Draft Asian Development Bank (Thirteenth Replenishment of the Asian Development Fund) Order 2024
Draft Inter-American Investment Corporation (Further Payments to Capital Stock) Order 2024
(2 days, 9 hours ago)
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The Minister for Development (Anneliese Dodds)
I beg to move,
That the Committee has considered the draft Asian Development Bank (Thirteenth Replenishment of the Asian Development Fund) Order 2024.
The Chair
With this it will be convenient to consider the draft Inter-American Investment Corporation (Further Payments to Capital Stock) Order 2024.
Anneliese Dodds
It is a pleasure to see you in the Chair, Mr Vickers. The draft orders, which were laid before the House on 4 November, will permit the UK Government to make separate financial contributions to the Asian Development Fund and the Inter-American Investment Corporation, up to the stated values. If I may, I will briefly take the Committee through the background to and purpose of the draft orders.
The Asian Development Fund, which is the grant arm of the Asian Development Bank, supports the most vulnerable countries in the Asia-Pacific and is replenished by donors every four years. ADB is one of the largest sources of development finance in the region; it provided more than $23 billion in 2023.
ADB is an important partner for the UK that plays a key role in the achievement of regional development objectives on sustainable development and climate change. In line with multilateral development bank reform priorities to support the most vulnerable, the UK has committed £120 million to ADF to maintain our position as the fourth largest donor. The draft Asian Development Bank (Thirteenth Replenishment of the Asian Development Fund) Order will allow for the provision of this core funding by the UK. During this replenishment, a record high of 38%—almost $2 billion—will be funded from ADB’s own net income, reducing the cost to donors of achieving the same development impact. The total value of the replenishment is $5 billion.
The replenishment will prioritise dedicated assistance to small-island developing states, which are particularly vulnerable to climate change, and to countries in fragile and conflict-affected situations, including Afghanistan and Myanmar. It will support much-needed climate adaptation and disaster risk reduction, will promote gender equality, will support regional integration nd the provision of regional public goods and will increase the living standards of poor and vulnerable people in the region. Specifically, ADF will dedicate at least 45% of its financing to climate mitigation and adaptation; will commit $900 million for Afghanistan and $200 million for Myanmar, providing vital support for basic human needs and livelihood development; will increase commitments to Pacific island states to $1.3 billion, some 35% of the total replenishment financing; and will allocate 20% of thematic funding to gender-transformative action, which will tackle violence against women and girls, ensure access to sexual and reproductive services and promote access to economic resources such as land and asset ownership.
ADF is an essential lifeline to the region’s most vulnerable people, who have faced multiple crises over the past few years, including climate change, coronavirus and the impact of Russia’s invasion of Ukraine. ADF provides excellent value for money for the taxpayer, leveraging approximately $11 from the bank’s resources for every $1 contributed by donors. This is one step closer to building a bigger, better and fairer international financial system—one that delivers for everyone.
The draft Inter-American Investment Corporation (Further Payments to Capital Stock) Order will permit the UK Government to make further payments to the Inter-American Investment Corporation, also known as IDB Invest, which is the private sector arm of the Inter-American Development Bank group. The IDB is Latin America and the Caribbean’s largest source of development finance; it provided approximately $24 billion in 2023 alone.
The IDB is also a trusted UK partner and is instrumental in the achievement of regional development objectives on sustainable development, action on climate change, biodiversity protection and pandemic and disaster preparedness. Furthermore, the G20 has called on multilateral development banks to adopt new business models to stretch their balance sheets, increase lending and make riskier investments. With the new Government, the UK has been at the forefront of these calls. This is exactly what IDB Invest has committed to doing.
Together with other shareholders, the UK has therefore agreed to a $3.5 billion capitalisation package to allow IDB Invest to more than double the support that it provides to the region, from about $8 billion to $19 billion per year. It will do so through the implementation of a new business model: IDB Invest will shift to an originate-to-share approach to attract private capital, share risks and recycle funds, enabling greater impact and scalability for development projects. The UK is a strong proponent of the new model and the leadership and innovation showcased by IDB Invest. For that reason, we aim to achieve at least a fivefold increase in our shareholding, from 0.22% up to 1.5%—subject to shares being available—for a total value of up to $106 million.
Let me lay out some of the outcomes that IDB Invest expects to achieve by 2030 through the new business model and capital increase. It will dedicate at least 60% of investments to climate and green finance; will finance 2.5 million micro, small and medium-sized enterprises, which in turn could support 9.5 million jobs; will create more than 300,000 women direct beneficiaries of its programmes and support 1.6 million of the region’s poor and vulnerable people; and will improve access to agricultural services and investments for 44,000 farmers. It is also predicted to achieve a reduction of 3.9 million tonnes of carbon dioxide emissions and to generate 1,400 MW from renewable sources for new clean energy projects. In addition, IDB Invest will continue to share lessons learned in the implementation of its business model with other development finance institutions to encourage more private sector investment globally. This represents excellent value for money: for every $1 that the UK invests, $5 of development-related assets are generated, taking us one step closer to achieving the region’s sustainable development goals.
