What an export-led recovery may mean for the world

In a downturn, export credits come to be seen as more important than ever, but ECGD needs radical reform if it’s to play any role in leading the UK out of recession.

By Nick Dearden of the Jubilee Debt Campaign

The new trade minister, Lord (Stephen) Green, is currently touring the UK to find out what support the government can give to British exporters. A key role is being assigned to the Export Credits Guarantee Department (ECGD), the Canary Wharf-based government department which supports British exports by offering a sort of overseas insurance.

Supporting struggling British exporters as a means of trading our way out of recession might seem like a good idea – however, this is to ignore the ECGD’s controversial history. It usually supports a handful of big corporations working in arms and aerospace or fossil fuel industries – a long way from small and medium business, and even further from the ‘green new deal’ campaigners have spoken about.

From arms sales to Saudi Arabia and Indonesia, to oil and gas pipelines in Central Asia, through to mega-dams in sub-Saharan Africa, the ECGD has backed projects which have been implicated in corruption, environmental destruction and human rights abuses.

A new report issued today, “The Department for Dodgy Deals, Ending the UK’s support for toxic debt”, highlights some of these projects and argues that without fundamental reform of UK export support, the gains of a few big companies will end up as a loss for people and the environments of developing countries.

By the very nature of the companies it supports, ECGD has too often been involved in some infamous deals. In December 2006, the department became part of a national scandal when then prime minister Tony Blair called on the Serious Fraud Office (SFO) to drop a corruption investigation into how a British arms company, BAE Systems, secured a massive Saudi Arabian arms deal during the 1980s.

The Al-Yamamah deal was insured by the British government through the Export Credits Guarantee Department (ECGD) to secure the largest arms export deal in British history, and had been controversial even when first discussed by the Thatcher government in the mid-1980s. In 2004, the Serious Fraud Office began looking at alleged corruption in the deals – notably that the sales had been overpriced in order to pay off and entertain members of the Saudi Royal Family. At the end of 2006, amidst negotiations for a further Saudi arms deal, Blair asked the SFO to drop the inquiry, which it did, claiming it was harmful to the UK’s alliance with Saudi in the ‘war on terror’.

Vince Cable, now the man now ultimately in charge of ECGD through his role as Secretary of State for Business, said at the time that Blair’s intervention “has undermined the rule of law and Britain’s reputation” – but Cable shows little sign of putting principles into practice since taking over at the Department for Business, Innovation and Skills.

The Saudi scandal follows on the heels of many other cases of dodgy deals. A few years ago, ECGD supported an oil pipeline which passes through Azerbaijan, Georgia and Turkey. The pipeline started pumping up to a million barrels of oil a day in 2006. It is seen as vital for Western ‘energy security’ (read ‘control’).

But it has been less positive for those feeling the effects of the pipeline’s construction. A series of controversial agreements between oil companies and the countries involved gave those companies special legal status. In essence, the agreements took priority over all national laws except the constitution, and prevented any new laws, including improvements in environmental or human rights law, from affecting the companies’ profit. Amnesty International argued that these agreements “effectively create a ‘rights-free corridor’ for the pipeline”.

All too often failed ECGD projects translate into ‘Third World’ debt. When deals go wrong, the ECGD pays out insurance (backed by the British taxpayer) and the amount becomes a debt of the country where the project took place. In this way, developing countries have come to owe £2 billion of debt to the ECGD and have repaid £2.9 billion since 2005. Indonesia, Vietnam, Kenya and Pakistan all ‘owe’ money to the ECGD.

This becomes really scandalous when we discover what these debts relate to (not an easy task in itself, thanks to the lack of transparency around the ECGD’s projects). Indonesia ‘owes’ the ECGD over £500 million, most of which was run-up selling British weapons to the brutal General Suharto in the 1980s and ’90s.

Suharto killed between 500,000 and one million activists during his first year in office and conducted a 24-year occupation of East Timor. From 1994, Suharto bought half of his military equipment from the UK, supported by the ECGD. Some of these weapons, including Hawk aircraft, Scorpion tanks and water cannons, were sighted in use against civilians, including during the attack on Aceh. Yet the current Indonesian government is still paying for these tools of repression.

Kenya ‘owes’ money for a hydro-electric project which cost four times what it should have done and produced only a fraction of the power promised. The Kenyan press called the project “a stinking scandal” for which the Kenyan government is still paying out.

If the British taxpayer is to underwrite exports, we need to be absolutely clear that the exports we’re supporting benefit not only British industry, but also make for a fairer world. No doubt we could use export credits to support small and medium businesses struggling with the financial crisis. In particular we could support green industry, which will create sustainable jobs for the future.

But this isn’t going to happen without fundamental reform, and to date ECGD has gone in the wrong direction. Under the last government, Lord Mandelson (the ECGD is rarely directly overseen by an elected minister) oversaw the watering down of ECGD standards, as a result of which even child labour and forced labour are no longer screened for in smaller projects.

In a downturn, export credits come to be seen as more important than ever, but ECGD needs radical reform if it’s to play any role in leading the UK out of recession.

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