Commonwealth Development Corporation Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 29th November 2016
(7 years, 5 months ago)
Commons ChamberCommonwealth Development Corporation Act 2017 View all Commonwealth Development Corporation Act 2017 Debates Read Hansard Text
The Secretary of State for International Development (Priti Patel)
I beg to move, That the Bill be now read a Second time.
The Bill will raise the limit on the total cumulative level of financial support that can be provided to the CDC, the UK’s development finance institution. The CDC was founded by Clement Attlee’s Labour Government in 1948 and is the world’s oldest development finance institution. It is wholly owned by the UK Government and does not have private shareholders. Its mission is to tackle poverty by creating jobs and driving inclusive economic development for people in the poorest countries in Africa and South Asia.
The CDC exists to help to address what economists call a “market failure”: the desperate shortage of investment in the world’s poorest countries because, in part, of a misperception of the risks of doing business there. It addresses that market failure by providing investment capital to support the building of businesses throughout Africa and South Asia. Its explicit mandate is to drive labour-intensive growth by creating jobs and opportunities for working people. Since its creation, the CDC has been supported by all successive Governments—Labour, coalition and Conservative—because of its core purpose of tackling poverty through sustainable economic growth. I present the Bill in the hope that that spirit of cross-party support will continue. I look forward to colleagues across the House offering the fullest possible scrutiny, and I welcome the opportunity to constructively address any points that Members raise.
In recent years the UK has led the world in efforts to eliminate extreme poverty. The previous Labour Government made an important contribution, for example, in relieving the unpayable debts of the world’s poorest countries. Under David Cameron’s leadership, the UK become the first G7 country to meet its promise to spend 0.7% of our gross national income on international development. The current Prime Minister has made it clear that the Government will honour that commitment and intensify our leadership on key global issues such as tackling modern slavery.
The Government have also rightly made clear and bold manifesto commitments to tackle poverty directly.
Keith Vaz (Leicester East) (Lab)
I warmly congratulate the Secretary of State on her appointment to the Cabinet in this very important job—I know that she has been doing it for a while, but this is my first opportunity to do so. Later, she will meet the officers of the all-party group on Yemen. Will she confirm that the refocusing of funds in support of the CDC will not affect the Government’s commitment to the provision of emergency and humanitarian aid that she and her Minister of State have spoken of and given to Yemen over the past few years, as did her predecessor, the right hon. Member for Sutton Coldfield (Mr Mitchell), who is also in the Chamber?
Priti Patel
I thank the right hon. Gentleman for that welcome and for his remarks. He is right: successive British Governments have been very clear not just about their commitment to the CDC but about our collective focus on humanitarian need at times of crisis. I look forward to seeing the delegation from the all-party group later today, when I will of course speak more about the work that the Government are doing in Yemen, where we are seeing the most awful and horrendous catastrophe. I will speak to the right hon. Gentleman later in more detail about the type of interventions and the support we are providing to those trapped in that dreadful conflict.
By 2020, we will save 1.4 million children’s lives by immunising 76 million children against killer diseases. We will help at least 11 million children in the poorest countries to gain a decent education, improve nutrition for at least 50 million people who would otherwise go hungry, and help at least 60 million people get access to clean water and sanitation. We will lead the response to humanitarian emergencies. We will lead a major new global programme to accelerate the development of vaccines and drugs to eliminate the world’s deadliest infectious diseases, while investing to save lives from malaria and working to end preventable child and maternal deaths. We will also continue the inspirational leadership of my predecessor, my right hon. Friend the Member for Putney (Justine Greening), on women and girls.
Those commitments stand, along with our commitment to human development and directly meeting the needs of the world’s poorest, which is absolute and unwavering. Indeed, the first major decision I took in my role as Secretary of State for International Development was to increase the UK’s contribution to the Global Fund to Fight AIDS, TB and Malaria from £800 million to £1.1 billion. That will help to save millions of lives in the years ahead.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
The Secretary of State is outlining a long list of the Department for International Development’s achievements and her plans for the future, and she is praising her predecessors. Can she explain what has happened since she called for the Department to be scrapped and since she told the Daily Mail this year that most of our aid budget was being “stolen” and “squandered”? Those are her words.
