Draft African Development Bank (Further Payments to Capital Stock) Order 2015

Gavin Shuker Excerpts

Monday 14th September 2015 General Committees

[Mr Gavin Shuker (Luton South) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Chope.

We should be proud of Britain’s history under successive Governments of providing funding to multilateral investment organisations such as the African Development Bank that work to tackle poverty and engender sustainable economic growth. Members may not realise that we first joined the African Development Fund in 1973 and the African Development Bank when membership was extended to non-regional countries in 1983, so Britain has an important long-standing relationship with the organisation.

In Europe, we take for granted the ready availability of transport networks and public utilities such as running water, energy and telecommunications. Most of our businesses know that they can access finance in order to expand. Those are fundamental prerequisites for growth and prosperity. Without them, public services and education are held back, entrepreneurial drive and talent risk being wasted and the outlook for a country’s development is bleak. Development is dependent upon getting the essential infrastructure right. Investing in the sort of projects the Minister outlined pays dividends several times over. For that reason, we will seek to support him in taking the order forward.

Since beginning operations, the African Development Bank has mobilised financial resources for more than 4,500 projects, with contributions totalling more than $118 billion. The assistance the bank provides comes in many forms: lending for infrastructure projects; funding for programmes and studies in agriculture, education, industry and governance; and technical assistance and policy advice. Its commitment to sustainable growth is of particular relevance to our age as we come face to face with the spectre of climate change, and as the world comes together to agree the sustainable development goals. That is why it is encouraging to see the bank’s support of clean, renewable energy projects in countries across Africa and its emphasis on green growth.

The bank’s recently published African competitiveness report makes it abundantly clear that Africa is a growing continent with real potential for even further growth if the necessary conditions for prosperity are in place. Over the past 15 years, the continent’s GDP growth as a whole has averaged more than 5% a year, and the growing consumer markets in many countries herald further possibilities.

I turn briefly to the detail of the order, and I have a few questions for the Minister. Britain’s contributions to multilateral development banks are among the smartest investments in international development that we can make. The African Development Bank is a positive, African-led vehicle for development lending, and that is why we will not oppose the Government’s plans to increase their shareholding in the bank by taking advantage of newly available shares under the special capital increase and shares forfeited from the sixth general capital increase.

We agree with the Government’s wish to add to the UK capital stock by purchasing the additional shares allocated to us, with a paid-in value of £2.7 million. As well as allowing the bank to provide more development lending, that increased investment will lend greater weight to Britain’s vote on issues facing the bank. That is desirable given the UK’s historically small shareholding in the bank, as it will bring us closer to the G7 nations that have a significantly larger shareholding—our European partners in Germany, at 4.1%, and in France, at 3.8%.

We also acknowledge that, if Britain were to refuse the opportunity of subscribing to the shares or miss the deadline, the UK’s shareholding would decrease. Both for the good of the bank and to maintain Britain’s influence, we agree that that should be avoided. We note that the share purchase will give rise to a contingent liability of some £43.3 million in shares, which could be called for should the bank find itself in serious difficulty, but given the bank’s strong triple A credit rating—something that even the UK has not managed to maintain throughout the past five years—and its history of never having called in such shares, we acknowledge that the contingent liability is highly unlikely to turn into a loss. It is therefore our judgment that we should support the order.

However, as the Minister explained, in addition to calling for the approval of a further £2.8 million of investment in capital stock, the order seeks permission for further shares to be purchased, up to a total of some £8 million, should they become available. Although in principle we would support the Government making further payments to increase our capital investment and our influence on the board of the bank, the Committee ought to consider the potential for a much higher contingent liability of some £124.6 million as a consequence of purchasing those additional shares.

Increasing the UK’s shareholding by the full £7.95 million sought in the order would leave the UK’s total contingent liability with the African Development Bank at about £1.1 billion. What assessment has the Minister made of the likelihood that members that have been unable to meet the October deadline will forfeit shares reissued under the sixth GCI? I would also welcome any estimate that has been made of the number of shares that might realistically become available.

I understand from the Department’s written statement of 14 July that the sum of £7.95 million represents the total amount of reissued GCI shares available to all shareholders, as well as the UK’s special capital increase allocation. That means that the Department is giving itself a significant degree of leeway and suggests that the Minister believes that, as he said earlier, a substantial number of shares may be forfeited before the October deadline. To reassure the Committee that the Department’s request for that flexibility is justified, I would welcome any additional detail he might have, including which countries may forfeit.

Whenever we use taxpayers’ money, we must always consider whether it is being spent or invested wisely. Even when projects and organisations are working well, we must always bring our scrutiny to bear. Improving results for the world’s poorest people and ensuring value for money mean that we must monitor, evaluate and look for improvements. Will the Minister reassure me that the Department is satisfied that increasing Britain’s stake in the bank and taking on the accompanying further contingent liabilities will contribute to DFID’s influence and its strategic priorities, and represent a good use of the country’s resources? I know that, as part of the Department’s multilateral aid review, there has not been a dedicated assessment of the African Development Bank.

A review has been carried out of the UK’s funding of the African Development Fund, part of the African Development Group, and has highlighted some concerns about its progress on cross-cutting issues, namely gender, fragile contexts and climate change, as well as cost and value consciousness. I would welcome the Minister’s view on whether those concerns that relate to the African Development Fund are relevant to the bank, and any other assessment he can provide of the bank’s performance.

Although scrutiny of spending and investments is always necessary, it seems clear that the African Development Bank is a valuable force in the fight for development, and that the Government’s wish to increase Britain’s involvement in the bank is justified. It therefore gives me pleasure to support the order on behalf of the Opposition, endorsing the Government’s approach and proposals for increasing Britain’s investment in the African Development Bank, provided that the Minister can give us the reassurances that we seek.

[Mr Swayne]

I thank the hon. Gentleman for his support and questions. He initially asked about the bank’s importance in furnishing studies. That is important, and we are grateful for its study on transport costs. We have asked them to conduct a similar study on driving down energy costs.

The hon. Gentleman specifically asked me about two things. First, he asked about taking on the additional contingent liabilities. I felt that he answered his own question effectively, in that we are considering a triple A-rated institution—there has never been any call on the capital. We estimate that it is worth taking on the liability, and we have received the Chief Secretary to the Treasury’s permission to do that.

I believe that buying the additional influence is some way off. Even if we got all the shares, increasing our influence is a long-term prospect. There is a key change: among the non-regional players, shareholdings determine how long they hold the directorship. That is an important means of influencing the process. In the longer term, we are therefore keen to increase our influence and to purchase the shares.

Secondly, the hon. Gentleman asked about the multilateral aid review. The last review said that we were getting good value for money, and that the bank’s performance was generally very good. There was some concern at the corporate level about the lack of emphasis on women and girls, and also about climate change, which the hon. Gentleman mentioned. The MAR is not a one-off process. We provided, because of our determination to improve the bank’s performance, £2 million of technical assistance to enable it to improve. A special envoy on gender has been appointed and we are confident that the bank is performing well on that metric. On climate change, the bank’s 10-year plan is to make Africa transform into a clean energy continent. Increasing the focus on climate change is welcome and now meets our requirements.

I think that that accounts for all the questions that I have been asked. I have been informed that I may have made a slight slip with my figures. I very much doubt it! I referred to £4.5 million lending from 2013. I should have said that it relates to 2014 to 2016 and that it takes the form of concessional loans as well as grants.

[Mr Shuker]

You would have got that one past me.

[Mr Swayne]

The hon. Gentleman surprises me. I am certain I get nothing past him.

I hope that that satisfies the Committee and that the order will be carried.

Question put and agreed to.