Draft African Development Bank (Fourteenth Replenishment of the African Development Fund) Order 2017 Draft Asian Development Bank (Eleventh Replenishment of the Asian Development Fund) Order 2017 Draft Caribbean Development Bank (Ninth Replenishment of the Unified Special Development Fund) Order 2017

Roberta Blackman-Woods Excerpts

Monday 20th November 2017 General Committees

[Dr Roberta Blackman-Woods (City of Durham) (Lab)]

It is a pleasure to serve again under your chairmanship, Mr Owen. Like the Minister, I will deal with the three statutory instruments together. I thank him for going through them for us. As I said earlier today, the official Opposition’s position is to support the transfer of funds to the African, Asian and Caribbean development banks, but, as the Minister would expect, we have a couple of questions and points to put to him.

We welcome the funds going to the African Development Bank. The explanatory memorandum to the order tells us helpfully and powerfully what the sums of money will do. It says that 21 million people will have improved electricity connections, 14.8 million will have improved access to transport, 11.9 million will have access to water and sanitation and 20.7 million will benefit from improvements to agriculture. The sorts of things the fund does are incredibly important. Of course, the point of having additional money is to see improvements. It would be quite useful if the Minister told us what he thinks some of those improvements might be.

As my hon. Friend the Member for Harrow West said, and as I mentioned earlier to the Minister, we are very keen to hear from the Government whether the additional funds will be used to press the bank to reform further. I was pleased to see that paragraph 7.7 of the explanatory note outlines what reforms have been asked for. They are really helpful. The Government want an increase in the number of country strategy papers with gender-informed design—we all want to see that; a decrease in the time of procurement of goods and works; a decrease in the time between project approval and the first disbursement of project funds; a reduction in the amount of administration costs as a proportion of total spending on projects; and an improved presence in insecure environments.

Those improvements are very specific asks of the bank. We have not had a great deal of detail on how the Government will ensure that those reforms come forward or what support the bank will get to ensure that it can deliver them. The areas in which there have been improvements, such as transport and water and sanitation, are incredibly important. We want to ensure that the bank can continue to deliver on those objectives but also continue to reform. That is really important.

We know that the bank scored only adequate against the “leave no one behind” criterion in DFID’s 2016 multilateral aid review. It is important that the UK uses its influence to ensure that those impressive development outcomes of the bank are not only carried forward to future years but improve and are directed towards the world’s most marginalised. Hearing a bit more from the Minister on that would be incredibly helpful.

I move on to the Asian Development Bank (Eleventh Replenishment of the Asian Development Fund) Order 2017. I listened carefully to what the Minister had to say about the reduction in funding for the Asian Development Bank, and I have a few questions. It seems that the UK’s burden share will remain at around the 5% mark. That implies a degree of continuity from the previous replenishment. The Minister can correct me if I am wrong, but the reduction is explained in paragraph 7.7 of the explanatory note, which says:

“The United Kingdom’s contribution to the eleventh replenishment is lower than the contribution to the tenth replenishment because, as referred to in paragraph 7.4, donors are only contributing to grant resources at ADF 12 whereas at previous replenishments donors contributed to grants and concessional lending resources.”

We need a bit of clarification about the reduction and where it will fall. That is extremely important.

Again, when we look at what the Asian Development Fund is expected to deliver between 2017 and 2020, they are very laudable objectives. One is energy for 117,000 new households. Another addresses climate change and renewable energy. Anybody who has been to any Asian country knows what a huge issue climate change is there and of the need to develop renewable energy, as well as infrastructure, in terms of roads and railways, water and sanitation, education and finance. If any of those areas are to be affected by the reduction, we want to understand that a bit further and to understand where the Government think the additional funding will come from to ensure that those objectives and areas for investment, which we all think are really important, are continued.

I think the Minister said that the Government feel that the bank perhaps operates in a fairly robust way, but the multilateral aid review that DFID carried out in 2016 identified a couple of areas of concern—particularly the quality of some of its projects in conflict-affected states. I should be grateful to hear from the Minister what pressure the Government will put on the bank to try to improve it in those areas where it fell short in the 2016 review.

