Why did Andrew Mitchell reinstate aid to Rwanda on his last day at DfID?

The "aid success story" in Rwanda was key to detoxifying the Tory brand. Is that why Andrew Mitchell personally intervened to restore its budget, despite fears that the country is funding violent rebels in the Congo?

David Cameron used his appearance yesterday at the UN General Assembly to re-confirm British support for increasing aid to meet the UN target of 0.7 per cent of GDP. Coming at a time when billions have been cut from defence budgets dear to Tory hearts, and billions more will have to be cut from welfare, it is a remarkable display of international solidarity. Or is it? While there’s no doubting the Prime Minister’s personal commitment to the poor of Africa, it does not explain why ring-fencing aid is such a high priority in such difficult times.

International aid was critical in redefining the modern Tory party. Aid played, and continues to play, an important part in “Brand Cameron” – which is why there was such anguish when Mitchell went and spoilt it all with his “fucking pleb” rant against the police in Downing Street. As the Daily Mail commented this week: “He lavished billions on foreign aid to detoxify the Tories. Now Mr Mitchell's boorish tirade has set them back years.”

At the heart of the Tory aid project has been Rwanda – a country now boasting impressive growth rates, as it recovers from the genocide of 1994. Having left the Francophone zone behind and joined the Commonwealth, Rwandan president Paul Kagame was an ideal partner for the Conservative Party to embrace.  

All of which explains why Andrew Mitchell went through such contortions to reinstate part of the Rwandan aid budget on 4 September, his very last day in office as Secretary of State for International Development. It had been a job he loved – having served as Shadow Secretary for five years before the 2010 election. Before he left, Mitchell took one final decision. Without consulting his senior officials, I understand, he reversed the cuts that had been made to the Rwandan aid budget less than two months earlier.

The decision flew in the face of the professional advice he had received, and Britain’s Western aid partners have privately expressed their outrage at his action. Mitchell’s successor, Justine Greening, was left struggling to pick up the pieces. 

The initial aid cut had been announced against Mitchell’s judgement, and was only implemented following considerable pressure from Washington, Bonn and the Hague, which had already made the cuts. It followed extensive evidence from UN experts that Rwandan troops and weaponry were slipping across the country’s border to support some of the most notorious rebels operating in Eastern Congo – the M23 (pdf). Their report was backed by evidence supplied by Human Rights Watch.

Andrew Mitchell resisted imposing the sanction as long as possible, but had finally caved in. The decision was grudgingly taken and slipped out in a press release from DFID on 27 July, while the British press and public were immersed in the spectacle of the opening ceremony of the 2012 London Olympics.

Just 53 days after the cut was announced, it was reversed. Explaining this decision, Mitchell said that following the delay in British aid: “. . . I sought assurances from President Kagame that Rwanda was adhering to the strict partnership principles.” President Kagame, a past-master at dealing with Western donors, provided the kind of vacuous assurances he has repeated down the years. Mitchell believed them, announcing as he left for the Chief Whip’s office that: “Britain will partially restore its general budget support to Rwanda.”

The UK remains Rwanda’s largest bilateral aid donor. What is so remarkable about the tenacity of British support, is not that it not just that it flies in the face of years of evidence of Rwandan repression at home or Kagame’s backing for Congolese rebels. It also ignores the evidence of the danger Rwandan government death squads pose to exiles living in London.

In May last year the Metropolitan police took the extraordinary step of issuing several Rwandans with “Threats to Life Warning Notices.” (See an example of one of them here, with personal information redacted.) These stated, in no uncertain terms, that they were in danger of being killed by Paul Kagame’s government.

“Reliable intelligence states that the Rwandan Government poses an imminent threat to your life. The threat could come in any form. You should be aware that othr high profile cases where action such as this has been conducted in the past. Conventional and unconventional means have been used.”

While the Met said it could not provide round the clock protection, it instructed the recipients of these warnings not to carry weapons. Instead a series of measures, including burglar alarms, changes to daily routine and the like were suggested to the frightened exiles.