Priti Patel
The hon. Gentleman has just heard not only what DFID has done in the past under two outstanding Secretaries of State—my predecessors, my right hon. Friends the Members for Sutton Coldfield (Mr Mitchell) and for Putney—which is a legacy that we will stand by in our manifesto commitments, but—[Interruption.] If the hon. Gentleman wants an answer, he should listen to my response.
I have already said that we will lead on major global programmes to accelerate the development of vaccines and drugs to eliminate many of the world’s diseases. The hon. Gentleman has also heard me respond to the right hon. Member for Leicester East (Keith Vaz) on the question of humanitarian crises and many of the immediate needs to which we are responding. Indeed, the hon. Gentleman will be aware that the very Select Committee of which he is a member is witnessing at first hand how aid is being spent in crisis situations, in refugee camps, and providing opportunities and, frankly, a lifeline to people around the world who are suffering. That is exactly what my Department is doing and what I am doing as Secretary of State, and I am disappointed that the hon. Gentleman—[Interruption.] This is not about briefing the press, and, if I may say so, I think the hon. Gentleman’s remarks do a huge disservice to the international development community. He is sitting there smugly smiling, but it is an international community that comes together—[Interruption.]
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The hon. Gentleman knows that he should not make remarks from a sedentary position, but if he is going to make remarks from a sedentary position, he should not use the word “you” because he should not be accusing me of anything.
Priti Patel
It is not just in times of crisis that the international development community comes together. My Department is championing economic development and investing in people and human capital. I appreciate that the hon. Gentleman may not like that and may disagree with it, but that is the core purpose of the Department.
Stephen Doughty
The Secretary of State is making some very strong statements. Of course I do not deride the work of the Department; I think it is doing a fantastic job. She has outlined many of the positive things it is doing and the humanitarian aid it is providing to refugees, but why did she say that most of the Department’s budget was being stolen and squandered, without any justification?
Priti Patel
As the hon. Gentleman knows from my appearances at the Select Committee, I have clearly stated that I will drive transparency and accountability in the Department. There have been examples. I am sorry that on an issue as important as not only saving lives but transforming lives and investing in people, he chooses to take such a narrow focus.
Tom Brake (Carshalton and Wallington) (LD)
On the subject of the Bill, does the Secretary of State recognise that there are concerns that the CDC is not in fact targeting the poorest countries? Although private sector investment is very welcome, surely it needs to be just as targeted and as effectively monitored as investment in non-governmental organisations and other ways of boosting aid.
Priti Patel
I thank the right hon. Gentleman for his comments. It is right that the focus is on development impact and on outcomes. That has been shown by many of the reforms that the CDC has undertaken since 2010. Yesterday, a National Audit Office report was published which showed exactly that.
Richard Fuller (Bedford) (Con)
Will my right hon. Friend please be reassured that her efforts to ensure that we have accountability and transparency in all aspects of public expenditure, but particularly in the area of international development, are a key part of maintaining public confidence behind the 0.7% target?
Priti Patel
My hon. Friend is absolutely right. We owe that to those who contribute to the taxes that enable the Government to make these important decisions about international development, and in particular our humanitarian responses and how we spend and invest that money. As I will go on to say, there are many examples around the world of lives being transformed, and that is something that our country can be very proud of.
Fiona Bruce (Congleton) (Con)
Does my right hon. Friend agree that with regard to the concerns expressed about the CDC, the gravest relate to the period when the Opposition were in government—for example, the excessive levels of pay to CDC staff? Has the Conservative Government not got a grip of that, and is the CDC not much more efficient following the review in 2012 by the then Secretary of State?
Priti Patel
I thank my hon. Friend for her comments and observation. As I outlined at the beginning, the CDC is an established organisation that we should all be proud of. Clearly, there was a period before 2010 when the management of the CDC was, to put it mildly, not doing what it should have been doing. There were concerns about excessive pay and the lack of focus on development outcomes. Since 2010, when DFID led the way forward in working with the CDC, we have seen great progress.