The draft Caribbean Development Bank (Ninth Replenishment of the Unified Special Development Fund) Order 2017 authorises an additional £18 million of funding for the Caribbean, as the Minister says. We have questioned the Minister around this area of funding before, but I have a few questions to put to him today.

First—again, we might have the figures wrong; it is a very technical order—is it correct that the UK’s contribution is effectively falling from £33 million in the eighth replenishment in 2013 to just £18 million in this ninth replenishment in 2017? If so, that represents a marked decline, and is close to our halving our contribution to the Caribbean Development Bank special development fund, although I acknowledge that the separate UK Caribbean Infrastructure Fund is significantly larger. It will be helpful to have more of an explanation for the shift in funding—if is a shift in funding.

That is particularly important in the wake of Hurricanes Irma and Maria. It has been widely documented that the long-term recovery of islands such as Antigua and Barbuda and Dominica depends to a great extent on their being able to access financing at concessional rates. They are struggling to access that financing from other global banks at manageable interest rates. The Labour party has argued extensively for the UK Government to do more than they are already doing to ensure that the least of the world’s polluters do not bear the brunt of climate injustice. It is not clear how the private sector taskforce announced by the former Secretary of State for the region will actually help to unlock useful financing. I am aware that the order was laid before the hurricanes struck, but I would like the Minister to tell us whether there are any plans beyond the remit of the order to now step up support to the Caribbean Development Bank.

Secondly, I am aware that the multilateral aid review in 2016 scored the bank as unsatisfactory in its transparency and as adequate or requiring improvement in a number of other areas, and that £4.5 million of the £18 million will only be paid subject to improvements in various criteria. That is a helpful way forward, but we want to hear from the Minister on how the Government will help the bank to reform and in what areas, so that all of the money, which is very much needed—particularly after the hurricanes—can be given to the bank.

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[Rory Stewart]

That is a very good challenge. It is absolutely right that there is always a tension in the work of multilateral development banks between their traditional primary focus of infrastructure and economic growth, and making sure at the same time that we leave no one behind. That is something DFID has been doing since the hon. Member for Harrow West was a Minister in the Department; it has been leading on ensuring that we focus on the very poorest people, on rural communities and on equality. That is now central to the missions of the multilateral development banks, but it remains a challenge and it is something that we have to keep challenging them on again and again.

Of the three banks we are discussing in these statutory instruments, perhaps it is with the Asian Development Bank that we have had some of the most difficult conversations about ensuring that its successful track record on infrastructure investment focuses on the people at the very poorest levels of society who need it, rather than simply benefiting urban dwellers.

I will respond to the individual speeches made, starting with my right hon. Friend the Member for East Devon, who began with the question of administration costs. The administration costs are perhaps less of a challenge in multilateral development banks; it is a good question, but it would probably be more of a challenge if we were talking about non-government organisations. Most of the multilateral development banks have rather large equity portfolios, so their administration costs are relatively small. The target we are focused on, taking the African Development Bank as an example, is about 2.5% administration against equity, which we believe is reasonably competitive. It is roughly in line with where DFID itself sits in its ratio of staff to portfolio.

The second question was on flexibility, particularly relating to Zimbabwe. There is another challenge there, to be honest. The banks tend to make very long-term investments. Big road infrastructure and energy projects can take eight to 10 years to come to fruition, and by their very nature, it is difficult to suddenly shift money, in two weeks, from one place to another. If we are looking for rapid response to an emerging situation such as Zimbabwe, it is not to the multilateral development banks that we would look. However, my right hon. Friend’s question is absolutely bang on the money, because we are hoping that the situation in Zimbabwe could be an extraordinary opportunity.

That opportunity is not only about Commonwealth membership and the United Nations, but about all the instruments that the international community can bring to help the Zimbabwean people, if the reform comes through and we go into a transition where there are free, fair and credible elections. For that, there needs to be an independent electoral commission, and we need to ensure there is proper voter registration, as there are currently one million “ghost voters”. We must ensure that Zimbabweans outside the country get their constitutional right to vote. If those things come into place, there is a great deal that we ought to be able to do, one aspect of which relates to multilateral institutions and ensuring that IMF loans are able to come in to save the Zimbabwean economy, which is in a difficult situation at the moment.

