Examination of Witnesses (Questions 20
TUESDAY 18 JUNE 2002
CB AND MR
20. I understand, talking to parliamentarians
who were here for the Wilton Park Conference last week run by
the CPA on anti-corruption, that legislation has now passed through
the Kenyan National Assembly and has been signed by the Kenyan
Government to actually deal with many of these reform issues.
Does it mean there will in fact be a reassessment because this
has been accepted by the World Bank and IMF in terms of the wish
for DFID to re-invest back into Kenya?
(Mr Lowcock) We are constantly assessing the situation
in Kenya. On corruption the test that we and others have been
seeking to apply is not so much the promises but the actions.
The proof of this particular pudding is still in the eating so
we have not taken or announced any decisions to increase our support
to Kenya. Corruption was not the only issue actually which was
a cause of disagreement, if you like, between Kenya and the donors;
there were others as well.
21. Could you explore other areas of good governance
which was a problem in Kenya then, beyond that of corruption?
(Mr Lowcock) Yes, there were a number of areas in
the Government's arena which we were concerned about. In some
areas the Government of Kenya has made some important reform progress
which we welcome, for example they have taken a number of steps
to try to have greater integrity in public procurement processes
and to try to strengthen financial management systems (for some
of which we have been providing technical assistance). But there
were other measures, for example re-structuring of the telecommunications
industry where the Government made very clear commitments and
which were seen as symbolic of their broader commitment where
there were still problems. One of the key issues for us also is
the overall shape of public spending. We have been very keen to
try and encourage the Government of Kenya to put more of itsadmittedly
tightbudget into primary education, primary health and
so on. That in the budget last week was one of the things we were
looking at very closely. We try and look at an overall picture
but we are not yet at a stage where we think that there is justification
for resuming budget support.
22. You do not think the problem lies in the
fact that only 15 per cent of the Kenyan budget is coming from
overseas aid as opposed to 50 per cent in the case of Uganda?
(Mr Lowcock) It is the case that Kenya is less reliant
than some of its neighbours on aid. On the other hand they could
have access to a lot more aid if the international community were
convinced that they would spend it on getting kids in school and
so on. Most Kenyan children do not complete primary school. If
there was a policy framework which gave us confidence to put more
money into that to address thatin addition to what we are
doingwe would be very happy to do it.
23. Clearly a lot of things we have been discussing
come under the overall heading of good governance, financial audits,
management audits and questions my colleagues have been placing.
Is there any reason why, if you like, there was not an area within
the annual report which addressed the issue of good governance
and anti-corruption. Is this something you are thinking of addressing
in terms of future annual reports?
(Mr Manning) I think it is largely a question of space
here. We can and do publish information on the various activities
we undertake in relation to corruption. We have an interesting
programme of development not least across Whitehall; we will certainly
consider whether we should put something more explicit in the
24. You mentioned that one of the criteria that
you have been investing in a country that my colleague Mr Walter
was asking a question about, is whether a particular country or
state is a reformer. Would you be able to define how you identify
reformers? What are the definitions around what is a reformer?
(Mr Manning) I think that is in a sense an impossible
question. It is a continuum, is it not, between non-reformers,
countries in conflict, to the other end of the spectrum, countries
which have adopted full reform packages. Most countries lie somewhere
in between. They do not happily sit in categories. You always
have to end up reaching a balanced judgement as to where countries
are. We do not, however, pull out of non-reforming countries completely;
that is not the Government's policy. The Government's policy in
non-reforming countries would certainly be to try and promote
change and also to try to get services to the fore; if not through
government channels through other channels. Zimbabwe is a very
good example right now where we are still trying to get HIV/AIDS
activities through NGO routes and feeding the population, obviously,
as well, through NGO routes. We do not just walk away which I
think is quite an important message in the non-reforming context.
We also, obviously, try and getthe Secretary of State works
very hard at thiscountries to the starting line of reform
by trying to tackle causes of conflict. She has spent so much
of her time recently on the DRC, Sudan and Angola to try and get
those countrieswhich have amazing prospects given their
natural resourcesto the starting line.
25. When we visited Nigeria we were particularly
asked to look at four states that DFID has chosen as reforming
states. What were the sort of common, if you like, criteria used
in terms of choosing those four states out of the 36 states in
(Mr Manning) I am sure we conducted an assessment;
we certainly did in India. Some of these states we had worked
in before so we had a good basis; some, I think we added to our
list. We did look carefully and we now have an office in Abuja,
as you know, which gives us better eyes and ears on the ground.
We did look to see whether there was, as we saw it, some commitment
to improvement and some basis from which improvement could be
made. But we will have to get back to you on any more detail on
the background to that.
