Commonwealth Development Corporation Bill

Lord Bates Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 9th February 2017 Lords Chamber

Moved by

[Lord Bates]

That the Bill be now read a second time.

(Money Bill) Relevant documents: 14th and 15th Reports from the Delegated Powers Committee

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, this is a short, two-clause Bill. It is a necessary piece of enabling legislation to ensure that the CDC is able to continue investing in the world’s poorest countries to create jobs, support local businesses and stimulate economic development. No country can defeat poverty and end aid dependency without sustained economic growth and a thriving private sector. Strong profitable businesses are needed to create better jobs and generate the tax revenues required to deliver improved public services.

There is, however, a huge unmet demand for capital in developing countries. In the poorest and most fragile countries, there is a long way to go to create the right conditions for investors to have the confidence to meet and fill this gap.

In 2015, the UN agreed the sustainable development goals, which are the focus of the Department for International Development through its UK aid strategy. The financing required to achieve these goals is estimated to be $2.5 trillion dollars a year through to 2030. This far outstrips what can be funded through traditional aid-funded programmes and public finance. This is where the CDC comes in.

The CDC was founded back in 1948 and has enjoyed support from successive Governments. It is wholly owned by the UK Government and is a development finance institution, deploying patient public capital to achieve an objective of doing good while not losing money.

The CDC has a portfolio of £4 billion invested in more than 1,200 businesses in more than 70 countries. In 2015, businesses backed by the CDC helped to create 1,030,000 new jobs in Africa and southern Asia. Over three years, these businesses have generated more than $7 billion in tax revenues to the countries in which CDC has invested.

The CDC invests long term to achieve development impact. It has a higher risk appetite and can take a more patient view of financial returns than private investors, but by demonstrating that responsible investing in difficult markets can be commercially viable, it helps to crowd in the private finance that the poorest countries desperately need.

In 2015, the CDC helped to mobilise an additional $832 million of capital from private investors. Over the years, it has made ground-breaking investments in unproven markets, planting the first seeds for industries that have since become mainstream, such as tea exports in Kenya and mobile telecoms in Africa. As an investor, the CDC sees the potential of the people of a country rather than its problems.

The NAO completed a value-for-money study of the CDC last year. Its report highlights the transformation that the CDC has undergone over the past five years, following the agreement of a new strategy and investment policy with DfID in 2012. The CDC now invests only in Africa and south Asia—two regions that account for 80% of the world’s poor. It is the only development financial institution to have this narrow a geographical focus. It now targets the sectors that create the most jobs in an economy. CDC investments in the energy sector are providing the investment needed to improve access and power economic growth in Africa. In the financial sector, the CDC has enabled microfinance institutions and retail banks to advance loans to support small businesses in agriculture and manufacturing in south Asia.

While the CDC continues to invest through funds, it has now built up its capacity to make direct investments and do debt deals alongside equity. It has also tightened controls on costs and cut average salaries by over 25% over five years. It has become a leader among its peers in transparency: it was the first development financial institution to sign up to the International Aid Transparency Initiative and provide full information on the name and location of all its investments.

The Bill is focused on one issue only: raising the limit on the level of financial support that we can provide to the CDC under the CDC Act. The Bill is needed because the current limit, set 17 years ago, has been reached. The Bill will raise the cumulative financial limit by £4.5 billion to £6 billion. It also introduces a delegated power to raise the limit further via statutory instrument, to an upper limit of £12 billion.

To be clear, the Bill is not a commitment to provide this level of financial support to the CDC, nor is it a target to be achieved in a set timeframe. No new capital will be provided to the CDC without a new strategy and business case setting out the market demand, value for money and how development impacts are to be achieved. Both will be published and Ministers held to account in the usual way. Furthermore, after ministerial approval the CDC would be able to draw down the capital only when needed in response to market demand.

The Bill passed its stages in the other place unopposed, reflecting the cross-party nature of its objectives, but not without careful scrutiny. In Committee in the other place, expert witnesses gave oral evidence and several noble Lords—including the noble Lords, Lord Boateng and Lord Stern—provided helpful written submissions which have been taken into account.

There was a healthy debate in the other place, responded to by my honourable friend Rory Stewart, but I would argue that that genuine interest and concern is best addressed through the CDC’s strategy rather than via primary legislation. Work is under way to finalise the CDC’s new five-year strategy. It is critically important to get this right and address the issues raised during the Bill’s passage by NGOs, Members of both Houses and the National Audit Office.