Both the Asian Development Fund and IDB Invest are instrumental to achieving UK objectives overseas and are among our closest and most important development partners. The financial contributions covered by the two draft orders will deliver UK international development and foreign policy objectives in some of the world’s poorest and most vulnerable countries and will bring opportunity to tens of millions of people globally through innovative reform processes. I commend the draft orders to the Committee.
Andrew Rosindell (Romford) (Con)
It is a pleasure to serve under your chairmanship, Mr Vickers, for what I think is the first time ever; I hope that there will be many more such occasions. I thank the Minister for her very detailed and comprehensive explanation of the matters that we are discussing today, but as she will imagine, I have a lot of questions and points of clarification to put to her.
I turn first to the draft Asian Development Bank (Thirteenth Replenishment of the Asian Development Fund) Order. His Majesty’s Opposition recognise the important work that the bank does in different parts of the region, as the Minister has outlined. The work of the Asian Development Bank was supported by the previous Government, and the Opposition continue to support it. However, I would be grateful if the Minister provided much more granular detail about the up to £120 million that she proposes to spend. It is a lot of money; I think all our constituents want to see justification when money is spent, especially large sums of that kind. We have had a very high-level explanation today, but we need to go a bit deeper and look at some details.
Precisely what climate change mitigation should we expect to be funded? What kind of sustainable infrastructure development are we looking at? Will the Minister elaborate on what the Government are trying to achieve by means of “deepening regional co-operation”? What does she mean by that?
The Committee would also benefit from more information about the distribution of funds. How will they be geographically spread across the region of jurisdiction? Which areas are priorities for His Majesty’s Government?
Will the Minister also enlighten the Committee about the steps that the Labour Government are taking to help multilateral banks such as the Asian Development Bank to take maximum advantage of the huge potential offered by private finance for development? As the Committee will know, the last Conservative Government’s international development White Paper, which was published last year, was centred around mobilising financial institutions and private capital. That included ensuring that every penny of UK funding embedded in the multilateral development banks went as far as possible and was used to best effect.
We want to see evidence of what the Labour Government will be doing to pick up the baton and continue the work of the previous Government. To that end, will the Minister confirm what new initiatives are being undertaken by British International Investment to unlock greater volumes of private finance? The Conservative Government championed BII’s aspiration to try new approaches to secure more private finance, with a clear focus on equity investment to support businesses in developing economies to access additional finance. Does Labour support that? Does the Minister agree that lessons could be learned from British International Investment successes in this area that could influence the adoption of new business models by MDBs?
United Kingdom aid is a powerful driver for lifting people out of poverty, but only if it is complemented by supporting economic development policies that enable countries in receipt of our financial assistance to develop and grow their own economic base through trade, employment and skills development. Are the Government looking at furthering our work on economic prosperity by working with British firms that can offer skills, education and employment development to countries and effectively promote British interests overseas?
The Chair
Order. The shadow Minister is moving beyond the scope of the draft orders. I ask him to conclude his remarks.
Andrew Rosindell
Additionally, the Conservative Government made good advances both in spending power and in expertise, as well as leveraging our position to reform and improve the global aid system so that it could manage the challenges of this century and address our national priorities. In that specific context, we need to ensure that the money going into ADB and other MDBs is clearly targeted at bringing about economic progress, because that is what drives human development in turn.
I will turn, if I may, to the Inter-American Investment Corporation. The UK became a member of the corporation under the previous Government, and we recognise its importance as the largest source of development finance in Latin America and the Caribbean. What assurances can the Minister give that the Government are advancing the previous Government’s commitment to continually improve the effectiveness of development delivered through the corporation?
The last Government strongly supported the corporation’s reform programme. Do the current Government intend to do the same, particularly in relation to increasing the level of co-investment attracted from private investments and the allocation of capital? Will the Minister clarify whether the Government will indeed seek to purchase additional shares to take our holding up to 1.5%?
In relation to how the funding will be used, does the Minister agree that we need to improve our partnership offer, particularly to the Caribbean nations, if we are to counter the growing economic and development presence of China in the region? If she does agree, how does she intend to do so through our funding of the corporation? What measures will be in place to scrutinise the effectiveness of our offer, investments and resources so that the UK is not indirectly subsidising initiatives that could be counter to our national interests and foreign policy objectives?
Will the Minister tell us about funding through the corporation? Will it be supporting projects in support of the British overseas territories in that region? Can she provide the details of priority countries and projects?
Before I draw my remarks to a close, I will mention smaller aid and development organisations. This discussion is understandably centred on the role of big players, but we must never forget the small charities with dedicated volunteers and grassroots support who put their heart and soul into great causes and often receive less attention and support than they deserve. Can the Minister confirm whether the Government have a plan to support the smaller charities, in addition to these big projects? It was a Conservative Government who established the small charities challenge fund—
The Chair
Order. I have been very relaxed, but I ask the shadow Minister to conclude. The Minister need not comment on questions that are out of scope.