Priti Patel
I must make progress.
As I mentioned earlier, contrary to some of the reports that we have seen in the past week, the future of the CDC will absolutely not come at the expense of DFID’s existing work on humanitarian support, human development and directly tackling what might be called the symptoms of poverty—disease, hunger and preventable suffering.
We all have a deep responsibility to tackle the underlying causes of poverty. That is why successive Governments have rightly focused increasingly on helping countries to grow, lifting the poorest out of poverty forever. That means creating jobs for the world’s poorest people, and driving the structural economic change that will end poverty permanently. To do this, we need to build the broadest possible coalition to fight poverty.
That includes NGOs and civil society organisations from the UK and from developing countries, which do such vital work. DFID’s recent civil society partnership review clearly stated the Government’s desire to work even more collaboratively with them in pursuit of these objectives.
Eliminating poverty also means working in partnership with multilateral agencies such as the Global Fund, with other bilateral development agencies, and directly with Governments in developing countries.
Mark Menzies (Fylde) (Con)
An example of that was the event that I and the Minister of State, Department for International Development, my hon. Friend the Member for Penrith and The Border (Rory Stewart) went to last week with His Royal Highness the ambassador of Saudi Arabia. DFID is working with wealthy donor countries to unlock enormous potential across the middle east. If not for the leadership shown by DFID, some of that work would be undone.
Priti Patel
I thank my hon. Friend for his comments. As he knows, a great deal of work is taking place with other Governments, helping them to develop their own capacity for aid, so that they can work more effectively bilaterally and with multilateral agencies. At a time when we see a great deal of conflict in that region, we are working on an agreement with some countries in the Gulf and the middle east on what their own development bodies and agencies can do to support humanitarian relief as a result of crises taking place on their doorstep.
Today I want to explain why CDC is a vital partner in our efforts to end poverty, for it is widely recognised that aid on its own will not eliminate poverty. No country can defeat poverty and leave aid dependency behind without the prospect of a functioning economy, sustainable economic growth, jobs, trade and investment. Development investments via CDC complement our other work and allow us to fight the scourge of poverty on all fronts. In the world today, faltering economic growth and rising young populations have exposed the chronic need for jobs and better opportunities. At present, most developing countries are not growing fast enough or industrialising fast enough to leave poverty behind.
The additional financing needed to achieve the UN sustainable development goals by 2030 is estimated at $2.5 trillion every year, but current investment levels are less than half that. As the UN and many international development banks have made clear, much of this finance will need to come from the private sector. The chair of the OECD’s development assistance committee, Erik Solheim, has stated:
“There is no longer a dispute about the need for private sector involvement in development. The role of DFIs”—
that is, development finance institutions—
“is to connect development aid with private investment, and explore how we can employ market forces in the world’s most challenging places.”
Dr Dirk Willem te Velde, head of the international economic development group at the Overseas Development Institute, writing in the Financial Times yesterday, said:
“Statistical evidence to be published by the Overseas Development Institute soon suggests that a £10bn increase in exposure of DFIs in Africa would raise average incomes and labour productivity by a quarter of a per cent, which is actually slightly above the average impact of aid overall. Most jobs are created by the private sector, and working with the private sector to create jobs is vital for inclusive growth.”
We know that that will be difficult in the poorest, most fragile and conflict-affected states. These are the hardest markets, where businesses will not go on their own because it is perceived as too risky, yet it is in those very places that jobs and economic opportunities are so desperately needed. CDC does exactly that by creating jobs, stimulating growth and supporting local business.
There are currently only a few investors in the world with the skills and risk appetite to create jobs and opportunities in the most difficult frontier markets. CDC is one of those investors. CDC uses its expertise and capital to support over 1,200 businesses in more than 70 developing countries to grow and create jobs. It is a great British success story that has a long history of creating jobs in the developing world.
