Draft African Development Bank (Fourteenth Replenishment of the African Development Fund) Order 2017 Draft Asian Development Bank (Eleventh Replenishment of the Asian Development Fund) Order 2017 Draft Caribbean Development Bank (Ninth Replenishment of the Unified Special Development Fund) Order 2017

Gareth Thomas Excerpts

Monday 20th November 2017 General Committees

[Rory Stewart]

It is a great pleasure to serve under your chairmanship, Mr Owen. I will speak to all three draft orders in a single speech: the first pertains to the African Development Bank, the second to the Asian Development Bank and the third to the Caribbean Development Bank. Right hon. and hon. Members will be aware of our relationship with multinational development banks in general and why we work with them, so I will not waste too much time talking about that, but will focus instead on these specific banks and the money that we are giving them.

The overall argument is clear: the United Kingdom and other development partners give money to these banks because they allow us to do three things that would be difficult to do if we did not work with them. First, they give us a specialist reach into geographies in which the Department for International Development might not otherwise operate. For example, the Caribbean Development Bank specialises in small island states, and some of our work with the African Development Bank is in places such as the Central African Republic, where we do not have a permanent office. That is the geographical point.

Secondly, the banks allow us to leverage larger amounts of money than we would be able to provide on our own.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Who is the head of the Caribbean Development Bank and when did the Minister last have a conversation with him?

[Rory Stewart]

The last correspondence with the Caribbean Development Bank was conducted by the new Secretary of State, whose letter to Dr Smith I have here. It is about an improvement plan. I am responsible for Africa, not directly for the Caribbean; work for the Caribbean is conducted by my colleague, Lord Bates.

If I can proceed, there are three types of argument for working with the three banks. The first is geographic; the second is about leveraging larger amounts of funds. We typically contribute 10%, 13% or 14% of the funds, particularly the concessional loan facilities for the banks, which allows us to leverage additional money. The third argument is the sector speciality and expertise provided by these banks. For example, the Asian Development Bank has expertise in energy and transport infrastructure in places such as Pakistan, which DFID would not have on its own.

Why these particular amounts of money? The first amount is £460 million, which will be given to the African Development Bank. The bank is run by a very distinguished Nigerian civil servant, Mr Adesina. It was set up in 1964 as part of a general development with regional banks that emerged from the first Bretton Woods institutions, which were set up in the 1940s to specialise in different regions. The African Development Bank allows us to work in some of the poorest countries in the world; as Members will be aware, 36 of the poorest countries in the world are in Africa.

Some 80% of the African Development Bank’s staff are themselves African, including very distinguished former senior Ministers from those countries. Its particular expertise is in both infrastructure and regional work between different countries. We have a new opportunity, working with the African Development Bank, and we believe that DFID can play an important role with the bank in convening the flows of new capital into Africa. There is a big push to get from the current billions of pounds of investment going into Africa to the potential trillions that could come in from the private sectors of China, India and the City of London.

The challenge, of course, is around the rules for the loans. There have been examples—Mozambique is probably the most flagrant—of private sector loans going into national Governments without proper concern or regulation. The African Development Bank is the perfect partner, we believe, for DFID to work with in trying for a really good multinational understanding as to how private sector flows, and in particular flows from new donors, can go into African countries without creating a new crisis of heavily indebted poor countries.

Although £460 million is a substantial amount of money, it is a 24% reduction on the amount that we gave at the previous replenishment. That represents some of our existing concerns about the African Development Bank. Perhaps I shall be able to expand in detail on some of those concerns, and how we might address them, in response to questions from right hon. and hon. Members; they will have seen them set out in the multilateral development review.

[Gareth Thomas]

Why does not the Minister expand on his concerns now? Do they relate to significant levels of corruption in the African Development Bank, or some other lack of sufficient rigour in its internal processes?

[Rory Stewart]

I should be delighted to expand on that now, but the shadow Minister has questions about it and I agreed with her that I would give the more detailed answers in responding to her speech.

Essentially, six areas have been identified, through the multilateral development review, in which the African Development Bank requires improvement. The first is in its delivery programme; we feel that there have been substantial delays in the processing of key bits of paperwork, so we have set a series of time limits. I will perhaps provide more details on those targets in response to the shadow Minister.

The second area is efficiency and value for money. That is particularly about keeping administrative costs below 2.5%. The third is to do with recruitment, and we have set recruitment targets. Along with the movement of the headquarters from Tunis to Abidjan, there has been a recruitment crisis. The fourth area is anti-corruption, including the processing of anti-corruption claims and ensuring that 75% of those are complete within a year. The final two areas of concern relate to countries in transition—making sure that the country offices are properly staffed, and that a duty of care for staff in those offices is observed.

[Rory Stewart]

I think the first thing is to set things in context. The African Development Bank scored well in the multilateral development review; it was in the top third of our assessment of beneficiary partners and implementing partners. That means that we would not think it appropriate in its case to set aside money on a performance basis. We think we struck the right balance by reducing the overall amount, agreeing key performance indicators, and managing through the normal process.

The basic answer to my right hon. Friend’s question is that the money will be transferred in a single amount, and our concerns about performance are reflected in the performance indicator agreement and the reduced total amount.

