Future of CDC

Debate between Andrew Mitchell and Anas Sarwar

Thursday 14th July 2011 Westminster Hall

[Anas Sarwar]

I wholeheartedly agree with the case that the Secretary of State makes for aid to India, and there was strong cross-party support for the report on India by the International Development Committee. I want to follow on from the question asked by my hon. Friend the Member for Birmingham, Northfield (Richard Burden). The issue is not about whether the private sector has a role to play in development—that is a given; the private sector is crucial if we are to develop underdeveloped nations. However, if the Department for International Development aims for 50% of its money to be spent in the private sector—as in India, for example—what percentage of that money will go through CDC? If the Department is making direct investment and not using a third-party organisation such as CDC, will that risk the integrity of DFID, which makes untied, direct grants and investments in a bilateral sense, rather than direct investments from which it looks for a return?

[Mr Mitchell]

I will come directly to that point. CDC investments in India will be in addition to the 50% of the programme funding that we expect to be spent on pro-poor private sector development over the next four years. If the hon. Gentleman will allow me, I will come in a moment to some of the other points that he has raised.

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[Mr Mitchell]

The right hon. Gentleman is absolutely right. We will, I hope, see secondments between the Department and CDC in the future, and we are intent on promoting much closer involvement, including at country level. When I first visited India, I, too, was struck by the distance between the Department and CDC, although it is fair to say that, such is the quality of the staff that we are fortunate enough to have in India, that is rapidly being rectified. The Chairman of the Select Committee will agree that that is a most important matter.

In the early part of his remarks, the Chairman mentioned the importance that the Committee attached to the role of the diaspora and, in particular, to remittancing and related matters. On page 2 of the Government response to the Committee’s report, we are clear that making intelligent and innovative use of that should be something that we progress, and we have every intention of doing that.

I do not want to waste the valuable opportunity presented by today’s debate by repeating the details that I have already given the House. Instead, I want to remind hon. Members of the broad thrust of the changes that we have made to CDC—changes that reflect the responses to the consultation and many of the comments made in the Committee.

Under its new business plan, CDC will become a pioneering investor—the most pro-poor investor in the world. As members of the Committee made clear, there have been too many examples of CDC behaving like any other emerging market private equity fund. I noticed that on one occasion CDC was the seventh investor in a fund, which does not suggest a great deal of pioneering. What CDC has that the market does not have is the ability to deploy patient capital, which does not require the same returns as are returned by the market. It can take a much longer view. That is one of CDC’s unique selling points, and it is extremely important that it is deployed.

CDC’s focus will be on development impact rather than corporate profitability. It will channel all its new investments into the poorer countries in sub-Saharan Africa and Asia, where more than 70% of the world’s poorest people live. It will become bolder in its approach to innovation and risk, accepting higher financial risks where those are justified by greater development benefits. In other words, as I said, it will be a patient investor.

[Anas Sarwar]

I agree wholeheartedly with the suggested reforms for CDC. The Secretary of State rightly mentions the fact that CDC will have to make more risky investments. If CDC made more risky investments and did not get the returns that it hoped to get, would the Department be willing to put further funds into CDC to protect it?

[Mr Mitchell]

The hon. Gentleman asks an important question. We have taken nothing off the table in that respect. I will come on to why the time to deal with that point is when the new chief executive has been appointed and the business plan for CDC under his or her direction has been set out.

A number of members of the Select Committee raised the overuse of private equity funds by CDC in the past. However, ManoCap, for example, which is a brilliant organisation and fund in Sierra Leone, run by Tom Cairnes and his colleagues, is highly developmental. Under its new approach, CDC will support pioneering equity investment and will increasingly also deploy other tools, including lending, guarantees and co-investment, but they will be introduced carefully and over time.

In addition, my hon. Friend the Member for Stafford (Jeremy Lefroy) and the hon. Member for Bethnal Green and Bow mentioned the position of CDC in relation to SMEs. It is worth making it clear that CDC is already one of the major backers of SME funds, such as ManoCap and GroFin, and it will do more. Last November, it committed €8 million to a new SME fund based in west Africa. I hope that the hon. Lady will feel that the direction of travel in that respect is also a good one.

Following the changes, CDC will no longer work exclusively through private equity funds managed by others and, as I have said, it will offer loans as well as equity financing. It will become more transparent in its dealings, so that taxpayers and the people whom we are trying to help can see where and how the money is being spent. It is already publishing more corporate and investment data on its website, and more of its evaluations will be carried out independently.

As I mentioned, DFID will work more closely with CDC, not only at country level but at the centre. CDC’s business plan will be kept under regular review, and it will report annually to my Department against published targets. DFID will not interfere in CDC’s investment decisions, for the reasons that I explained, but it can offer valuable information and expertise from a development perspective.

The issue of remuneration was raised. Pay and bonuses will be brought down to a level that is fair and appropriate but not excessive. I am pleased to be able to tell members of the Select Committee that the CDC board has already cut bonus levels by 50% this year.