The British fascination with Rwanda dates back to Clare Short’s time, when she was given the development ministry by Tony Blair following the 1997 election. More than a decade later, long after losing her post, she still took holidays in the country. “The wonderful thing about Rwanda” she explained in 2008 “is that people are full of hope and determination to build a better future.” This, despite repeated warnings from human rights groups of Rwandan political repression, the silencing of critical journalists and repeated interventions in Congo.

Tony Blair took a similar position, continuing to support President Paul Kagame after leaving office through his Africa Governance Initiative. Blair still works closely with the Rwandan president, visiting the country earlier this month.

But Labour’s support only laid the foundations for the Tories, who were soon also won over by Kagame’s cool intelligence and free-market principles. Andrew Mitchell was among the first to be charmed, grasping the part this small Central African nation could play in re-branding the Tory party.

In 2007 he formed Project Umubano. Working in Rwanda and that other war-torn African state, Sierra Leone, the project claims to have sent 230 volunteers – many of them MPs and cabinet ministers - off to sunny climes to do a spot of teaching, building and good works. Stephen Crabb MP was an early convert, describing Kagame as “one of Africa's most competent leaders.”

Among their activities has been the encouragement of that most English of exports, the love of cricket. A Rwandan Cricket Academy was formed and the annual match between Umubano volunteers and a side from the Rwanda Cricket Association was a highlight of every visit.

Umubano was more than just a knock-about holiday in the sun; its real aim was to detoxify the Tory brand. Rwanda provided the prefect backdrop for Cameron to launch his development aid programme in 2007, even if he was criticised for leaving his flooded Witney constituency to do so. As a senior Tory MP complained at the time, "Rwanda always looked a bit like a stunt. Now it looks like a very ill-timed one."

Cameron’s critics were wrong. The strategy paid off, softening the Tory image. The links with Rwanda saw Paul Kagame attend the Tory Party conference in 2007, lavishing praise on his hosts, describing Umubano as an “unprecedented” example of aid.

Just how sensitive the Mitchell camp is about Project Rwanda was recently revealed by the Telegraph journalist, Lucy Kinder, who described how in 2009, as a young volunteer with Umubano she was mercilessly bullied by Mitchell’s staff. Kinder had written an article which was mildly critical. It produced fury from Mitchell and reduced some of his senior aides to tears. Anything that might besmirch the Tory image had to resisted at all costs. "You have betrayed the trust of me and the Conservative Party," Mitchell told her.

The complex web of relations between Cameron, Mitchell and Rwanda perhaps explains why the Prime Minister has continued to support his Chief Whip throughout the “fucking plebs” scandal. The success of “Brand Cameron” owes much to the people of Rwanda. Ditching the architect of Umubano could call into question the Prime Minister’s loyalty to his closet friends and undermine his carefully crafted image.

Paul Kagame. Photograph: Getty Images

Mike Hale is a pseudonym.

Image: Shutterstock
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The need for responsible investment banking with a strong regional focus

Let’s begin by stating the problem: there’s a lack of long-term investment in the UK economy, both in infrastructure and in the capital needed to run productive businesses.  That counts double at a regional level across the country. This is an old song to be sure, but that doesn’t detract from its reality.  And with the main fallout from Brexit likely to be a decline in foreign direct investment, the investment gap is only going to get worse.

For example, the OECD think tank estimates an annual infrastructure investment of 3.5% of GDP is necessary in developed economies to maintain competitiveness, never mind boost it.  Currently, public sector infrastructure investment in the UK is forecast to reach to be 1.4% of GDP in 2020/21 – and that’s with the increase in capital spending offered in the Autumn Statement.

The curious thing, though, is that there is no actual shortage of capital.  In fact, in the City, there is probably the world’s biggest pot of footloose cash just looking for an investment opportunity. Which suggests that the failure to invest in UK Plc has more to do with the financial plumbing that anything else. Which brings us to investment banks and their role in the economy.

Today’s high street retail banks – the sort you keep your current account with – make their money from mortgage lending and hidden charges on overdraft facilities. The last thing they do is risk lending money to industry or for long-term infrastructure projects. That’s where dedicated investment banks come in.  Their job is to organise the financial plumbing that channels risk capital from its owner through to companies or infrastructure projects, using any means necessary: underwriting share issues, creating consortia to build windfarms, brokering mergers, managing funds, or selling advice.

