Overseas Development Aid

Lord Bates Excerpts

Tuesday 9th October 2018 Lords Chamber

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

My Lords, with the leave of the House I will repeat the Answer to an Urgent Question given by my right honourable the Secretary of State for International Development in the other place earlier today.

“The combined global aid spend totals $150 billion dollars, leaving a funding gap of $2.5 trillion to deliver the global goals. We are adrift on the global goals— 80 years off nutrition, 100 years off education, 200 years off poverty. We must ask ourselves: do we want to deliver the global goals? If we want to, we have to let others help, including the private sector.

We have had good returns from investing in developing countries. CDC’s average annual investment return is 7%. The City of London manages over £8 trillion in assets, but little is invested in the poorest countries. Even a small increase could have a huge impact on these economies. For example, if we could redirect just 1% of the total assets to investment opportunities in Africa, that would generate an additional investment of around $110 billion. By contrast, global aid flows to Africa in 2016 were worth just $50 billion. I believe the public would be interested in their savings and pension funds being used to deliver the global goals. Why can British people not go to banks and invest their savings in pensions and products that will invest in the global goals, or open up an app on their phone and select which global goals they would most like to invest in?

We have lots of tools to do this. As we outlined today, the World Benchmarking Alliance, which I unveiled at the UN General Assembly will rank companies on their contributions to the global goals, so people can decide which companies they want to buy from, invest in or work for. We have the expertise to do this: the City of London in the financial services sector, in DFID and elsewhere in development and impact investment. Today I have announced that I want to start a national conversation with financial institutions, but also with savers, pensioners and the wider public. We will announce the findings of that conversation at the UK Africa investment conference next year. We will work with the Organisation for Economic Co-operation and Development to make sure that the aid rules incentivise private sector investment where it is needed. This is the only way we will collectively deliver the financing necessary to meet the global goals. In future years, as the amount of funding coming back into our own development financial instruments increases, we should be open to using these profits to count towards 0.7%. I am exploring the scope to reinvest those funds with DAC—the Development Assistance Committee—to maximise the value of our investments.”

[Lord Collins of Highbury (Lab)]

I thank the Minister for repeating the response to the Urgent Question. It is a pity this is an Urgent Question and not a Statement from the Government, because if it had been a Statement we could have had a little more time to probe exactly what the Secretary of State meant this morning when she spoke at the CDC. The Minister knows that I have repeatedly asked questions about the Government’s intention with the DAC definition of ODA, since immediately after the election and of course in November. The clear intentions were never really apparent, but in the debate we had on the CDC Bill in this House it was made perfectly clear that we supported it because we wanted the CDC to leverage more investment. Everyone knows we will not achieve the SDGs simply on ODA alone. For the Secretary of State to preach to the Opposition about how that can be achieved is nonsense. The fact is that we need greater additionality. There should never be a case where we are using CDC investment, getting a return and then counting the return as ODA-accountable. It is double counting. It is wrong. What we want to do is use the CDC to leverage more.

I want to ask the Minister a very specific question on how the Government intend to move forward. Will he give an assurance that we will not take unilateral action to change the definition of ODA, and that we will continue to work with our partners in the DAC and maintain a consensus? This country has led the way, and it would be a shame if we broke that consensus.

[Lord Bates]

The noble Lord is right to say that the development assistance community works by consensus. That is how it arrives at its conclusions. Regarding this debate, I feel that a few issues are being conflated. One is the SDGs, to which we are all committed and which we discussed earlier today. The second is the realisation—I readily accept that the noble Lord has regularly made a point of it—that that cannot be achieved by public flows alone. It has to be catalytic to leverage in private sector investment. Then there was the question about impact investing, and whether something else could be done in the future so that more private citizens could leverage in capital.

The final issue comes to the heart of the noble Lord’s question, about CDC funding. This is where we have had a lot of debate. If, for example, your £1 billion is put into CDC and over time the investments make a profit which is then returned into the fund—it is 100% UK-owned, so it is public sector in that sense—and then that profit is reinvested, should that reinvestment score? It is a debate that has to be had. We believe there is a case for doing that, but we have to do it by working with our partners and discussing it with them. This is one of a range of points on this issue. I hope that that has been helpful.