[Gareth Thomas]

Further to the question of the right hon. Member for East Devon, why did not the Minister decide to make some of the money conditional? Given the scale of his concerns, he might have said that £50 million of the £460 million was conditional on the bank’s meeting the objectives, or making sufficient progress with them. Surely holding back some money would be much more effective than a bit of sweet-talking in a committee, or over the phone to the head of the bank or its officials in-country.

[Rory Stewart]

I agree, and it is indeed a distinguished predecessor of mine who is mounting this barrage of questions against me.

[Gareth Thomas]

I have asked one or two questions.

[Rory Stewart]

Perhaps if the hon. Gentleman did not interrupt I could answer him more clearly. The answer is that we need to distinguish clearly between two separate things. One is performance indicators; I understood my right hon. Friend the Member for East Devon to be raising that question. The other is the question of contribution payment schedules.

As to performance indicators, in banks with poorer performance—the Caribbean Development Bank would be an example—we would indeed, out of the £18 million allocated, set £4.5 million as a performance reward. However, in the case of the African Development Bank, the tranche payment allows us to hold back 25% of the 2018 payment. If it did not meet the performance indicators, that 25% would not be delivered. It is therefore a question of performance schedules rather than performance indicators.

I move on to the Asian Development Bank and the second of the statutory instruments. The amount proposed to go to the Asian Development Bank is £110 million. That bank is, of course, a larger institution than the African Development Bank, so right hon. and hon. Members may be surprised that we are giving it a smaller amount of money. The answer, of course, is that because of the development of Asian countries and DFID’s focus on lower income countries, most of which tend to be in Africa, we end up giving more to the facilities of the African Development Bank. These are concessional loan facilities, designed to work in poorer countries.

We have many fewer concerns with the Asian Development Bank than with the African Development Bank. The Asian Development Bank performed extremely well in the multilateral development review—it was right up there with the World Bank. Questions could be raised about some areas of its programme, but they are not directly relevant to the concessional loan financing that we are providing. We might have a chance to discuss them later.

That brings me to the smallest and perhaps most controversial element of our concessional loan finance, which is to the Caribbean Development Bank. We approach that bank with a degree of caution, but it is still an institution that we want to support and keep alive because it has a particular niche speciality in smaller island states. In particular, it will be our key partner through its main balance sheet in working through vital reconstruction after the hurricanes in places such as the British Virgin Islands and Anguilla, and, through the concessional funds, on the Leeward Islands and Montserrat. We believe we are justified in giving a small amount of money—relatively small compared with the other funds—of £18 million to the bank, to focus on its particular areas of expertise. However, as I said, we have laid aside £4.5 million out of that £18 million as a performance incentive. Only £13.5 million will be disbursed immediately, with £4.5 million to be held back to ensure that the bank delivers against our targets.

The targets, set out in the Secretary of State’s letter to the Caribbean Development Bank, are: publishing project information to international aid transparency initiative standards; 100,000 beneficiaries—100,000 students at school; and that project completion reports are completed at 90% within two years.

With that, I commend the orders to the Committee. I look forward to a longer discussion in response to speeches from the shadow Minister and other right hon and hon. Members.

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[Gareth Thomas]

I would like to follow up some of the interventions that I made earlier. It would be good to hear from the Minister some examples of projects that he has discussed with his officials that have given him continued confidence in the work of the three multilateral development banks. I express, in passing, disappointment that we have not had the opportunity to consider each of the orders separately. Certainly in the past that has been the practice, but a decision has been made and I accept that decision.

[Rory Stewart]

I stand to be corrected by you, Mr Owen, but I believe that we were offered that chance and the Committee made its decision. We would have been very happy to consider the orders separately, had the hon. Member for City of Durham wished to do so.

--- Later in debate ---

[The Chair]

The Minister is correct.

[Gareth Thomas]

I am suitably chastised by the Minister and the Committee; I should have been awake at that point. There has, though, been a long-running concern on both sides of the House about corruption, and it would be good to hear a little more about what has given the Minister confidence that corruption or the concern about the potential for corruption is being properly addressed by all three banks.

My last point is linked to Brexit. When we leave the European Union, we will presumably be withdrawing from the European development efforts. As I understand it, the Minister and the rest of the current Government remain committed to the 0.7% target being maintained, so one would think, if money is being pulled back from the European development efforts, that the Minister will need to look at multilateral development banks as a potential place for increasing spending further down the line, unless it is all going to go to the World Bank or one or two of the other multilateral development bank institutions.

As I understand it, the current Government do not want to increase the number of countries in which we have a direct presence and footfall and our own individual development programmes, so it would be good to hear from the Minister how he sees the future relationship between the UK and the multilateral development banks after we have withdrawn from the European development efforts. It is a significant sum of money that we are putting in and a significant signal of confidence, notwithstanding the Minister’s concerns, that we are giving the multilateral development banks. They are potentially likely to be tools for development spending that we will have to use even more going forward, so it would be good to hear how the Minister thinks we will spend our money post Brexit and whether these banks will see bigger tranches of money coming to them.