We need to capture better the full development impact of the CDC’s investments. We need to ensure that the CDC’s policy on the use of offshore financial centres is reviewed regularly and meets the OECD’s high standards in this area, and that it pilots new approaches to deepen development impact still further.

The passage of the Bill is an important step to enable the CDC to continue playing a central role in the delivery of the UK’s international development objectives: to boost economic growth and eradicate extreme poverty by 2030. It complements other approaches through which the UK is playing a leading role in the international development market, including in our responses to humanitarian disasters, global epidemics and pandemics.

The CDC is a great British organisation with a proven track record and a clear development focus. The Bill will help the CDC to continue its pioneering work, creating opportunities and bringing hope and opportunity to the poorest people in the world. It is an institution of which British taxpayers can be rightly proud. I beg to move.

--- Later in debate ---

[Lord Bates]

My Lords, I begin by thanking all noble Lords for their contributions in what has been a thoughtful and fascinating debate that has ranged quite widely over a number of different headings. Broadly, I have categorised those—although there is a significant overlap—into: the CDC’s role in the private sector, which the noble Lord, Lord Boateng, referred to with practical examples, as did my noble friend Lord Flight with other examples, and it was also referred to by the noble Lord, Lord St John of Bletso, and my noble friend Lord Eccles; the CDC development strategy and where this Bill fits into that, which was focused on by the noble Lord, Lord Collins, along with the noble Lords, Lord Shutt and Lord Judd, the noble Baroness, Lady Northover, and the noble Lord, Lord Bruce; and, finally, the question of parliamentary scrutiny that should rightly be afforded to such an important area of public expenditure and investment, which was the focus of the noble Earl, Lord Sandwich, and the noble Baronesses, Lady Flather and Lady Sheehan. I shall take that as my rough template to draw some strands out of the initial remarks.

The first point to make, however, is that, obviously, I echo the comments made by a number of Members during the debate recognising the significant level of expertise resident in this House that can be brought to bear in scrutinising and helping to shape strategies in future.

On the strategy, the noble Lord, Lord Collins, was absolutely right to take us back to the sustainable development goals and Agenda 2030. When we look at a Bill, we look at a particular strategy in isolation, and I want to try to place this Bill in the wider context, which is that of the sustainable development goals. Goal 8 has been mentioned, but essentially it is goal 1 that we are after, the eradication of poverty, which is the mission of DfID. The noble Baroness, Lady Northover, and the noble Lord, Lord Bruce, referred to that. We have made good progress on that goal. In 1990, those living in extreme poverty numbered some 2 billion; as of 2015, that number had reduced down to 705 million—almost to one-third, at a time when global population had gone up. In many ways, that heartened and strengthened the view—because a significant proportion was drawn from the commitment to the millennium goals—that global concerted action and focus could deliver significant change, if it was co-ordinated. That was why the UN Secretary-General set up the high-level panel of which the former Prime Minister David Cameron was a co-chair, which then led to the sustainable development goals.

The sustainable development goals, which have as their target eradicating extreme poverty by 2030, with a number of successor goals to that, are very much at the heart of what we do. Because we now view development activity through the lens of the UN sustainable development goals and have our commitment—which continues to be reiterated, as perhaps it needs to be—to the 0.7%, which has been secured through legislation and our manifesto commitment, we seek to match the 0.7% with the goals. Our strategy across government for implementing the goals will be set out in a new Agenda 2030 strategy document, which will be published in the next couple of months.

I am providing a protracted introduction because my opening remarks perhaps did not quite cover the context that this Bill fits into. We have the sustainable development goals as a focus, we have a plan which is coming and we have a UK aid strategy, which sets out the importance of economic development and of jobs, which are sustainable goal 8, as well as the eradication of poverty, which, rightly, was number one. It talks about partnerships and working together. The UK aid strategy then fits into and drives the single departmental plan of the Department for International Development as the prime lever for doing this.

The noble Baroness, Lady Flather raised a point on data, and one of the most important elements in the sustainable development goals is, to the delight of mathematicians and statisticians, the incredibly complex data that will be required to track progress towards those goals. That is set by the United Nations Statistical Commission, and the Office for National Statistics will have responsibility for collating data from across government—including the Government Statistical Service and many other sources—and uploading those so that we can better track our progress. That rests in the single departmental plan, which is published.