Andrew Rosindell
I will conclude, Mr Vickers.
Finally, what timeframe can the Minister outline as to how and when the work of the corporation will be reviewed? Will the review be published and subject to full parliamentary scrutiny?
Anneliese Dodds
I am grateful to the shadow Minister for his questions and for his interest in this critical area. I will endeavour to answer as many points as I can.
First, I was pleased that the previous Government supported the work of the Asian Development Bank: that was really encouraging to see. I am also pleased that a new president has been announced. I met with him when he was a candidate to become the new president of the bank, and he certainly shares a similar reform orientation to that of the new UK Government.
The shadow Minister mentioned the UK’s funding, which perhaps needs to be put in the context of the previous Government’s support. We are talking about up to £120 million now, which is a slight increase on the UK’s contribution of £117.6 million made by the previous Government. It is helpful to put it in that context.
The connection between the environmental schemes on which ADB is focusing and economic growth is very clear. Previously, it has been very focused on mitigation, in terms of projects to deliver energy where it is required, and ensuring that that is done on as sustainable a basis as possible. It is also about infrastructure development, but above all it is about ensuring that its work is additional and is not crowding out private sector investment. It has to focus on the core mission for MDBs, which is to be additional to any private funding.
The shadow Minister asked about regional co-operation. A particularly important area is encouraging intra-regional trade and encouraging, for example, the integration of energy systems, which is becoming increasingly important in the light of the climate crisis. These are areas that have been examined.
The shadow Minister asked about overall reform. The new UK Government certainly recognise that the last Government were committed to reform, but we want to go far further and faster. That is what we have been pushing on, and I am pleased to say that we have been able to achieve it. We really do want to ensure that every penny goes as far as it possibly can when we are talking about taxpayers’ resources. We have seen that with the World Bank’s openness to reform and with what we managed to achieve in our negotiations around our announcement on the International Development Association. There was a commitment to ensure that every pound would be stretched on the balance sheet of the bank; it has been really clear about that and about the reforms that it is making. The announcements that we are making today also show a strong push towards the reform that is so critical. Finally, I must mention the measures that we have been pushing with the Green Climate Fund, where we have seen positive innovation, particularly in serving fragile and conflict-affected states and in the announcement that it has made about funding in Somalia.
The shadow Minister asked about BII. As he would expect, I have had frequent interaction with BII since becoming the Development Minister. I was there a couple of weeks ago. He asked about measures now being undertaken that the new Government are promoting, particularly on catalysing private-sector growth. BII is one of the few such organisations that has had an explicit focus on African nations, and particularly those that cannot access finance from other sources. I am pleased that the Financial Sector Deepening Africa project is proceeding apace and that we are seeing investments to support small-scale businesses as well as larger ones. I was in Zambia last week and saw some of that for myself. It is good to see that continuing work.
The shadow Minister talked about the need to ensure that the UK’s work is supporting development and growth in other countries. That is absolutely the raison d’être of our new approach to development. It has to be focused on partnership, recognising that the new UK Government’s core mission is growing our economy, and our partners overseas have the same core mission. We need to work with them to realise that mutual interest.
The shadow Minister asked about British firms. A review is being undertaken within the Foreign, Commonwealth and Development Office: it is being led by Martin Donnelly and is focusing on economic diplomacy. The review is not within the scope of the draft orders, so I will not talk about it, but the shadow Minister may find it useful to find out more about it.
I have discussed the reform plans within the IDB directly with its president. In many ways, it has been a leader among multilateral development banks. It is positive that it has held the presidency of the grouping, bringing MDBs together for the first time so that it can share knowledge of reform and push things forward.
The shadow Minister asked about the Caribbean. The fund will, absolutely, be focused on the Caribbean, which is really important. That is particularly the case when it comes to adaptation-focused investment. IDB Invest will be making 10% of its investments in the Caribbean, and 60% of its focus will be on pro-environmental and climate measures, including adaptation, which are particularly important for those countries and overseas territories that are being hammered by the impacts of the climate crisis right now.
I hope I have answered most of the shadow Minister’s questions. He talked about the need to support smaller charities; we absolutely agree, but I am afraid I cannot resist saying that unfortunately the record of the previous Government includes a huge amount of volatility around funding for international development. We are determined to deliver a longer-term approach whereby we do not see in-donor refugee costs eating up a variable and—as under the Conservatives—increasing amount of international development funding. We want to bring that proportion down over time.
We will ensure that information is available about IDB Invest into the future. I know that the Inter-American Development Bank itself will be reporting on that. If the shadow Minister has any subsequent questions, on that or any other matter, I will be more than happy to respond in person or in writing.
Question put and agreed to.
Draft Inter-American Investment Corporation (Further Payments to Capital Stock) Order 2024
Resolved,
That the Committee has considered the draft Inter-American Investment Corporation (Further Payments to Capital Stock) Order 2024.—(Anneliese Dodds.)