Know Your Enemy: The Export Credit Guarantee Department

In December 2006, a little know Government department became part of a national scandal when Tony Blair called on the Serious Fraud Office to drop a corruption investigation into how a British arms company secured a massive Saudi Arabian arms deal during the 1980s. The controversial deal had been insured by the British government through the Export Credits Guarantee Department (ECGD).

The Al-Yamamah deal was the biggest arms deal in British history, and had been controversial even when first discussed by the Thatcher government the mid-1980s. By 2004, the Serious Fraud Office had began looking at alleged corruption in the deal – notably that the sales had been overpriced in order to pay off and entertain members of the Saudi Royal Family.

Only at the end of 2006, amidst negotiations for a further Saudi arms deal, did Blair ask the SFO to drop the inquiry, which it did. Opposition MP Vince Cable said at the time that the decision to drop the case: “has undermined the rule of law and Britain’s reputation” and made a mockery of Gordon Brown’s fondness for lecturing the developing world on corruption.

Today that same MP, Vince Cable, is effectively in charge of the ECGD, answerable as it is to the Department for Business, Skills and Innovation. To date, little has been announced by way of reform.

What is the ECGD?

The ECGD exists to support British exports by providing them with a sort of insurance. It normally supports big companies involved in big projects in the developing world. In fact, over the last 10 years, ECGD support for fossil fuels, arms sales and aerospace (aeroplanes) has accounted for around 75% of its work. Last year one single company, Airbus, received 89% of ECGD support.

From arms sales to dictators to oil and gas pipelines through to mega-dams, ECGD has backed projects which have been implicated in corruption, environmental destruction and human rights abuses.

Even worse, when deals go wrong, it is often the developing country that ends up in debt. The ECGD pays out insurance (backed by the British taxpayer) and the amount becomes a debt of the country where the project took place.

Today, developing countries owe £2 billion of debt to the ECGD and have repaid £2.9 billion since 2005.

Arms sales and controlling energy supplies

To really get to grips with the problem with the ECGD, you only need to look at some of their past projects. Indonesia currently ‘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 1 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.

As fossil fuels become more difficult to access, export credits are again used to protect ‘British interests’ throughout the world. That’s why ECGD supported the Baku-Tiblisi-Ceyhan pipeline – an oil pipeline connecting up the Azeri oil field in the Caspian Sea to the Mediterranean, passing through Azerbaijan, Georgia and Turkey. The pipeline started pumping up to a million barrels of oil a day in 2006.

The pipeline included a series of controversial agreements between oil companies and the countries involved, which 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 laws, from affecting the companies' profits. Amnesty International argued that these agreements “effectively create a ‘rights-free corridor’ for the pipeline”.

There’s more where they came from. Like a hydro-electric power station in Kenya 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 are still repaying.

Then there’s a power station in Dabhol, India. In June 2001 the station was closed after the electricity board decided not to buy any more power from the plant because it cost four times more than other domestic power producers. The power plant now sits dormant and a country in which 450 million people are living in extreme poverty, faces a compensation bill for a project that has not served its needs.

Promoting a green and pleasant land?

In a recession, export credits are presented as a key way that the British government can support struggling industry and re-stimulate the British economy.

But what sort of economy is the ECGD currently promoting? Sure it could help struggling British exporters at the leading edge of useful innovation. It could help create jobs in renewable energy sectors. But there isn’t much chance of that when the ECGD does not even have a policy on climate change.

While campaigners have given ECGD a relatively easy ride in recent years, business lobbyists have been pushing back on the already poor standards that do exist. Early in 2010, the Labour Government watered ECGD standards down. One example of what this change will mean is that smaller investments will no longer be screened for any sort of social or environmental impact – even on issues as significant as child labour and forced labour.

This means supporting British interests at the expense of human rights abuses, environmental destruction and corruption in other parts of the world. If we want to avoid another generation of reckless projects and toxic debts, we need to change the ECGD now.

This article first appeared in Red Pepper.