The Department for International Development has improved its oversight of CDC and has directed it to address many of the weaknesses previously identified by Parliament. However, it remains a significant challenge for CDC to demonstrate its ultimate objective of creating and making a lasting difference to people’s lives in some of the world’s poorest places.

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The National Audit Office has found that given the Department for International Development’s (DFID) plans to invest further in the private company CDC, a clearer picture of actual development impact would help to demonstrate the value for money of the Department’s investment.

The Department’s principal mechanism for encouraging private sector investment in developing countries is CDC Group plc (CDC), a private company owned by the Secretary of State for International Development. CDC’s mission is to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”. In 2015-16, the Secretary of State for International Development approved a £735 million recapitalisation of CDC, to enable it to expand the breadth and depth of its business.

Today’s report found that through tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model. DFID’s governance arrangements of CDC are thorough but should make explicit the Department’s role in investment decisions.

The NAO’s previous scrutiny of DFID’s oversight of CDC led to important, positive changes. CDC’s current portfolio of investments reflects the strategy it agreed with the Department in 2012, and CDC has met the target for financial performance it agreed with the Department. CDC’s management of cash balances has also improved.

Changes in reporting development impact over the last four years have made it difficult for CDC and the Department to set out a consistent picture of what has been achieved. CDC measures its effectiveness through financial return and development impact targets, which it has met. The development impact target, however, measures prospective rather than actual impact.

Today’s report finds that CDC’s operating costs are increasing as a result of the change of focus in CDC’s business towards direct investments and the expansion of its operations. The number of new investment commitments made per annum has increased from 12 to 27 between 2012 and 2015 and the number of staff has increased from 65 to 161 over the same period.

CDC has addressed Parliament’s previous concerns about pay. Recruitment and retention challenges, however, remain a significant risk to CDC’s operations. CDC has reduced average pay from £123,000 to £90,000 by severing the link with commercial sector salaries. Both the Department and CDC classify the latter’s recruitment and retention of staff as a high or severe risk.

The nature of CDC’s business and the countries in which it invests can increase the risk of fraud and corruption. As a result of the NAO’s inquiries CDC has recently improved its procedures for recording allegations of fraud and corruption. While CDC has whistleblowing arrangements, it has only recently established systems to consolidate records of all the allegations it receives.

Among the NAO’s recommendations is that the Department and CDC should do more to capture development impact.

“The Department for International Development has improved its oversight of CDC and has directed it to address many of the weaknesses previously identified by Parliament.However, it remains a significant challenge for CDC to demonstrate its ultimate objective of creating and making a lasting difference to people’s lives in some of the world’s poorest places.”

Amyas Morse, head of the National Audit Office

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View press release (28 Nov 2016)

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