(Mr Chakrabarti) I think there is an
interesting example from Russia on how we choose, if you like,
locations which are reforming within an overall state which might
not be reforming as fast as we like. In Russia we moved from quite
a scattered programme under the Know How fund to focussing around
two Oblasts, two provinces in effect. We ran a competitive process
to try to find the most reformed states, if you like, and set
some criteria to try to test their commitment to poverty reduction
plus their policy intent. Two states emerged the winners. It is
quite interesting because other states in Russia thought they
were going to get this prize because they had previous associations
with us; they did not. That has changed the rules of the game,
I think. It is worth looking at for how we choose locations elsewhere,
26. I agree. Where do politics come into working
with reformers? Where the only reformers are linked with opposition
political groupings do you work around opposition politicians?
Of course, there is the interesting situation in Kenya.
(Mr Chakrabarti) I went to Kenya in November and for
the first time in many visits to Kenya we were speaking openly
with civil society opposition members and not being taped by anyone
either. It was quite an interesting change in how Kenyan society
has freed up in that sense. We were working with those groups
around government issues.
27. Do you work with opposition politicians?
(Mr Lowcock) Generally people in our offices have
very wide contact in the countries where they work. To come back
to the example you are raising on the corruption issue in Kenya,
Transparency International, the local branch, are doing a lot
work. At the request of the Government of Kenya, the attorney
general, we financed some work to put in place new legislative
and institutional arrangements to design them. The work was primarily
done by very able Kenyans whom the Government would certainly
not view as their prime supporters. As Suma says, this is one
of the ways in which Kenya has actually changed over the last
28. Elsewhere? Other political groups? In other
(Mr Chakrabarti) As a general rule our offices are
now talking to a wide spectrum of society and not just fixed round
(Mr Manning) In terms of our activity, we are looking
particularly at the institutions. A lot of work goes on with legislatures,
with accountancy, audit professionals and so on to try and build
systems which will be useful to any set of politicians who want
to use them.
29. So you see yourselves working with parliaments
as well as with governments?
(Mr Chakrabarti) Yes, we do. In Kenya it has been
quite interesting, the whole issue of corruption legislation and
so on where a lot of the discussion has been with government MP's
and with opposition MP's with the parliamentary committees involved,
and so on.
Chairman: Hugh, you wanted to ask a
question about something.
30. I was very interested in what you were saying,
Suma, about the competition to identify reforming states in Russia.
I would like very much if the Committee could have a note explaining
how you set the criteria and how you ran the competition. You
obviously do think it is a good programme; you said you may use
it in other areas. A lesson has been learnt from it.
(Mr Chakrabarti) I thought it was very innovative
in the way we decided where to focus.
31. I think it is good because it focuses the
recipients' minds on why we are giving the money and what they
have to deliver in return for the cash received.
(Mr Chakrabarti) It was good that the federal government
in Moscow was willing to go down this route. It will be an interesting
test for us in India or China if we want to choose another province
or state to work in; whether the federal governments there would
be up for this or whether it would be a much more directed process.
There could be quite a long dialogue on this.
32. Could we have something on paper, please?
(Mr Chakrabarti) Yes, of course.
33. Given that country strategy is right to
focus on poverty reduction, already this morning we have heard
examples in Nigeria about very wealthy people in a country not
paying tax. Earlier on India. India are spending substantial sums
on arms while we are sending out aid. Then corruption, the ministerial
Mercedes being bought. What seems to happen is that as aid increases,
the potential for corruption increases. Is there not a danger
that the Department effectively looks through rose-tinted spectacles?
There are, in some instances, tens of millions of pounds being
salted away from developing countries into individual's bank accounts.
We hear reports of people questioning the wisdom behind it. How
does the Department use the limited resources they have in the
form of muscle to force countries where there are concerns about
money being salted, going into bank accounts and sometimes coming
back over to this country? Are you able to follow that money,
follow an audit trail, and make sure that the resources that are
being used are delivering what they are there for?
(Mr Chakrabarti) I think at a general level we are
not interested in putting finance through government systems who
have no commitment whatsoever to change and where corruption is
rife and the ruling elite are not trying to change it. We need
to see some commitment, some desire to move in the right direction.