My right hon. Friend’s final question was about British business, and he is absolutely right that certain sectors where DFID invests, particularly green energy, financial services and insurance, are sectors where British companies can have a competitive advantage. The City of London has a strong advantage in financial services. Edinburgh, for example, also has strong advantages in financial services and insurance, and we have some impressive and innovative companies in green energy and city development.

Our aid is, of course, not tied, so it is about allowing British companies to compete fairly against other international companies for those contracts. The greatest thing that we can do for British companies is the longer term work of economic development. The reality in Africa at the moment is that there are only 17 million people who earn over £200 a month. That means that the middle class consumer population of Africa is currently about the size of Belgium, in a continent that is 100 times the size of Belgium and with considerably more externalities. The real opportunity for British business will only come when we really get the economic development off the ground and we can build that consumer base.

That brings me to the specific questions on the three banks raised by the shadow Minister, the hon. Member for City of Durham, and then I will conclude with the questions of my predecessor, the hon. Member for Harrow West. To go through the banks one by one, regarding the African Development Bank, the answer is that we have set very detailed performance indicators. Each one of these priorities that we have set around recruitment, value for money, efficiency and anti-corruption then breaks down into sub-performance indicators.

To give an example, we are not simply talking about recruitment. We have set a number: we are demanding that they recruit an additional 298 people by March. That would be an example of a recruitment indicator. I am not going to go through every one of the performance indicators, but I would be very happy to share them with the shadow Minister. In delivery and values, we are focusing on ensuring that 90% of the performance completion reports are completed in a year, and we will monitor that. In relation to countries in transition, we are making sure that all the 16 country offices are fully staffed.

We do have leverage over this. It is not just the nuclear option, which as I said is that 25% of this will not be disbursed immediately; 75% will be disbursed, but 25% will be held back. That is the nuclear option, but apart from that we are about to enter 2018 general capital negotiations, and if we find that it is not meeting the performance indicators, that will affect the general capital contribution we make. In the next statutory instrument, which I hope we will both have the pleasure of debating here in three years’ time, we will perhaps have an opportunity to set exactly the kind of performance rewards that we have set for the Caribbean Development Bank. However, we do not think that we need to do that yet with the African Development Bank; we think that the performance indicator framework is the correct way to approach it.

There were two questions in relation to the Asian Development Bank. The first question was, is it enough money? The answer is yes, it is enough money. The Asian Development Bank is a smaller bank than the World Bank. While the International Development Association is disbursing about £75 billion a year, the Asian Development Bank will disburse only about £3.3 billion. As the shadow Minister pointed out, it now self-finances its concessional lending, which means that the amount of money it needs from us is reduced, and we are now in a situation in which the AIDB, the Asian Infrastructure Development Bank, is now stepping in to some of the areas in which the Asian Development Bank used to operate. The merger of its balance sheet has also given it much more flexibility in the way that it deals with moneys—it has merged the concessional and non-concessional parts of its balance sheet.

That brings me to the Caribbean Development Bank. The question was, is it correct that the amount of money that we have given it has been reduced from £33 million last time to £18 million this time? It is absolutely correct: we have reduced the amount of money that we are giving the Caribbean Development Bank by 50%. That is directly because in the multilateral development review we found that there were a number of serious problems in the way that the Caribbean Development Bank operated. Our view as Ministers—I am sure this would be the same on the other Benches—is that if we find there are serious performance problems, that has to have consequences.

We cannot be comfortable saying that there are serious performance problems and simply signing off the same amount of money, so we have halved the amount of money that we are giving. However, as the shadow Minister pointed out, there are still key tasks that the Caribbean Development Bank, and only the Caribbean Development Bank, can perform, particularly in the light of the hurricane. That is particularly its speciality in small island states and is why, notwithstanding our problems, we will, in a very carefully monitored way, be providing some money to it for that, but holding back £4.5 million for a performance bonus if it manages to meet the targets that we have provided. We will be looking in particular at ensuring that it delivers education. We have set this education target of 100,000 children in school, and we will be looking at that very carefully.