Off the back of that, last week we published our economic development plan, which recognises the importance of private sector investment in infrastructure. Gradually, this has all been built together. All of that is then scrutinised and overseen by the Independent Commission for Aid Impact, ICAI, by the Select Committee on International Development, by the NAO, whose report has been referred to, and by the Public Accounts Committee—the noble Earl, Lord Sandwich, referred to attending the PAC meeting yesterday, where the Permanent Secretary gave evidence.

So that is the context in which this Bill needs to be set. We are arguing that it is not all about economic development; economic development is part of what DfID does—in the current year, economic development sits in an envelope of roughly £1.8 billion out of a £12 billion spend. So we are talking about funding within that envelope on economic development.

Then we come to the question of the CDC Bill itself. The argument was that, because several years had elapsed since the Act had been passed and the cap had not been moved during that time, it was right that, given that economic development was going to play a more significant role in addressing the sustainable development goals, we look at raising that cap.

Of course, the UK Government are the shareholder, so when we talk about hiving off funds, as my noble friend Lord Flight said, we are hiving off funds to ourselves. It is taxpayers—it is ourselves—who are the owner and shareholder, and we have the ultimate power as the shareholder, without wishing to worry current holders of posts, to appoint the board and appoint the chief executive. We can have a quite significant impact. I want to reassure noble Lords on that, because there was some concern in that regard.

On the CDC and its strategy, I took on board the point that was made. We are now drilling down: we have gone through the sustainable development goals and the cross-government approach to delivering on aid; we are now into economic development and we have the economic development strategy; and now we are saying that it is right that there should be an investment strategy for CDC, which should be published and discussed initially with the shareholder—namely, Her Majesty's Government.

When that was being discussed, we felt there were two alternatives: to publish the strategy alongside the Bill, or to allow the Bill to make its progress through the House and do the House the courtesy of listening to its scrutiny of the Bill. Some comments, such as the ones mentioned by the noble Lord, Lord St John of Bletso, have made a profound difference, and others, such as those brought to our attention by the noble Baroness, Lady Flather, perhaps less so. We chose to let it go through the House and for the wisdom and expertise that exists in this House to be incorporated into the final strategy that is published.

At the same time, when agreeing our process on this, we had a couple of choices regarding parliamentary scrutiny, and I want to address this quite directly. There was a debate about whether we put in £12 billion, which was what we assessed looking forward. The noble Lord, Lord Collins, referred to the estimated $2.5 trillion funding gap, so this is significant but, in terms of the need, it is not vast. It is also fair to say that the amount we allocate, as a percentage of overseas development assistance, to capital in financial institutions is significantly less than countries such as the Netherlands, Germany, France and the USA. We asked whether we should go straight to £12 billion or have an interim stage. I suppose the conclusion was that we could take this in cycles, so the initial plan will be for the next four years and then there will be a successor plan for the following five years, which will be published and discussed. Off the back of that, there will then have to be an affirmative resolution, before your Lordships’ House and the other place, to give permission for that investment to occur. We considered that point very carefully and came to the conclusion to do it in two steps. That was the rationale behind that.

The noble Baroness, Lady Sheehan, and the noble Earl, Lord Sandwich, asked about the CDC Bill being certified as a money Bill. I would like to say it was part of a strategy, but of course we have no control over that. The certification of a money Bill is the preserve of Mr Speaker in the other place, and I do not think he would take any advice from Her Majesty’s Government on this or probably any other matter. He certifies it and it is what it is, and we must work within that.

I was struck by the points made and the quality of the debate. Noble Lords suggested it would be useful to have a debate on the strategy when it is published. There will be a number of other strategies around at a similar time on a sustainable development goals—sorry, let me just clarify that there will be an affirmative resolution before the House of Commons only, which will have the opportunity to comment on this second step. On whether there should there be an opportunity for your Lordships’ House to discuss this, that would be for the usual channels to agree, but I will be very sympathetic to it on the basis of the discussion we have had this morning.

I have set out the broad headings, so let me turn in the time that remains to some brief responses to specific questions that I have not covered in my general remarks. The noble Lord, Lord Collins, asked whether there would be full disclosure of the CDC’s investments on its website. I can reassure him that a full list of investments, including the legacy investments, can be viewed on the website.

The noble Baroness, Lady Flather, and the noble Earl, Lord Sandwich, raised the point about measuring the CDC’s contribution to poverty reduction. The contribution is clear, as it is made through jobs, local taxes and infrastructure.