This is not just about abstract numbers; importantly, it is about investing in people. The life-changing impact of CDC’s investments can be seen in countries such as Sierra Leone, where the UK has supported businesses to get up and running to drive forward the country’s recovery following the devastating Ebola crisis, which killed thousands and damaged the economy. In the words of Henry Macauley, Sierra Leone’s Energy Minister, whom I met just three weeks ago:
“CDC has played an important role in supporting key businesses during the Ebola crisis and continues to do so in Sierra Leone as the economy now recovers. They are an increasingly important investor in the nation’s power sector and I’ve found them to be a great and promising private sector partner.”
The life-changing impact of the CDC’s investment can also be seen through people such as Yvonne, in Uganda. Thanks to a CDC-supported loan, she could buy a vehicle, a scrubbing machine and a vacuum cleaner for her cleaning business and attend training courses. In just 10 years, she had expanded her business from one person to providing jobs for 175 people. It is people such as Yvonne who we should have in our minds as we debate the Bill.
In the past, legitimate concerns were raised about some aspects of the CDC’s performance. That is why, in recent years, the CDC has modernised and transformed its approach. In 2010, DFID undertook a public consultation and an extensive review of the CDC, and began moving the CDC in a new direction, including by bringing in a new board and chair and hiring a new chief executive. Under its new leadership, the CDC has transformed itself. Before 2011, it operated a financial-return-first strategy, with no screening tool to help filter out insufficiently developmental investments.
Keith Vaz
The Secretary of State may have answered this question, or she may be coming on to answer it, but there were concerns about some of the salaries paid to senior officials at the CDC and about the monitoring of administrative costs. Given that we support this organisation, which is moving in the right direction, is she satisfied that there is proper monitoring of that aspect of its work?
Priti Patel
That is an important point. Back in 2009, the CDC’s then chief executive was criticised quite extensively for the level of their salary and other pay, which stood at £970,000. The current chief exec’s total remuneration is now limited to a maximum of £300,000, and that is because the remuneration policies have changed dramatically since 2012. It is also important to reflect on the fact not only that pay across the organisation has been reduced by over 40%, but that compensation is no longer benchmarked, as it was prior to the changes in 2012, against the private equity industry. This is not a private equity firm at all. The CDC is now benchmarked against other development finance institutions, and any bonuses are based on the CDC’s development performance and returns, whereas, previously, they were based solely on financial performance. That has now changed.
Priti Patel
No, I will not give way.
Under its new leadership, the CDC has transformed itself. As I said, it operated a financial-return-first strategy before 2011. It has now introduced dual objectives to deliver development impact and financial return. It has developed completely new ways of assessing and measuring development through job creation and of screening prospective investments for development impact. It is an innovative and intelligent investor with a core mission of fighting poverty. That was recognised in yesterday’s NAO report, which stresses that DFID’s oversight of the CDC led to
“important, positive changes...a significant departure from the previous strategy”.
Following new objectives agreed with the UK Government, the CDC now invests only in Africa and south Asia, where 80% of the world’s poorest live, and where private capital is scarce. The CDC focuses now on the sectors that create the most jobs and on sectors that create environments for other businesses to thrive, such as infrastructure and financial services. In the last year, CDC-backed businesses have helped to create over 1 million new jobs, and they have paid over $7 billion in local taxes in the last three years. That is money that Governments can use to invest in vital services, such as health and education.
As yesterday’s NAO report recognised, the CDC has addressed Parliament’s concerns about pay, and salaries have been cut, as I have just outlined. The whole ethos of the organisation has changed and, importantly, strengthened, with oversight from DFID. The CDC of today is a different, and much improved, organisation from the one it was many years ago. Some of the media coverage in recent days has not properly reflected that important shift, and I urge all Members to look carefully at the facts rather than some of the reporting.
Of course, there is more to do. Therefore, as part of the Bill, my Department will work to improve the transparency of the organisation further and to strengthen further the assessment of its development impact. As the NAO recognised, my Department has commissioned several independent evaluations of the CDC’s impact. Just last year, a team from Harvard, reviewing the CDC’s investments from 2008 to 2012, concluded that they had been “transformational”, creating hundreds of thousands of new direct jobs and billions of pounds in increased earnings. We are currently in the design stages of a complex new study to generate even more detailed data on the wider market impacts of CDC investments. We are the first Government ever to conduct such an in-depth study into their development finance institution.
