
with a portfolio weighted towards poor countries, CDC will have
made a credible contribution to economic development in those
countries. But the scale of that contribution, or the direct effect
on poverty reduction for poor people, is harder to demonstrate.
DFID needs better evidence on the scale of CDC’s impact to make
sure it secures the greatest development benefits."
Notes for Editors:
- CDC was established as the Colonial Development Corporation in
1948 and is tasked with investing, and encouraging private sector
investment, in some of the world’s poorest countries. In 1997 CDC
became a public private partnership. Following a restructuring in
2004, CDC no longer invests directly, but through 60 fund
management organizations, which also place investments for other
private sector and developmental organizations.
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Tim Burr, is the head of
the National Audit Office which employs some 850 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 54/08
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