To cut to the chase: the UK is suffering a blocked financial pipeline.  Our local investment banking system is in crisis.  Post the 2008 Credit Crunch, domestic banks in the UK – Barclays excepted - have been in wholesale flight from investment banking, which is perceived as having been the cause of their ruin. Certainly derivatives trading allied to insane levels of inter-bank lending formed the detonator of the 2008 implosion. And some institutions – notably HBOS – leveraged themselves to unsustainable levels in order to invest in the latter stages of a commercial property bubble whose eventual collapse was obvious to anyone but a banker. 

But the retreat from investment banking activities by UK firms brings problems. First it implies handing over the keys to investment banking and capital supply to Wall Street. Second, if Donald Trump launches his proffered $1trillion infrastructure investment plan for America, there will be a capital flight from the UK and Europe. All of which suggests that Britain needs to make its own arrangements for capital provision through a reformed and expanded domestic investment banking sector or see UK productivity continue to flat-line.

That’s not to say there aren’t questions still to be asked about the ethical behaviour of investment banks. The five biggest global investment banks operating in the UK regularly contrive to pay no corporation tax locally, despite making billions in profits.  Name and shame: I mean JP Morgan, Bank of America Merrill Lynch, Deutsche Bank AG, Nomura Holding and Morgan Stanley.  But without a domestic UK investment banking sector, we are still going to be ripped off.

There is even more of a problem in the regions and nations that make up Britain.  If anything, regional inequality in the UK has worsened since 2010, with London becoming more, not less economically dominant despite the financial crash. The most recent data show that London’s share of Gross Value Added (GVA) increased from 21.5% in 2010 to 22.6% in 2014, while GVA per head also grew quicker in London than elsewhere.  But regional stock exchanges have long since vanished meaning that what capital is available – for growing companies or local infrastructure needs – is stashed in London and won’t go north in a hurry.

There is no single solution to this set of problems so let’s experiment with trying to create various new bits of financial plumbing. First, accept we need an investment banking sector. Next, let’s create some domestic competition in the sector. RBS has spent too much time chasing its tail and downsizing. It’s time RBS recovered its mojo and went back into the investment banking business. Besides, that is probably the only way it is ever going to start generating real profits again.  All it takes is for UKFI, its public owner, to tell CEO Ross McEwan to change course.

We can also unlock domestic capital specifically for safe, long-term infrastructure projects. Here the problem is Solvency II, the new EU regulations governing the capital requirements for the insurance sector and the pension funds they manage. UK pension funds invest an estimated 1% of their total assets in infrastructure. But this is very low compared with funds in Australia and Canada, where 8-15% of assets are invested in infrastructure.  The problem, complain UK insurers, is that the Prudential Conduct Authority is over-interpreting Solvency II and treating the industry as if it were a dodgy bank.  If capital requirements imposed by the PRA on UK insurers were eased, there would be more capital to invest in local infrastructure.

One possible hard solution to the regional investment gap comes from the New Economics Foundation in conjunction with Common Weal, a pro-independence Scottish think tank.  They are pushing the SNP Government at Holyrood to create a Scottish National Investment Bank and have published a detailed blueprint as to how it could work. Using Scottish Government figures for job creation from capital investment, their joint report states that such an investment bank could directly support the creation of 50,000 jobs “within just a few years of being established”.

Investment banking has become a dirty word since 2008. It’s actually a necessary part of the financial furniture.  The trick is to make it work properly. And for that to happen, politicians and regulators have to be pro-active.

Barclays has commissioned a report ‘‘What have the Capital Markets ever done for us? And how could they do it better?’’ by New Financial with the hope to start a debate about the value of capital markets to the economy, especially in the UK. Many thanks go to those who joined us at our events with New Statesman so to examine the report’s findings in detail.

For the previous feature in the series, see Alison McGovern’s Why we must maintain the highest standards in banking in the new political landscape.

George Kerevan is the SNP Member of Parliament for East Lothian.