There is no question but that the CDC offers value for money. Over the last five years, we have seen significant returns from it. Every penny of profit generated by the CDC is reinvested into businesses across the world’s poorest and most fragile regions, making every taxpayer pound invested in the CDC go further. The NAO further concluded that the CDC now has
“an efficient and economic operating model”
with low costs, compared with other development finance institutions. CDC salaries are covered by the returns the CDC makes on investments, not from development budgets.
Wherever possible, the CDC invests in countries, and it uses neutral jurisdictions only when it is absolutely necessary to do so, to protect taxpayer moneys from being lost to weak legal systems and to bring confidence to other global investors in the hardest-to-reach markets. However, the CDC uses only financial centres that are compliant with international tax transparency standards, as monitored by the OECD’s global forum on transparency and exchange of tax information. There are no exemptions.
Far from hiding investments, the CDC was one of the first development finance institutions to make public investment information about every single investment. In fact, with DFID’s support, the CDC is now a global leader on transparency. It has signed up to the international aid transparency initiative and has an online searchable database on its website, allowing users to access information on every investment and fund in the CDC’s portfolio. I can assure the House that my Department will continue to be an active and engaged shareholder in the CDC, ensuring that it continues to deliver for the world’s poorest and the UK taxpayer.
Richard Fuller
My right hon. Friend is outlining a strong case for what she proposes for the CDC. However, on the issue of probity, there are tremendous resources in the City of London, which could provide support for some of the businesses the CDC invests in as they look to get to the next stage of growth capital. Is there any element in the Bill, or are there any DFID proposals, to encourage City of London firms to provide that support for DFID goals?
Priti Patel
It is important to acknowledge the City of London and the great expertise that exists there when it comes to not only investment in some of the most challenging parts of the world but transparency. Through the work the Government have done on tax and transparency, the City of London has moved incredibly far. My Department is working across the City of London on a range of issues, such as insurance. We are also looking at how we can do more on transparency and accountability, and that is absolutely right.
We will shortly be setting out a new investment policy for the CDC, covering the next five years. That will include a new reporting framework to better capture the broader impact of investments on development, beyond job creation and the tax revenue generated. We will ensure there is maximum transparency, so that CDC investments can be scrutinised and, importantly, so that their impact on combatting poverty is made clear. As I stated, the CDC has a strong and transparent track record on which to build. With our support and oversight, we want the CDC to do more, and that is why we need the Bill.
The Commonwealth Development Corporation Act 1999 set a £1.5 billion limit on the overall amount of Government financial assistance that can be provided to the CDC. That limit was reached in 2015. The need to raise the CDC’s capital limit was clearly signalled in the UK aid strategy back in 2015. The Bill builds on the economic development objectives of Clare Short’s 1999 Act and should be seen not as a new political direction, but as a logical continuation of the cross-party approach that has been in place for decades.
Any money given to CDC will meet the internationally agreed rules about which spending counts as aid. Raising the limit by £4.5 billion to £6 billion and introducing a delegated power to raise the limit further via statutory instrument to £12 billion over time will enable the UK to accelerate the CDC’s growth, so that the UK can deliver on its international development objectives. Let me stress that this £6 billion is not an annual spend; it is a cumulative figure and a limit placed on the total amount of financial assistance that a Government could provide to the CDC over a period of time before coming back to the House to seek a further increase via statutory instrument.
James Duddridge
I fully support what my right hon. Friend is saying. This is a progressive, cross-party movement, and this is not a radical piece of legislation. Decisions have not been made to spend the full £6 billion straight away, but if the Department did commit to spend right up to that limit and fund it each year up to 2020, it would still represent only 8% of the Secretary of State’s budget, so 92% of aid would be spent in a more traditional way. This is a progressive move, not a radical change.
Priti Patel
I thank my hon. Friend for his comments. He is absolutely right about the 8% figure. It is also worth pointing out, putting this into context, that total aid spending over the course of this Parliament is likely to be £60 billion.