That brings me to the comments of the hon. Member for Harrow West. He began with the question of corruption and fraud, which is a big issue. It is a big issue because the countries in which one is operating are particularly fragile, conflict-affected states. It is extremely difficult in Afghanistan or Somalia—in somewhere like Mogadishu, people can barely leave the airport—to have a direct idea of what is happening on the ground.

We have an increasing number of sophisticated methods to try to ensure we do monitoring and evaluation in an imperfect world. For example, when it comes to humanitarian delivery, we are relying on people using mobile telephones, so that we can track where the trucks are going and have photographs of beneficiaries receiving deliveries. An increasing amount of money goes into employing local monitoring and evaluation partners, who are completely independent of the projects. They go out to visit the projects, produce documentation and challenge directly what is being done on the ground.

We found in the multilateral development review that, in fact, these organisations are among the best for controlling fraud. They probably perform better, on average, than general NGOs in terms of their financial management systems and the fraud mechanisms they have in place. However, we supplement that with our own auditors and with new DFID approaches, where we go all the way down the chain, through every beneficiary and sub-beneficiary, to the ground. If we visit a DFID country office now, that entire map, which is often very complex, is up from the ground. That is supplemented by the work of the National Audit Office, the Independent Commission for Aid Impact and the International Development Committee.

We are never complacent about this problem, and if we find any cases of fraud and corruption, we come down on it very firmly and will take our money back. There was a case recently where we had to be reimbursed because we discovered that something of that sort had happened; it was not with these banks, but another NGO implementing partner.

That brings me to the final question from the hon. Member for Harrow West, which was about what happens after we leave the European Union. It is absolutely correct that as we leave the EU, there will probably and potentially be more development money to spend. I say probably and potentially because it is still an open question as to whether we might continue to put money through European institutions after we leave the EU. That is something for the Brexit negotiators to determine.

Some of these European institutions are highly professional and very competent. In particular, ECHO—the Directorate-General for European Civil Protection and Humanitarian Aid Operations—does an enormous amount of good work in the humanitarian sphere. We may be tempted to look at this on a case-by-case basis and continue to partner with them, but that is above my pay grade; it is a question for the negotiators.

If we were to reduce the amount of money we put through European institutions and had money coming back, my instinct is that it would be worth looking at the question raised by the hon. Member for Harrow West. That is to say, we may want to increase the number of our staff. We may want to look at the possibility of having larger footprints, because as we worry more and more about risk and implementation, we may need to get more people into the field and into schools and those clinics to check what they are doing. Those people need to be able to speak local languages well and they need to understand the context well.

We need to be able to ensure that when we are spending money in a country, we have highly expert professional British civil servants on the ground to monitor those projects. My instinct—again, this is a broader discussion within the Department that would have to take place after Brexit—is that we would, as the hon. Gentleman implies, need more staff on the ground to ensure that implementation happened.

[Dr Blackman-Woods]

Before the Minister concludes, I want to say that I agree with him; I hope we are all still here in three years’ time, but I hope our roles are reversed. I thank him for his response, but it would be really helpful if he could tell us where to find the key performance indicators, what the timescale is, how they will be measured, who will measure them and so on.

[Rory Stewart]

I hope I am not going to get stabbed by my officials. The key performance indicators certainly exist. I have read most of them. I therefore hope they are not some classified document that I am not in a position to share. If they are a public document, as I hope they are and as they should be, we will of course be delighted to share all the KPIs with all the dates and timelines, so that the hon. Lady can monitor them, along with us, to ensure that they are met.

I commend these three orders to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft African Development Bank (Fourteenth Replenishment of the African Development Fund) Order 2017.

Draft Asian Development Bank (Eleventh Replenishment of the Asian Development Fund) Order 2017

Resolved,

That the Committee has considered the draft Asian Development Bank (Eleventh Replenishment of the Asian Development Fund) Order 2017.

Draft Caribbean Development Bank (Ninth Replenishment of the Unified Special Development Fund) Order 2017

Resolved,

That the Committee has considered the draft Caribbean Development Bank (Ninth Replenishment of the Unified Special Development Fund) Order 2017.