DfID Economic Development Strategy

Viscount Eccles Excerpts

Monday 27th November 2017 Lords Chamber

[Viscount Eccles (Con)]

My Lords, I am also very grateful to my noble friend for introducing this debate about economic development. Because the CDC is mentioned quite frequently in the development strategy, I thought it appropriate that I should say a few words and concentrate on it.

The CDC was founded 70 years ago, and I was fortunate enough to work for it at the beginning of its second half, so I am already history. My noble friend is very closely connected with the CDC. Her father-in-law was the man who developed the idea, within the Colonial Office, for the beginnings of what was then the Colonial Development Corporation. Its purpose was to look for economic opportunities in the colonies, develop them and do so in a way that meant that, taking one year with another, the institution broke even. There was also a subline, which was that the United Kingdom was pretty short of food, so if it concentrated on agriculture, everybody would be very happy. Sir Michael Caine of Booker—justifiably famous for the Booker prize—was the vice-chairman of the CDC during my time. Apart from being very good at many things, he knew a great deal about the growing of sugar cane.

It seems to me that no institution can ever escape from its beginnings, and I am not sure that any institution should try. The CDC was founded in the context of economic development, and that is where it still is today. It is classified as a development finance institution, and as the noble Lord, Lord Desai, said, every now and again, you run into an awkward OECD rule, even if you are a publicly owned development finance institution.

As such, the CDC is 100% publicly owned; it works only in the private sector and primarily by the provision of equity finance. It derives some great advantages from its public ownership. One is that it has no need to distribute, as its shareholder does not call for dividends. Another is that it is not a profit maximiser since it does not have shareholders looking for the maximum return. This enables it to work in places and sectors where the fully private sector either does not want to work or is not yet ready to. So a development finance institution is a very useful gap-filler. Perhaps it enters into partnership with people who are already interested in an economic opportunity, or perhaps it starts one entirely of its own volition—the CDC has a long record of doing both. It is also able, with a proportion of its portfolio, to be innovative and take greater risks than the private sector might be willing to. In doing this, it has one huge advantage of being publicly owned: it has the backing of Her Majesty’s Government’s posts all round the world. That can be extremely useful if you are in a country where, as my noble friend says, there is rather a lot of corruption. It is a pretty good help to have someone who knows who is who and tells you with whom you should and should not work.

I say in parenthesis that in the 10 years that I was involved with the CDC I was never offered a bribe, nor was it once suggested to me that I should provide one. The CDC was known as incorruptible, and I assure noble Lords that when people on the other side of the fence know there is no game that they can play, they do not play it. That is an important lesson that might be more widely learned.

In searching for economic opportunities we hope to find something that will give both a financial and an economic rate of return. I apologise for my language being slightly out of date; the DfID strategy describes these matters in much more depth and detail than there was ever any need for in my time. If you find such economic opportunities and you succeed, that is a great help. I will give three examples. First, long ago my predecessor invested in a £700,000 convertible loan to complete a project in Hong Kong. It is strange to think of Hong Kong being eligible for OECD aid, but it was at the time. Some 25 years later, that £700,000 turned into £48 million. When we accepted the £48 million cheque, we said to the Chinese who had bought the property, “You may be surprised to learn that we’re going to invest this money in Africa”. I merely make the point that if you succeed, it gives you opportunities in places where things are more difficult and where you are more badly needed.

Secondly, I would cite mobile telephones. The CDC was one of the very first investors in mobile telephones south of the Sahara. That has been a huge benefit to the continent of Africa, which in fact will never need hard-wiring in the same way as we have been hard-wired. Indeed, some of my children and grandchildren do not have a fixed-line telephone any more, and they live in this country.

Thirdly, I would cite the property, which had belonged to the Japanese, that was given to the CDC in its earliest days by the enemy alien property division of the Colonial Office. There we worked, and at the beginning we had 24 people from this country working on the project but by the end only one remained. We sold the property to a Singaporean firm for £100 million —again, a huge opportunity to redeploy the money in other, more needful places.

From time to time, a development finance institution investing and making a return has been questioned: is it aid? The most famous debates about the subject were in your Lordships’ House many years ago between two economists, both Hungarian: Lord Bauer and Lord Balogh. Lord Bauer was a man who believed entirely in private-sector economic development. He said, “We got development in the United Kingdom that way; why are we different from everybody else?”. He also made the point made this afternoon about Governments not necessarily being the best people to decide what should be done next. He was up against Lord Balogh, who was an adviser to Harold Wilson and very socialist. He believed that everything should be done through Governments. That debate has gone on, one way and another, ever since. My view is that it is time we stopped it, because obviously there is a critical place for aid in all sorts of humanitarian circumstances— refugee camps have been mentioned. There cannot be any argument that there should not be aid, but there also cannot be any argument that there should not be economic development.

I illustrate that with a little story. I was at lunch in Accra with 12 businessmen, half of them Ghanaian and half from various parts of Europe—a Conrad-type mixture of people. They asked me about Malaya: “John, tell us: why is it? We have about the same population, economic opportunities, level of mineral wealth—although ours is gold, in Malaya it is tin. We had the same colonial administration, education policy, approach to the human rights of the people in the country, and rule of law, although that did not always make us very happy. How does it come about that they are several times as rich per head as we are?”. That has continued. Today, the per capita income in Ghana, which is a wonderful country with huge opportunities and a charming people, is $4,000 per capita, but in Malaysia, it is $27,000. That takes some explaining by anyone involved in economic development and trying to do the best they can around the world for the per capita income of the people.

Finally, I pick up a point made by the noble Lord, Lord Desai, about the Crown colonies and dependencies. It is a great pity that the CDC is no longer empowered to work in those countries. There was a time when the Foreign Office came to us and said, “Will you do something in Anguilla?”. It wanted the restoration of good behaviour in the power-generating company there. It seemed interesting, and we knew a lot about power generation and distribution, so we went and restored the Anguillan’s power company.

That was not done with any focus on poverty. If you are in economic development, that is not the right place to start. We started by saying, “We need a general manager”. We found a mixed-race Caribbean man who lived in Toronto—a lot of very able people from the Caribbean live in Toronto. He became the general manager and—surprise surprise—one day someone came into the office in London and said that he would like to see me. He turned out to be a maintenance engineer working on a British power station, but came originally from Anguilla. He had heard of the CDC and said, “If you are going to this company there, I will go home and become one of your maintenance engineers”. He did so, and that was a great success. We were not there for very long because, once we had put it right, we let it move on.

I quite understand and fully agree that we are trying to alleviate and remove, if possible, poverty from as many people in the world as possible. But if you have a finance development institution which invests successfully, it could do a lot more if it was allowed to work in places that are not so poor. There may be more economic opportunities, and if it makes a return it will go on to the balance sheet.

There is some concern in this House and elsewhere about the potential increase in the CDC’s capital. If it succeeds in making a reasonable return, it will be many years before it draws down all that capital. Indeed, in my time at the CDC, we did not draw any money net out of the aid programme at all. One of its objectives should be that it minimises its call on 0.7%.