Some inaccurate reports have suggested that this Bill somehow paves the way for the entire aid budget to be given to the CDC in perpetuity. That is clearly not the case. Increasing the capital limit does not guarantee that we will use our resources in this manner, or commit us to any increases in capital. My priority is to ensure that we achieve maximum value for money with UK aid. The provision of any new capital to the CDC will require a full and detailed business case that will show how further investment will continue to achieve value for money, have a clear development impact for the poorest, and deliver in the UK’s national interests. Furthermore, it is worth noting that because CDC investments generate a return, any additional money we give to the CDC is not spent once and then lost; it contributes to the CDC’s capital, which is continually reinvested now and in future years. Importantly, therefore, it remains an asset that ultimately belongs to the UK taxpayer.
This Bill is fundamentally about people: improving life prospects by helping individuals to find work and earn money, so that they can feed their families, send their children to school and put clothes on their backs; empowering girls and women to determine their own future; and giving people in the poorest and most marginalised places hope, so that they do not feel the pressures to migrate or turn to some of the extreme causes that we see around the world. The CDC is just one part—a relatively small part in the context of overall development spending—of our crucial investment in developing countries. We will continue to invest in our life-saving, life-changing health, education and sanitation programmes, meeting our manifesto commitments. Ultimately, though, this is about jobs, growth and enterprise that will defeat poverty for good. It is right that Britain leads the world to tackle poverty across the world given that we still have more than 1 billion people living on less than a dollar a day. The UK Government are playing a leading role in building a more prosperous world. This Bill is the right thing to do for the poorest people in the world and for British taxpayers, and I commend it to the House.
The Minister of State, Department for International Development (Rory Stewart)
I want to say a great thank you to all the hon. and right hon. Members who have taken part in the debate. I particularly praise the tone set by the hon. Member for Edinburgh East (Tommy Sheppard) and the way in which he picked up on the good atmosphere in the Chamber. I also pay tribute to the tone set by the shadow Secretary of State, the hon. Member for Edmonton (Kate Osamor) and by the shadow Minister, the hon. Member for Bradford East (Imran Hussain), and to the constructive way in which they have approached this short but quite technical piece of legislation.
Four major types of concern seem to have been raised today, and I will try to deal with them briefly, with the aim of stopping at exactly 5.20 pm. Those questions were as follows. Why are we focusing on private sector-led economic development? How do we balance the private and public inclusion in that development? Why are we using development finance institutions and, in particular, what quantity of money are we putting into them? Why are we specifically putting money into the CDC? That last question relates to concerns that have been expressed about the governance and transparency of the CDC. I shall try to deal with those four types of challenge in turn.
The first is a general concern about the weight that we place on the private sector’s role in economic development in general. That concern was expressed by a number of people today, particularly Members on the Opposition Benches. The shadow Secretary of State used the word “profiteering”, and the hon. Member for Edinburgh East talked about international capitalism. The right hon. Member for Leicester East (Keith Vaz) spoke of distracting our attention away from humanitarian concerns, and the hon. Member for Glasgow North (Patrick Grady) was worried that some of the investments might be made at the cost of other potential investments. The hon. Member for Kilmarnock and Loudoun (Alan Brown) emphasised the fact that aid is needed as well, and the hon. Member for Cardiff South and Penarth (Stephen Doughty) emphasised the importance of health and education.
The way in which to deal with these generic concerns about the role played by the private sector in economic development—and with all the matters in the general portfolio of the Department for International Development —is to state that what we are talking about today is just a part, not the whole, of what DFID does. Economic development is absolutely vital—I will come on to that—but it is currently less than 20% of the Department’s overall portfolio. The shadow Secretary of State quite rightly raised water and sanitation as important elements of our Department’s strategy—they are—but they are not primarily delivered through development finance institutions. The £204 million that we spent in 2015-16 came from other parts of the Department’s budget. As for the humanitarian concerns mentioned by the right hon. Member for Leicester East, the £2 billion that we are spending over this period on Syria alone comes from other parts of the departmental budget.