[Anas Sarwar]

I thank the Secretary of State for giving way again; I am sorry to be a nuisance. He rightly mentions that CDC will report every year to the Department. Will that process include transparency about what profits are made, and what taxes are paid, in each country?

[Mr Mitchell]

The hon. Gentleman, despite his comment, is never a nuisance. If he bides his time, I will come directly to the point that he has raised.

Once the new chief executive is in place, the Government will decide how to restructure pay. We will ensure that the new remuneration framework links performance to development results rather than simply profit. I was asked a number of questions about how CDC would deliver that new agenda. I expect CDC to start to make rapid progress in a huge number of different directions once the new chief executive is appointed. The head-hunters charged with finding the person for what I have described—accurately, I hope—as one of the most interesting and exciting jobs anywhere in the financial world have advised me that they have been overwhelmed by an incredible response from highly talented people. We all look forward to seeing the result of that process.

In addition, we have already reinforced and strengthened the board of CDC, which has managed in the past to attract a very high calibre of expertise. Once the new chief executive is appointed, he or she will be able to take the wider remit that we have agreed with the board for the work that CDC will carry out in the future and ground it with much more detail. He or she will also be able to start to recruit the team who will carry out that important activity.

We want CDC to become the most successful and the best development finance institution in the world and to blaze a trail and set an example that others will follow. As the Chair of the Select Committee said, the organisation is extraordinarily attractive both to those who are coming to the latter stages of their business life, who perhaps have been successful and made a great deal of money and want to put something back—they can bring huge expertise to the work of CDC—and to younger people who perhaps do not want to work on a production line in the City of London but want to leave a footprint in the sand and to make their contribution at this time when so much can be done to alleviate poverty—to make their contribution to the workings of CDC and to the exciting propositions that will undoubtedly come forward for them through the work that CDC is doing. Getting together that team, developing the resources required by CDC and motivating and leading the team is one of the key jobs that I hope the new chief executive will take forward.

The CDC board has responded willingly and constructively to the changes. The reforms answer directly the criticisms that have been made of CDC and the concerns voiced by the Government and the Select Committee. They make CDC a far more effective tool in the Government’s development armoury. I need to make it clear that quite a significant chunk of CDC’s capital is locked up in binding legal contracts for a number of years to come, so reform in that respect will take place over time, but I and the board are committed to making it happen.

I now pick up on a couple of other points made during the debate. The Committee Chair and my hon. Friends the Members for East Surrey (Mr Gyimah) and for Stafford made important points about CDC’s role in developing agriculture. I completely agree with what they said. Agriculture is crucial to our efforts. DFID is highly active in supporting agriculture through research and development and value-change development, and in many other ways. I think particularly of the work that we are doing with the World Food Programme in Karamoja in northern Uganda, a food-stressed part of the world where people have regularly needed support and food aid; we hope that it will become self-sustaining so that they will not need such aid in future.

When investing in agricultural enterprises is the best way to generate sustainable jobs and income for poor people, CDC will certainly consider doing so more than it has in the past. In many parts of the world, one of the best ways of helping people in rural areas is to generate employment in non-agricultural sectors. Although CDC will consider investing in agriculture, it will also be helping to create off-farm enterprises and businesses in other sectors.

I turn to the important question on transparency asked by the hon. Member for Glasgow Central (Anas Sarwar). He wanted to know whether the Government would ask CDC to publish data on all countries in which it works. CDC will shortly be publishing a new disclosure policy. It will be substantially more transparent, publishing significantly more data on the businesses in which it invests, on its fund managers, on the impact of investment country by country and on taxes paid. If, for some reason, it cannot disclose the information that it is asked for—perhaps for reasons of commercial confidentiality—it will be incumbent on CDC to explain why.

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[Anas Sarwar]

I thank the Secretary of State for giving way again. Paragraph 60 of the report recommends that

“CDC should follow standards of best practice. By doing so, CDC could raise standards across all DFIs. The tax payments made by CDC’s fund managers and investee companies should be transparent. They should be published annually on a country-by-country basis.”

Does the Secretary of State broadly agree with that statement? Will the code that he mentioned include other investee companies?

[Mr Mitchell]

We should wait for the code to be published, but when the hon. Gentleman sees it he will realise that we are at precisely the same place. I hope that it will win his approval.

The hon. Member for Bethnal Green and Bow asked me about the monitoring of CDC’s development impact. As I indicated earlier, it is important that CDC’s work should be judged by both its development impact and its financial returns. No one is in the business of wanting it to support unprofitable enterprises. Monitoring CDC’s achievements will show why it is of such great importance that it makes a profit, but I hope that the hon. Lady will agree that we are becoming better at demonstrating both aspects. We are pressing hard for CDC to come up with proposals on this, and it is being supported with strong advice from development experts in my Department. CDC is committed to more than 50% of evaluations of its investments being done by independent evaluators.

I have answered my hon. Friend the Member for East Surrey on getting the right skills in CDC, but I would like to add that we have appointed someone to head CDC Innovation, a new CDC team, to consider frontier pioneering opportunities. However, as I have indicated, the real momentum on that front will come after the appointment of the new CEO.