[Baroness Sheehan (LD)]

My Lords, I confess to being a little confused. In her speech to the CDC today, the Secretary of State says we should be open to using profits from UK development finance instruments,

“to count towards the 0.7%”,

and as we have heard, the current ODA rules do not allow this. However, earlier in her speech, the Secretary of State outlined why it was important to get private investment into developing countries, given that $150 billion of annual aid will never measure up to the $2.5 trillion needed to achieve the SDGs. Like the noble Lord, Lord Collins, I agree wholeheartedly with that. However, the fact is that unless profits from DFIs and any other development funds that may in future be raised in the City of London are powered back into developing countries we will lose the advantage of any leverage gained, as well as the opportunity to power back profits to help developing countries, and in the process compromise efforts to achieve the SDGs.

In my view, the Secretary of State is being disingenuous. This is an attempt to undermine the 0.7%, breaking the Conservative manifesto commitment. Does the Minister agree?

[Lord Bates]

The noble Baroness will not be surprised to hear that I do not agree, and neither do I agree with the suggestion that the Secretary of State is being disingenuous. Far from it—I think she was very clear, although how those remarks have been interpreted is clearly another matter. So this is a good opportunity for us to make it absolutely clear that we are committed to the SDGs and to 0.7%. The DAC element counts only public sector investment, so it cannot count private sector investment towards the 0.7% target to which we are committed. But, as the noble Baroness and the noble Lord said, we are at one in recognising that you will not provide the 18 million jobs that Africa needs every year between now and 2050 without the private sector engaging with this. You will not bridge the $2.5 trillion gap in meeting the SDGs without getting the private sector involved. That is why the Secretary of State was absolutely right to say that we need to do more to leverage and catalyse that investment which the UK has an expertise in.

[Lord Campbell-Savours (Lab)]

My Lords, DfID projects have historically been subject to post-project evaluations for economy, efficiency and effectiveness—in other words, to make sure that we are not wasting public money. In the event that private investment were to be levered in, in the way that is being suggested—as I understand it, it would be within the 0.7%—what post-project evaluations would take place, not because it is public sector project money but to ensure that that investment meets overseas development criteria, and that it is not simply being attributed to overseas development criteria as a way of spending the money?

[Lord Bates]

An example is impact funds, many of which already exist within the City of London; many civil society groups and organisations such as the UN Global Compact scrutinise how that is accounted for in accounts. With the CDC it is a different process. We were quite specific when we discussed the raising of the threshold—the capitalisation of the CDC—as the legislation went through this House, that no investments could be made under that without a business case being prepared, which then has to be signed off and reviewed at the end of it to ensure that the outputs it was envisaged would be delivered were achieved, and if not, why not? These are therefore all important elements in the exploration of these issues. More can be done, but again, it needs to be done transparently.

[The Earl of Sandwich (CB)]

My Lords, I concur very much with what the noble Lord, Lord Collins, was saying, and I well remember the CDC Bill and the criticisms that we made then. One can raise a slightly different issue about the CDC. Does the Minister recall the comments of ICAI—the Independent Commission for Aid Impact— about the impact of aid? You can put in the rubric that poverty alleviation is a purpose, but what about the measurement of that purpose, and where is the evidence of impact? We still have to wait for this to come from the CDC.

[Lord Bates]

The impact comes in three levels that we specifically target. One is the amount of money which catalyses money to come in from the private sector: if we invest £1, does it bring in £10 of private investment? We look at it in terms of the taxation it generates for revenue in the country where the investment is taking place, and we look at the number of jobs that are created by that. In alignment with the SDG requirement on this for aid, this is for decent work, so I accept all that. That is how we do it. The point which the noble Earl was right to highlight was addressed substantially by the change in the new investment strategy, which the CDC was required to have alongside the new investment. That has a much greater focus on the most fragile and most affected states, because we do not want it—not that it has ever done this in its illustrious, 70-year history—to cherry pick the investments. We want it to go where no private sector capital is going so that it can make the greatest impact. That impact and that change in the investment strategy will see results in the years to come.