However, as pointed out by the hon. Member for Yeovil (Marcus Fysh), poverty alleviation cannot happen without economic growth, and that relies on the private sector. It relies on the private sector for jobs, for Government revenues and for the services that the sector provides. It is not a zero-sum game. The hon. Member for Glasgow North issued a challenge when he talked about investments coming at the cost of others, but it is not that kind of zero-sum game. To take a specific example, we were criticised by one Member for some of our investments in electricity, as opposed to other forms of infrastructure, as though that was somehow at the expense of other developmental objectives. However, that electricity not only delivers jobs through the business side, but allows us to deliver our objectives in health and education. We cannot have a decent education service and get children into school if there is no electricity and they have to go 10 miles to pick up firewood. We cannot deliver decent healthcare in Africa unless there is refrigeration for immunisation drugs and unless we have the electric lighting that allows doctors to perform surgery in the clinics.
We are delivering on the STGs, particularly goals 7 and 8 on energy and economic growth. Ellen Johnson Sirleaf, who is both a distinguished international civil servant and a President of an African state, has said that poverty in Africa cannot be eliminated without private sector growth. That also reflects the demands of Africans themselves. I was taken by the statements of my hon. Friend the Member for Bedford (Richard Fuller) about mutual respect. Recent surveys conducted in sub-Saharan Africa show that sub-Saharan Africans identify energy and jobs as two of their top three priorities at a level of 80% or 90%. We should respect their wisdom and desires when we talk about the kind of development investments that we make.
The next question is how to balance the roles of the public and private sectors in delivering development. I do not want to talk about this too much, but it is clear that there are serious constraints on the public sector’s ability to deliver all forms of commercial activity, partly because it often lacks the skills to ensure that those things happen. It lacks the skills to understand the market dynamics, the logistics, the productivity and the efficiency. We have all seen well-intentioned charitable and Government development projects attempt to set up businesses that have not worked. However, as Opposition Members have pointed out, the private sector cannot do it on its own—there are clear market failures. Returning to electricity in Africa as a good example, the private sector has clearly failed. If the private sector had been able to do things on its own, we would not be in a position where only 6 GW of power generating capacity has been built in Africa over the past decade. In China, 8 GW of capacity is built every one to two months.
That brings us to the question why we are putting money into DFIs, which was the particular challenge of the shadow Minister. The shadow Minister and the hon. Members for Glasgow North, for Cardiff South and Penarth and for Edinburgh East focused on the quantity of investment. The response is that I am afraid that some people still confuse stock and flow—in other words, the annual overseas development spend and the creation of a capital fund. The second response is that it is an option, not a commitment. What we are doing is raising the ceiling for what CDC, through rigorous business cases, can request; we are not imposing this on CDC. Over a five-year period, even if the maximum were drawn down, we would be talking about 8% of the total anticipated ODA spend, which is smaller than the amount I calculate the Scottish Government appear to be putting into a similar instrument in proportional terms.
There have been challenges on strategy. The strategy will be produced in line with departmental practice at the end of this year, but this Bill is enabling legislation, so we are putting the horse before the cart. We need the enabling legislation in place—we need the ceilings to be lifted—before we can look at individual business cases that wish to draw down on that money.
That brings us to the overall question why use DFIs at all, and I wish to pay a huge tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who provided perhaps the most powerful explanation of why we go into these mechanisms in the first place. The answer of course is that they bring together the very best of the private sector and the very best of the public sector. They provide the discipline of the private sector in insisting on returns that produce sustainable enterprises and sustainable revenues; and they provide freedom from political interference and they provide leverage. To respond to my hon. Friend the Member for Bedford, let me say that they also allow us, as my hon. Friend the Member for Portsmouth South (Mrs Drummond) pointed out, to draw in other forms of capital behind. Some £4 billion of investment from the CDC has drawn an extra £26 billion into our investments in Asia and Africa. In addition, this approach provides good value for money for the taxpayer.