I hope that I have covered most of the points raised in this debate. I again acknowledge the important role played by the Committee in the development of CDC. Its thinking has helped shape CDC’s new business plan, and I greatly value the expertise that the Committee has deployed in helping us all to take these developments forward to the best possible effect.

Humanitarian Emergency Response Review

Debate between Andrew Mitchell and Anas Sarwar

Wednesday 15th June 2011 Commons Chamber

[Mr Mitchell]

I think my hon. Friend is referring to a particular incident involving a Scottish charity. I have looked at that incident in detail, and I am happy that what he says about it is not actually correct. However, it is extremely important that there should be really good co-ordination. We should not have the situation that we saw all too frequently in Haiti, which was a huge number of people heading towards a disaster target without the co-ordination to ensure that they could be effective on the ground.

[Anas Sarwar (Glasgow Central) (Lab)]

May I add my own voice to the welcome for the report of the noble Lord Ashdown and the Government’s response to it? As part of its inquiry into the humanitarian response to the Pakistan floods, the International Development Committee found that some eight months after the disaster, and with millions still in need of assistance, only one third of the $2 billion UN appeal funds had been disbursed in Pakistan. The noble Lord’s report states that that was disappointing, maybe even inadequate, and adds that it cost money, opportunities and perhaps even lives. What leadership will the Government show at UN level to ensure that that does not happen again?

[Mr Mitchell]

The hon. Gentleman identifies one of the problems with the relief effort that the international community mounted in Pakistan. Indeed, the Select Committee on which he serves has produced a most valuable report, from which the international system will learn relevant lessons. I think it would be fair to say that Britain was concerned, we were the first country to come in great scale to give strong support to the people of Pakistan in their hours of greatest need. Britain also continually pushed and prodded the international system to up its game. That was what we did at the time, and those are also the tactics that we are using now. The report will be helpful in achieving them.

Oral Answers to Questions

Debate between Andrew Mitchell and Anas Sarwar

Wednesday 30th March 2011 Commons Chamber

[Mr Mitchell]

My hon. Friend is right to ask whether India has reached the point where we should end our development programme. Our judgment is that we are not there yet. As she said, India has more poor people than the whole of sub-Saharan Africa. It also has the biggest Government-led pro-poor, anti-poverty programme anywhere in the world, and through our programme, we are strongly encouraging more of the same.

[Anas Sarwar (Glasgow Central) (Lab)]

Will the Secretary of State outline what representations he has received from the Indian Government about his plans to spend 50% of DFID money on the private sector? Is that an aspiration only for India, or is it for other developing countries too?

[Mr Mitchell]

As the hon. Gentleman will know, the nature of development is to try to move countries off welfare development on to pro-poor, private sector investment, as that is something that helps poor people to lift themselves out of poverty. The decisions on the Indian programme were made in close consultation with the Indian Government, and take account of our priorities and theirs as well.

Pakistan Floods

Debate between Andrew Mitchell and Anas Sarwar

Tuesday 7th September 2010 Commons Chamber

[Mr Mitchell]

My hon. Friend is absolutely right to say that the money that is going from the British taxpayer and from people’s generous donations to the Disasters Emergency Committee does not go through the Government of Pakistan. It goes through the UN cluster system, with which he will be familiar, and through the NGOs that have been mentioned. If he cares to visit the DFID website, he will see an easily accessible monitor that enables people to track where British aid is going and what it is buying.

[Anas Sarwar (Glasgow Central) (Lab)]

I join the Secretary of State’s tribute to the British people. Every time there is a disaster, they put out their hands in friendship and donate generously. They have done so again now, and we must pay tribute to them for that. I also agree with his comments about the woeful response of the international community, and I understand the answer that he gave to the shadow Secretary of State about the discussions that he has had. It is always easy to get a response and donations when people can see the sad scenes and the high waters on their television screens, but what will happen when the waters subside and the cameras are switched off? The communities and the people of Pakistan will not overcome this tragedy in a matter of days; it will take months, if not years. The message that we need to get across to the international community is that, yes, Pakistan needs its support now, but it will also need it in the months and years to come. On that last point, what work is DFID doing alongside the NGOs and other international organisations on the ground to ensure that there is a co-ordinated response through the Disasters Emergency Committee?

[Mr Mitchell]

The hon. Gentleman speaks eloquently about the needs that will continue for many years as a result of this crisis and of the development needs of Pakistan. Three phases are involved. The first is the emergency phase, which I hope can be brought to a conclusion as swiftly as possible. The second is the rehabilitation and rebuilding phase, which will involve the pledging conference, to which I referred, in order to co-ordinate the international effort. The third will involve the long-term development programme. We are currently reviewing Britain’s contribution to that through the bilateral aid review. There will need to be great co-ordination between all members of the donor community and the Government of Pakistan to ensure that the programme addresses the long-term needs of the country and offers hope to the people who are in a pretty desperate position today.