However, this economic development and investment have to be seen alongside the work we are doing with our multilateral partners in the development banks. The World Bank operates in a lot of these countries and international finance institutions in some regions have been mentioned, such as the Caribbean Development Bank. We also have a UK Caribbean Infrastructure Fund partnership. We use many different vehicles and direct investment is just one.

We also have a huge commitment, rightly so, in education—which the noble Baroness, Lady Northover, oversaw as well during her time as Minister. It is true that no one has ever got out of poverty by aid alone and therefore trade is required, but it is equally true that, as well as economic development, you need education. Without the skills and the workforce, then I am afraid it is not going to happen. We have a major programme in education, which then feeds into economic development and our work with our international partners in respect of that.

In terms of independent evaluations, there was an evaluation commissioned in 2015 by a team from Harvard. It reviewed the CDC’s investment for the period 2008 to 2012 and concluded that the CDC’s investments had been transformational—a point made by my noble friends Lord Flight and Lord Eccles and the noble Lords, Lord St John of Bletso and Lord Boateng—such as in the work of the Africa Enterprise Challenge Fund particularly with small and medium-size enterprises.

My noble Friend, Lord Eccles, asked about the proportion of the CDC portfolio that is now direct. The noble Lord, Lord Bruce, referred to the report on this from when he chaired the Select Committee. The CDC has built up its capacity and moved significantly from operating as a fund of funds to operating more directly where it could exert greater control and measure the results. In 2015, 67% of new commitments by value were direct investments, and we expect this ratio of about two-thirds direct to one-third through funds to continue.

The CDC was set a great challenge, and many noble Lords rightly paid tribute to the work of the current chair and current—and outgoing—chief executive, Diana Noble. I certainly echo that. The CDC’s staff are immensely high-quality and combine private sector expertise with a compassion for the world and a determination to ensure that we improve our performance in relation to the poor.

There was a criticism that the CDC has gone for easy wins. Perhaps that applies to a bygone era, as the noble Lord, Lord Boateng, referred to, when it was perhaps being “fattened up” for privatisation. When we decided during the coalition Government, when Andrew Mitchell was Secretary of State, that we wanted this to be a long-term public vehicle as part of our economic development strategy, we narrowed the focus. We said, “Where are the poor people?”. The answer is that 80% of that 700 million-plus that I mentioned still living in extreme poverty are in Africa and south Asia. Therefore, that should be the focus of our attention.

What is the greatest need in those areas? Is it for financial sector instruments? That may be part of it, but I agree with the noble Lord, Lord Collins, that the greatest need is for jobs and better jobs in those areas. So we said that the focus should be on the areas of greatest poverty and on job creation as being the objective. That is a fair area to head for.

[Baroness Flather]

I was trying to say, with some of the examples that I gave, that they do not need money: they are already very wealthy and they have jobs that they are giving to people. There has to be something focused on the areas where there is not enough money.

[Lord Bates]

That is right. The noble Baroness refers specifically to India, which is of course itself a signatory to the sustainable development goals and the eradication of poverty by 2030. That will have to be its focus.

A number of other questions and particular points were raised. I will review the record, particularly with reference to the points made by the noble Lord, Lord Judd, at the beginning, and where there are gaps or I can add anything, if it will be convenient for the House, I will write to noble Lords. I reiterate my commitment to continue to engage with the House as the CDC progresses with its strategy and we finalise the new business case.

[Lord Judd]

I am grateful to the Minister for what he has said and the fact that he will write to me, although it is a pity that, because this is a money Bill, we do not have the opportunity to go into these things in Committee. However, will he agree with what has been said by quite a number of noble Lords in this debate, that the CDC, which of course has a lot of admiration, must remember that job creation and the eradication of poverty are not synonymous? Job creation can play an important part, but the eradication of poverty is a greater issue. We must not let one become a substitute for the other.

[Lord Bates]

I defer to the noble Lord’s great experience in this area. He is right. He is also right to say that it must not be perceived as an imposition. This must be something that comes from the ground up. It must be about strengthening capacity within the countries. That is why education, healthcare and all the other things that we are doing in terms of infrastructure are so critical to the overall success. I accept that.

The CDC is the oldest development finance institution in the world. It is a great British institution that reflects the values of the British public, who consistently demonstrate their concern for and generosity towards the poorest. We will make sure that we can all continue to be proud of the life-changing, pioneering work that this institution does. With that, I ask the House to give the Bill a Second Reading.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.