Stephen Doughty
The Minister is talking about the capital that this approach has brought in, but that has not always been in areas where capital has not been available—I think of places such as India. Given that he is about to publish the bilateral aid strategy, will he consider forcing the CDC to look more closely at the lower-income countries in Africa and elsewhere that need the investment the most?
Rory Stewart
I am trying to move towards my 5.20 pm conclusion, but let me deal with that quickly. As I was saying—and this partly answers the point—we are combining the best of the private sector incentives with the best of the public sector, because we are exactly able to prioritise maximising development impact. That is where our development impact grid, which, with respect, the hon. Gentleman is not providing enough focus on, answers his question. Members on both sides of the House should be aware that that grid targets explicitly countries with the lowest GDP per capita, countries where investment capital is not available and countries where the business environment is worse—that is the Y axis of the grid. On the X axis of the grid, we have sectors in which the maximum employment is generated. Every business case since 2012 has been assessed exactly against those criteria, which is why, as my right hon. Friend the Member for Sutton Coldfield has pointed out, many of the criticisms made today—the idea that somehow the CDC has lost its way—are not appropriate for the CDC of 2106; they are appropriate for the CDC of 2012 or 2010.
Let me deal with a few of the objections. An investment in Guatemala was mentioned, but all investments in Latin America stopped in 2012. An investment in Xiabu Xiabu in China was mentioned, but all investments in China were stopped in 2012. The issue of pay was raised, but, as has been pointed out again and again, the pay of the chief executive has been reduced by two thirds, to a third of its predecessor. Tax havens were mentioned, but we no longer, in any way, ever invest for reasons of tax or secrecy; we invest only to find secure bases for investment and to pool other forms of capital. All our investment goes simply into locations that meet the highest OECD transparency standards. On development impact, our DFID chief economist, Stefan Dercon, has worked with some of the most distinguished academics in the world, from Harvard and elsewhere, to create exactly the kind of impact that people are pushing for.
That is why right hon. and hon. Members should support this Bill. It is not only because of the history of the CDC, to which the shadow Secretary of State paid such good tribute to in her opening remarks: its experience of 70 years; the culture it has developed; the extraordinary brand that the institution has in Africa and south Asia; and the focus that my right hon. Friend has brought to this institution since 2010—its rigour and its narrowness of focus, which makes it very unusual among DFIs. It is one of the only DFIs in the world to be spending so much in conflict-affected states. It is accountable directly to DFID, which owns 100% of its shares. The examples of its performance today can be seen in the DRC; in places such as Burundi, where off-grid power would not be built without the CDC; and in its investment in energy through Global in Africa.
In conclusion, we should take pride in this institution; it is a very great British institution. In its historic evolution it has gone from a past where it was dominated in the 1950s by ex-military officers interested in building rafts and going into jungles to its current leadership under Diana Noble, a chief executive who exemplifies much of the best in development thinking and some of most progressive intuition in the British Government. She ensures that we are delivering in Pakistan gender-based programming that affects workers’ rights and that we have an institution that is today highly relevant and that faces and solves some of the greatest development challenges in this century.
Question put and agreed to.
Bill accordingly read a Second time.
Commonwealth Development Corporation Bill: Programme
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Commonwealth Development Corporation Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 8 December 2016.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on Consideration.
(5) Any proceedings in legislative grand committee and proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion four hours after the commencement of proceedings on Consideration.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Andrew Griffiths.)
Question agreed to.
Commonwealth Development Corporation Bill: Money
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Commonwealth Development Corporation Bill, it is expedient to authorise:
(1) any increase in payments out of the National Loans Fund or money provided by Parliament resulting from provisions of the Act—
(a) increasing the limit in section 15(1) of the Commonwealth Development Corporation Act 1999 to £6,000 million; and
(b) conferring power to increase that limit to an amount not exceeding £12,000 million;
(2) any increase attributable to those provisions in the extinguishing of liabilities in respect of guarantees under the Commonwealth Development Corporation Act 1999; and
(3) any increase attributable to those provisions in payments into the National Loans Fund or the Consolidated Fund.—(Andrew Griffiths.)
Question agreed to.