Government Overseas Aid Commitment: Private Investment

Kate Osamor Excerpts

Tuesday 9th October 2018 Commons Chamber

[Kate Osamor (Edmonton) (Lab/Co-op)]

(Urgent Question): To ask the Secretary of State for International Development if she will make a statement on her plans to use private investment to make up part of the Government’s commitment to spend 0.7% of gross national income on overseas development aid.

[The Secretary of State for International Development (Penny Mordaunt)]

Combined global investment flows into developing nations are currently $1.4 trillion, leaving a funding gap of over $2.5 trillion to deliver the global goals. With 12 years left on those goals, we are currently 80 years adrift on nutrition, 100 years adrift on education and 200 years adrift on ending extreme poverty. If we want to deliver those goals, we have to let others help, including the private sector.

We know that we have had good returns from our investments in developing nations—CDC manages an average annual return in sterling of 7%—so investing in developing nations could offer investors and pension holders a greater return on savings. We have £8 trillion under investment in the City of London. If 1% of that were redirected to Africa, that would lever $110 billion. Compare that with the total aid spend of $50 billion currently going into Africa. I believe that the public would be interested in their savings and pension funds helping this agenda to deliver the global goals. Imagine an app that allowed someone to select which particular goals they wanted their savings or pension fund to help.

We have the tools to do this. At the United Nations General Assembly a few weeks ago, we unveiled the World Benchmarking Alliance, which will grade companies’ performance against the global goals. We have the expertise to do this, in the City of London, in the Department for International Development, with our partners, and also through our world-beating impact investment organisations. We therefore want to explore doing this.

Today, I have announced a national conversation with financial institutions, with savers, with pensioners and with the wider public. We will announce the results at a UK-Africa investment conference next year. This is the only way we will deliver the global goals. Over the past two years, we have also worked with our partners to shift the dial on international aid rules, allowing our aid budget to help the private sector invest in sustainable development more than ever before. I will continue to work with our partners at the Organisation for Economic Co-operation and Development to ensure that the aid rules incentivise donors to lever in private sector investment where it is needed.

In future years, as the amount of funding coming back into our own development financial instruments—publicly owned financial instruments—increases, we should be open to using the profits to count towards the 0.7%. I am exploring the scope to reinvest those funds with the Development Assistance Committee to maximise the value of our investments. We remain committed to 0.7%—it was this Government who introduced it—but as we do so, we should ensure that the British public get a triple return on their generosity and compassion; a stronger personal return to them, a stronger Britain, and a more prosperous and secure world.

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[Kate Osamor]

I thank you, Mr Speaker, for granting this urgent question and the Secretary of State for being here. This country’s commitment to spend 0.7 % of our national income on overseas aid is a clear expression of how deeply the UK public care about eradicating poverty overseas. The public are therefore right to feel betrayed by the Secretary of State’s speech today, in which she has suggested that global poverty can be utilised as a lucrative investment opportunity. It is deeply concerning to learn of her plans to redefine aid through today’s media reports.

As the rules that govern aid spending are set at an international level by the OECD, can the Secretary of State tell us what precise rules she wants to change? In the absence of any detail, we can only speculate on how she believes these new investments will help the world’s poorest. Her claim that private investment is a win-win is not based on the evidence. We all know that there are both winners and losers from foreign investment in the global south. Her vision will leave the most vulnerable people at the mercy of global markets.

Does the Secretary of State recognise that her approach will mean major development issues that are not considered profitable will no longer get the funding they need? The press report that this private investment will replace public contributions to the UK’s aid budget. Will she confirm whether this is indeed her plan? I think the public deserve to know.

[Penny Mordaunt]

I gave a lengthy speech this morning and there is plenty of detail in there. [Interruption.] It is online, so the hon. Lady can read it.

Let me be very clear about the rule changes we would explore. Currently, when we capitalise an investment instrument, we count it as official development assistance. When we make the investment, we do not. We are very happy with that—we have argued for it—and that is what happens now. In future years, however, once we have capitalised those instruments, we may wish to change the way we do it. [Interruption.] It is not double-counting; it is allowing the returns we make on those investments to be used more flexibly. We are very happy and it suits us at the moment to do this. The issue is that if we then reinvest those funds in development, they do not count towards the 0.7%, and if we take them out, to spend on the NHS or another domestic priority, it counts negatively. What we are arguing for is exploring, at this stage, changing the rules to allow us to do that.

In addition, we have to accept that, even with the combined total of our budget and those of other nations, we will not deliver the global goals unless we let the private sector do more. Currently, the £8 trillion in the City could be put to better use and may actually deliver higher returns for pension funds. They will do a huge amount of good in the developing world.

The hon. Lady asks me for examples. CDC, which I understand she wishes to abolish, is the oldest development financial institution in the world. Last year, it made investments of over £1 billion, which created 735,000 jobs. We need to create 18 million jobs every year until 2035 just to keep up with population growth in Africa, and that is what we need to do to eradicate extreme poverty. If the hon. Lady has a better suggestion on how to raise $2.5 trillion I would be very interested to hear it.

I am here not to make us feel good about spending aid money; I am here to eradicate extreme poverty. We cannot do that without business and we cannot do that without the private sector. Dogma has no place in this debate.