Future of CDC

Jeremy Lefroy Excerpts

Thursday 14th July 2011 Westminster Hall

[Mr Charles Walker (in the Chair)]

I call Miss Ali. [Interruption.] Sorry, Mr Lefroy—it would be helpful if Members could stand so that I can see that they want to speak.

[Jeremy Lefroy (Stafford) (Con)]

I was standing.

[Mr Charles Walker (in the Chair)]

You were? Very funny.

[Jeremy Lefroy (Stafford) (Con)]

I am grateful to you, Mr Walker. I was not sure whether I would be allowed to speak, not having notified you. I was in a Bill Committee and I was not sure whether I could leave it.

I would like to follow my right hon. and hon. Friends and other hon. Members on the Committee by raising a few points, and I apologise if I repeat some of what they have said. I want to stress two or three issues that have come out of the report. I very much welcome the Government’s positive response and the way in which they have set about dealing with CDC—a body that has, let us not forget, been extremely successful. Its investments have gone up by something like £1.5 billion over six or seven years, and any organisation would be proud of that performance. CDC has received no taxpayer’s money since 1995, and it is something of which the British people and the British Government—the previous Conservative and Labour Governments and the current coalition Government—can be proud. We need to set all our remarks in that context.

As I said, I welcome the Secretary of State’s engagement with CDC right from the start, as well as his support for the Committee’s work and the Government’s reaction to our recommendations. He did not necessarily accept that CDC should be split into two separate legal entities, and perhaps there could be two separate parts to the same legal entity. I understand his position, and we do not want to create more complexity than is absolutely necessary, but we must aim to achieve what we want to achieve.

What do we want to achieve? There are two or three things that we need to do with this new-model CDC. The first point to note, as my right hon. Friend the Member for Gordon (Malcolm Bruce) and my hon. Friend the Member for East Surrey (Mr Gyimah) stressed, is the importance of agriculture. It is vital that private investment goes into agriculture. There has been news in the past two or three years of major investments in agriculture in sub-Saharan Africa. Those consist quite often of sovereign funds taking large chunks of land on a lease or perhaps a freehold basis to promote their own domestic food security. I see some dangers in that. First, the food security that we need to be most concerned about is in the countries in which the investments are made. We do not want food to be exported from countries that are already suffering deficits to other parts of the world. We need to encourage local production for local markets. Of course we need to encourage trade and exports. However, I have had personal experience of how there can be a surplus in one part of a country, which is traded overseas, while there is a deficit—indeed, semi-famine—in other parts of the country. The problem is the logistics and infrastructure. We need to be a little wary about such investments.

I see CDC as having a tremendous role to play in encouraging a sustainable investment in agriculture, of two kinds. That might, first, be in direct investments in socially responsible agribusinesses, and in businesses that perhaps work with smallholders at one remove. The future of increased productivity in agriculture in sub-Saharan Africa, and other parts of the world, is often in the hands of smallholders, who know their land best and are able to get fantastic results. Sometimes it is said that smallholder production is not up to the standard of that of large estates, but I dispute that. Where smallholders have access to training, inputs, fertiliser, up-to-date seeds, research and modern plants, they can produce at the same level as estates, and perhaps surpass it. The cocoa crop is an example; it is produced almost entirely by smallholders, not estates, for the simple reason that the smallholders generally do a much better job than estates have, where they have existed. It is clear that CDC in its new guise, either through CDC Frontier or the existing CDC, could improve or increase its investments, and go from what I believe is currently 6% in agriculture to a much higher level.

Secondly, I believe that CDC has an important role to play in the support and development of small and medium-sized enterprises. Our report showed that the average size of a company in which CDC had made an investment was quite substantial. If I remember rightly, it would have an average of more than 1,000 employees. Clearly, within that there were successful smaller companies. However, I believe that CDC could be one of the major sources of funding in the spheres where it operates—perhaps not directly for SMEs, because it might be too much to ask that it would invest in them directly, but certainly in funds such as GroFin, in which I believe it already invests, and ManoCap in Sierra Leone—funds that invest in SMEs. CDC already has expertise in that area, and I would like it to expand that.

Finally, I believe that CDC needs to consider infrastructure. It already invests quite a lot in that. I have referred to the importance of infrastructure in agriculture and getting crops around the country. I think that DFID has a tremendous role through the Private Infrastructure Development Group in supporting infrastructure in sub-Saharan Africa and elsewhere. However, CDC could look at more local and smaller scale investments in infrastructure, which would help not only the SMEs I have spoken about but the agricultural sector.

I welcome the Government’s response to the report. I believe that CDC is poised to set off in new areas without losing its expertise and performance in existing areas. It is extremely important that the Government should continue to support CDC. The report pointed out that DFID should perhaps take greater interest than it has in the past, when CDC has almost been left to get on alone. It has done a good job, but if the Secretary of State continues to show the kind of engagement and involvement with CDC that he has done, both in his public pronouncements and the response to the report, it will have an excellent future.

--- Later in debate ---

[Rushanara Ali]

I welcome that comment. As we have seen recently, in many middle-income countries, economic inequality coupled with injustice are a devastating combination and can lead to conflict. Economic development is vital. Growth is vital, but it must go hand in hand with tackling global inequality. We must be mindful of that responsibility in our investments through CDC and in our other investments.

The right hon. Member for Gordon also discussed the linked matter of ethical investment and the need for social outcomes and sustainable economic growth, and other hon. Members have reinforced those points. Historically, while CDC’s role has been important and has often been positive, it has had a mixed history. This is a great opportunity for us to look ahead at how it can play a bigger and more significant role.

My hon. Friend the Member for Birmingham, Northfield (Richard Burden) raised the important question of about 50% of the international development budget to India being channelled through private sector investments. He sought clarification from the Secretary of State whether that figure is accurate and whether that investment will be channelled through CDC or some other route. I will appreciate that being clarified in the Secretary of State’s response.

The hon. Member for Brighton, Pavilion (Caroline Lucas) raised some important issues about compliance with the spirit and letter of international law and about tax, transparency and money laundering laws, among others. She reiterated the role of ethical investment and the need to be mindful of human rights, in particular when investing in mining companies and others. Many organisations have expressed concern about the impact that particular kinds of investment can have and the need for greater care to ensure that such investments are ethical and that human rights violations do not take place.

[Jeremy Lefroy]

Does the hon. Lady agree that we have the opportunity not only to be careful about bad practice, rooting it out wherever it occurs, but to promote good practice with investments made by CDC, whether through funds or perhaps in future directly?

[Rushanara Ali]

CDC has an important opportunity to lead by example, and we must require it to set that example and to implement the focus on human rights, given the interest in human rights in those countries. I very much accept the hon. Gentleman’s point.

I also want to mention what the hon. Member for Brighton, Pavilion said about CDC acting as a fund of funds as well as a poverty alleviator. It is important to consider compatibility. There are many examples of incompatibility and, as she rightly stated, some bring into sharp focus the tensions between the two objectives. The two are welcome, but greater monitoring is needed to ensure that the objectives do not contradict each other.

The hon. Member for East Surrey (Mr Gyimah) discussed returns on investment. His insights included recognising the importance of creating the appropriate investment horizons and environments. He raised two key issues on skills: first, on skills and the knowledge base, he pointed out the importance of ensuring that that capacity and technical expertise is available as the investment takes place in developing countries; and, secondly, he indicated the importance of sector focus, in particular in agriculture. Several hon. Members mentioned accountability and transparency.

I will wrap up, because I am conscious that I do not have a huge amount of time.