Commonwealth Development Corporation Bill

Lord Boateng 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

[Lord Boateng (Lab)]

My Lords, I declare my interest as chair of the Africa Enterprise Challenge Fund. As such, I have had the opportunity to see the work of the CDC in support of agribusiness in Africa and renewable energy. I am bound to say that I welcome this Bill; I welcome, too, the Minister’s championing of the CDC within the department. I think that it will benefit from his attention. Frankly, if truth be told, the CDC has not in the past benefited from any ministerial champion at all, which has been part of its problem. The noble Baroness, Lady Northover, happily gave it some of her attention but, certainly in my time in government, it must be said that it did not have any champions.

We must also recognise that, at one time under the Labour Government, the CDC was being fattened up to be privatised—that was the reality. It was therefore given a mandate of making as much money as it could, but no target at all in relation to its contribution to the eradication of poverty or to development. We have to be frank: we need to learn the lessons of the past in order to ensure that we do not repeat the mistakes of the past in the future. The good news is that, for the past five years, a process of reform of the CDC has been under way, which has seen a renewed focus on the reduction of poverty and is to be warmly welcomed.

My noble friend Lord Judd, whose knowledge of these matters is, in my experience, unparalleled, was exactly on point when he suggested that, going forward, it is absolutely vital that the CDC continues to focus on empowerment and enablement on the African continent; ensuring that small and medium-sized business can grow and link to global markets; and improving value chains across the continent. This is about saying that we will stand alongside Africa as it develops its own agribusinesses and manufacturing capacity, because it is in these areas that there is currently a marked deficit on that continent.

Real gains have made in the past decades in terms of economic growth—six or seven of the top 10 fastest-growing economies in the world now are to be found in Africa, which is a tribute to entrepreneurs there. There have been vast improvements in terms of governance—the recent successful transitions of power in both Nigeria and Ghana are examples. Across the continent, there has also been a renewed focus on the part of African Governments on creating enabling environments in which it is possible for business to flourish.

This creates a real opportunity for the CDC to get alongside those businesses. One particular aspect of Africa’s development on which I seek to concentrate—including the potential role of the CDC—is the role that small and medium-sized enterprises can and must play in the continent’s development. In Africa, they contribute to around 40% of GDP and to some 50% of employment overall. In some sectors, their level of job creation can be even higher. For example, informal and formal SMEs together account for about three-quarters of total employment in manufacturing. However, the reality is that it is very difficult indeed for small and medium-sized enterprises in Africa to obtain funding from the banks. That is because in the main the banks are risk-averse and do not understand the sectors—the agrisector in particular—in which SMEs are emerging. Significantly, SMEs also suffer from very high interest rates. That is the fact of the matter on the ground, on the continent.

To address that, the CDC has seen it as part of its mission to support those businesses through supporting banks. So, taking the example of a recent investment it has made, it has supported the dfcu Bank in Uganda, which focuses on tackling the lack of long-term funding for SMEs in a country—Uganda—where they contribute around 70% of GDP. A bank such as that could not hope to obtain on the open market the sort of funding that the CDC can give it, on the terms that the CDC can give it. If you were simply applying market judgments and the bottom line to support for banks that work with SMEs, you would not be able to raise capital. The CDC, with its focus, is able to do so.

The CDC needs to be encouraged to focus on and address market failure. That, after all, is the justification for putting public money into it—I cannot think of any other. We are putting public money into something that addresses the failures of the market so that markets can work better for the poor, and to support development. As all sides of the House agree, the long-term and medium-term solution to Africa’s problems does not lie in overseas development assistance but in the development of a sustainable private sector and the capacity within Africa to generate, through tax revenues, sufficient money to do all the things that we expect the state to do in our own country. We want enabling states; we certainly want states that encourage and support a private sector that can create wealth and provide employment. That ought to be the focus of the CDC in the future.

I ask the Minister to ensure that this House has an opportunity to discuss the future strategy of the CDC—that an investment strategy is not adopted without consideration of views from all sides of this House—because, as today’s speakers list shows, there is real expertise in the Chamber. That expertise can encourage, support and spread the word about the importance of investment in this area, and all that investment can do.

I end on this note: we are in a challenging time for global security, and the best protection for any of us in the world is job creation. Africa has the fastest-growing population of young people in the world, and if there are young people in Africa who do not really have an opportunity to gain sustainable livelihoods, whether in urban or rural areas—Africa also has the fastest rate of urbanisation in the world—they will fall prey to those who would exploit them for their own purposes.

In northern Nigeria we see a classic example of this. Boko Haram exists because young people feel disaffected, cut off from relevant educational opportunities and the prospect of getting sustainable livelihoods. The great work that the CDC is doing in that area—creating real job opportunities with real employment and providing real added value—is a classic example of the sort of response that we ought to be making to today’s challenges. I wish the CDC all the very best with its task and hope that the Minister will continue to champion it in his department.