Nigeria is a very interesting example because here is President
Obasanjo who firstly is very, very committed to change. He made
a speech on 12 June to the Commonwealth Parliamentary Association
talking about corruption very openly in Nigeria and what he has
been trying to do. So he is worthy of support in our view because
he has really made a commitment. The question is whether we can
get the systems underneath him to ensure that corruption is caught
and stopped. That is part of what we try to do in our dialogue
with these countries, to try to make sure that our moneynot
just our money but also Nigerian's own moneydoes not get
salted away. That is part of the policy dialogue we have with
every major recipient. Would you like to say a word on the systems
(Mr Lowcock) On the question of following resources
that have left countries for banks in Europe or other developed
countries, there have obviously been a few high profile cases
in the press of success in attracting some of that money backNigeria
being the obvious exampleand the international legal framework
for that has improved in recent years. Richard knows a lot more
about that than I do. We do invest in strengthening institutions
in developing countries which are charged with trying to tackle
this problem. It is not just in Kenya where we are trying to build
up the anti-corruption effort, but also in most of the other countries
in Africa where we are providing budget support. That is a key
part of our programme.
(Mr Manning) Perhaps I should say that we have developed
a very constructive relationship with the Home Office. You will
be aware of the very high profile Abacha case, for example to
make it easier for developing countries to find their way through
the various legal routes they need to do if they wish to sue for
recovery of assets held in the UK where there is evidence of malpractice.
We have done road shows with the Home Office in Pakistan and elsewhere
under that programme. I think it is constructive. But I think
you also have to look more fundamentally at this issue. After
all, why are people salting away money in Europe? They are doing
so because the local opportunities for deploying capital productively
are not very good. You have very weak markets; you have poor property
rights and all the rest of it. The figures for capital transfer
of Africa are horrific. A very important part of the agenda is
to change the local enabling environment so that it is worth the
while of Nigerians and others to keep their savings in the country
and have remunerative ways of deploying that. So there is a big
agenda that the World Bank tends to lead on in financial market
reform within developing countries. Of course, avoiding over-valued
exchange rates and other incentives that necessarily mean you
want to get your money out of the country are a very important
part of that. You have to work on both ends.
34. In response to Mr Manning, if I might say
so, I do not think the issue is about the investment opportunities
in, for instance Nigeria, although that it is important. The issue
is: whence cometh the money? With something like $18 billion a
year oil revenue and over two thirds of the population living
on less than a dollar a day, that is the issue. Not where you
invest the money, if I might say so. Could I go back, Mr Chakrabarti,
to your point about President Obasanjo who quite rightly is saying
the right things because the Select Committee visited Nigeria
earlier this year, not three months ago? I, in particularbut
I think everyone else as wellwas quite frankly appalled
by the level of corruption. We did interview the anti-corruption
commission, whatever it is called. Whilst I think their intentions
were good, when they came out with the fact that seven cases of
which two were border policemen who had allowed an American into
the country without a visa for a bribe, I think we were slightly
disturbed because of course the words are right but as Mr Lowcock
said earlier it is actions that are important. It is difficult
when you have a country where most people have dirty hands, if
I can put it that way. Progress is painfully slow and at the same
time as that is happening money is continuing to be salted away.
(Mr Chakrabarti) I think that beyond the seven cases
which I agree do not sound like a huge number, there are things
that the Nigerians are doing which are worth commenting favourably
on. They have introduced anti-corruption legislation which has
been difficult elsewhere to get through. They have a commission
which looks at reform in this area as well. We are working with
the financial systems reform which is going to be the key, I think,
to try and track down some of this money that has gone and to
try to stop it happening in the future. I think the picture is
a bit more mixed than just saying that Nigeria is still operating
as it was five or ten years ago. I think the President has made
an effort. It will probably not be enough. I think we would agree
with that. We need to push harder.
35. At the beginning of the session the chairman
praised DFID and I would go along with that, but I think we should
also recognise that when DFID is being praised it is probably
NGOs that have been delivering the goods in the country and that
the NGOs are being praised. The reason I am asking that is in
all our talk about budget support one of the qualities of this
country is that I think it has a range and depth of NGOs that
is unparalleled anywhere. They basicallynot always but
basicallydeliver. Do you not have any apprehensions that
in the move towards budget support what you are going to be doing
is weakening the NGOs which are delivering?
(Mr Chakrabarti) I do not have that apprehension because
as Richard said earlier programmatic supportwhether it
is budget support, balance of payment supporthas been a
feature of DFID's and ODA's life for many, many years, during
which time the NGOs have gone from strength to strength. I agree
with that observation. This has already been tested, if you like,
over the last 20/30 years and has not led to any shifting away
from appreciation of NGOs and what they do. I think NGOs have
also increasingly become very effective in policy dialogue. They
have actually joined this whole process ofnot of the budget
support so muchthe shift towards discussing Poverty Reduction
Strategy papers, the discussion around the education initiative
that the World Bank is pushing (as Richard outlined earlier).
Oxfam has had a very good report recently on trade. The NGOs have
moved upstream too in terms of policy work in the same way as
we have. I think this has been to the good.
