The facts: how big business is making profit from UK overseas aid

The UK government is increasingly emphasising the role of private companies in delivering overseas aid.  But there is a very real danger that, in taking this approach, the real purpose of aid, which is to help people out of poverty, is taking second place to corporate profit.  

Here are some examples of how aid money is benefiting big business: 

UK aid money helps multinational companies dodge tax

1. £11 million of UK aid money has gone to the World Bank to help set up ‘special economic zones’ (also known as export processing zones) in Bangladesh specifically aimed at attracting investment from foreign companies.  

o Multi-national, high street names like Nike, Walmart, Adidas, H&M and Gap have factories in these zones in Bangladesh and were granted ten year tax holidays when they set up.  

o However, unskilled factory workers in these zones earn on average less than £1 a day, have few employment rights and are banned from joining a trade union. 

o Protests by workers have been met with tear gas and rubber bullets from the police.

2. Consultants employed by the UK government’s department for international development (DfID) have helped draft a policy in the Indian state of Orissa which, if passed, would give large companies that manufacture car parts the right to cheap land and tax breaks. 

Public-private partnerships (PPPs)

In the UK, the government’s use of public private partnerships to build public infrastructure  (in the guise of private finance initiatives) has been widely and heavily criticised, including by a UK parliamentary committee, for making profits for private companies but leaving the tax-payer to shoulder most of the risk.  Yet the UK is using aid money to promote this discredited model of development across the world.

DfID has a target of completing 35 of these public-private partnerships in India alone by 2015.  

And at the same time, the current UK government has abolished the Centre for Progressive Healthcare Financing, which aimed to achieve universal healthcare for all.  Instead they have given £12.6 million of UK aid money to a project providing technical assistance to countries wanting to implement public private partnerships in healthcare.

- The UK is the biggest donor to the World Bank’s Public Private Infrastructure Advisory Facility which until recently advised on water privatisation in developing countries – something it has now moved away from, as it proved to be a total failure.

- Through a PPP finance project called the Emerging Africa Infrastructure Fund, UK aid money has also been invested in dirty power plants such as the Kelvin coal-fired power station in South Africa, which is owned by a UK equity company. This same fund has also invested in an oil plant in Cameroon, owned by US based international power company AES Corporation.  DfID and other European government aid agencies give money to this Fund that works in partnership with banks such as Barclays plc to lend money to corporations building in developing countries.  In these cases DfID is shouldering the risk for these projects, while Barclays and other banks make the profits, and promoting the PPP model in doing so.  

Corporations as aid agencies

Increasingly, multinational corporations are replacing aid agencies, governments and non-governmental organisations as the implementing partners in aid projects.  For example:

- DfID’s Girl Hub project, aimed at getting policymakers to prioritise the needs of girls, is being implemented by the Nike Foundation.  The UK’s aid watchdog, the ICAI, has criticised the project as having “serious deficiencies in governance”.

- David Cameron used the Olympics Hunger Summit to announce a new project involving GlaxoSmithKline and Unilever.

- Diageo received £150,000 from the African Enterprise Challenge Fund (funded by the UK and other governments) to help it replace imported barley with local sorghum crops in the brewing of Guinness in Cameroon.  Should aid really be used to buy good behaviour from corporations rather than tackling the root causes of poverty?

- The former international development secretary Andrew Mitchell planned that half of all aid to India will go to the private sector and proposed that the whole UK aid programme could take on the characteristics of a sovereign wealth fund.  That is to say, the UK government would invest in projects in the global south, prioritising investment in projects that would make a profit for the government.  This would turn the whole idea of overseas aid on its head, recasting it as something that is given with the national interests of the donor country in mind, rather than being a contribution to solving global inequality.

What is the problem?

Aid is not the answer to global poverty. Fighting the structural causes of poverty such as unfair trade and excessive corporate power is far more important than pushing for more aid. But that doesn’t mean we can afford to ignore aid, especially when it is being used precisely to increase corporate power and entrench unfair trade.

Our research shows a worrying trend within the Department for International Development (DfID) towards prioritising the interests of the private sector and seeing aid as something that should serve the UK’s national interests.  

UK overseas aid is currently backing tax breaks for multinationals like Nike, Reebok and Walmart, and promoting public-private partnerships, a model that has attracted much criticism within the UK, as a one-size-fits-all solution to the provision of health, education and new infrastructure in the global south. 

For example:   The World Bank’s Bangladesh Private Sector Development Support project has received £11 million from DfID. The project provides technical expertise to the Bangladeshi government in the creation of ‘special economic zones’, also known as ‘export processing zones’ (EPZ).  EPZs are essentially mini-tax havens for multinational corporations which allow companies ten year tax ‘holidays’ and ban workers from joining trade unions.

A look at the companies who have factories in existing Bangladeshi EPZs reads like a who’s who of multinational clothes manufacturers – Nike, Reebok, H&M, Gap, Walmart, Adidas, Mothercare. The sad fact is that UK aid money is working to secure the right of multinational companies to pay unskilled workers an average of less than £1 a day and get tax breaks and subsidised land thrown in.

UK and World Bank support for the establishment of new economic zones has the potential to do much damage in Bangladesh. The restrictions on freedom of association and trade union rights envisaged for these zones are especially concerning. It is also unclear what compensation will be given to local people if their land is used for these new zones as Bangladeshi law allows the government to forcibly confiscate land if this is in the national interest.
-Khorshed Alam, Alternative Movement for Resources and Freedom

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