(Mr Lowcock) Could I add a couple of points there?
Firstly, were we reducing our support to the NGOs I think your
point would have a lot more force. In fact, our support for the
NGOs is very substantial (£200 million or so) and has increased
in recent years. Secondly, the objectives we are trying to achieve
through budget support are not ones that the NGOs would claim
that they can achieve through their structures, I think. For example,
in Uganda one of the key successes of budget support is to get
virtually every child in primary school through the Government
system. Every country wants to have public systems which enable
every child to be educated. No-one would make a proposition that
you can sensibly try to achieve that through thousands and thousands
of NGO programmes. This is a core function of the state. There
is complementarity between the support we attach a lot of importance
to and are very proud of for NGOs, and what we are doing in other
ways through the work of the Department.
(Mr Manning) I think you can add to that we perhaps
see an increasing role for NGOs, if you like, in the raising of
people's ability to argue for their own rights with governments
as opposed to service delivery. I think there is quite a debate
in the NGO community about where you position yourself in that
36. When the Permanent Secretary said that we
had been doing this for a long time and it has not affected the
NGOs, in fact the figures are that really the amount of budget
support which has been achieved is pretty small and is only now
coming through. The image I have is of you putting money directly
into government departments. You are not saying that that should
be done by Oxfam, that should be done by Marie Stopes, you are
not saying those things. You are saying to the Government department
that you agree with their goals and it is over to them how it
is done, but you will keep an eye on it. Is that right?
(Mr Chakrabarti) I think in broad terms that is a
new political economy, if you like, that we are moving to. You
are saying that we are getting much more supportive of our national
government's policies and programmes because that is what ownership
is about. Yes, we would where those governments are reforming
and have a Poverty Reduction Strategy that is worth the paper
that it is written on and it has been through a civil society
discussion process and therefore emerged stronger for that. Yes,
we would like to put more finance through budget support in those
situations, provided the fiduciary risks are protected.
37. One of the assets of the NGOs is that they
are linked to the British people and the link with the British
people is particularly in terms of "Here is what NGO X is
doing here. Will you help to support this work?" I appreciate
why you are doing it, but are you convinced that really you are
taking the NGOs with you in terms of ensuring that what is a quality
British product will be able to continue to the benefit of that
country rather than what seems to be a danger that a DFID office
of the future will be full of accountants rather than project
managers or people with skills in education and so on. Do you
not see the point that is there?
(Mr Chakrabarti) I can see where you are coming from.
I am just saying that I do not think that is where we are going
to arrive at because in order to have a policy dialogue with any
country, even if we are providing budget support, you do need
people with knowledge of education and health and other things;
you cannot just have knowledge around the accountancy system.
It is not just accountants we want, we want the sectoral skills
we have, I think. In terms of the NGOs, I have come back to DFID
after six years away and the major NGOs have all told me they
are very supportive of this shift towards Poverty Reduction Strategy
papers, towards direct budget support. They are also even more
supportive to the shift of taking development in the round, if
you like, looking at trade, conflict, issues that the old ODA
could not do; were not tooled up, we did not have the responsibility
to do that. They have been very supportive of all that, that shift.
Moreover, as I said earlier, they themselves have been looking
at those issues in a way they never used to before. On the finance
I think we are actually providing a very large sum of money to
the NGOs directly, if I am right. We have these agreements with
some of the leading NGOs which are state-of-the art in terms of
the sort of relationship we should be having with them.
38. I can see that in the case of the major
NGOsthe Oxfams, the Christian Aids and so onbut
I notice you said the major NGOs. Do you not think there is a
danger that the smaller more specialist organisations get lost
(Mr Chakrabarti) It is worth mentioning, as you know
I am sure, that we still maintain a Civil Society Challenge Fund
which is precisely about smallish projects for NGOs who do not
have these partnership agreements that we are signing with the
majors. We are keeping a window open which is easy to use and
we try to limit the hassle and transaction costs. I think the
other point which is important is what happens within the country.
We do not see the budget support operation as meaning that we
have a blind approach to development. We know the private sector
is important. We know civil society is important. It is not the
case that our offices are not going to have any contacts or activities
in these areas outside government. What we are saying is that
in terms of financial transfers to government if the necessary
criteria are met, providing aid through the budget is a way of
developing their systems rather than imposing the systems that
come from a project approach. Hence the virtue of working in this
way. It is not a substitute for working with civil society, working
with politicians, working with the private sector.
39. From which countries have you withdrawn
(Mr Chakrabarti) I think there is Kenya, which we
talked about earlier. Uganda for a time. Tanzania and Malawi.
Those are the four which come to mind.
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