Future of CDC

Rushanara Ali Excerpts

Thursday 14th July 2011 Westminster Hall

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

It is a pleasure to speak today from the Labour Front Bench about CDC. I thank the Chair of the International Development Committee, the right hon. Member for Gordon (Malcolm Bruce), and the rest of the Committee for their work. It is vital that CDC should play its part in promoting investment in developing countries to promote economic development and poverty alleviation.

In 2009 development finance institutions contributed about $33 billion of new private sector investment in developing countries. The contribution made by institutions such as CDC to developing countries has the potential to make an even more significant impact on economic development and poverty alleviation, as part of the UK’s continuing work in international development. As the right hon. Member for Gordon pointed out, it is vital to build on its work and to focus on areas where improvements can be made. With a mandate to boost economic growth by investing in private sector development and more than £2 billion of planned investment in the next five years, there is, as I have said, a great opportunity.

I want to focus on some of the issues raised by right hon. and hon. Members in the debate. The right hon. Member for Gordon highlighted the importance of CDC’s acting as a fund of funds, and of the need to focus on pro-poor development and the connection between investment and development. Economic growth in its own right will not bring about development if we do not use our investments appropriately, as many hon. Members have pointed out.

[Malcolm Bruce]

The hon. Lady has made an important point. A World Bank report on sub-Saharan Africa will often give an annual figure showing rates of growth that most of Europe would envy, but it does not show that the distribution of that wealth is not helping to alleviate poverty. Wealth by itself is no use, if it does not get to the people who need it.

[Rushanara Ali]

I welcome that comment. As we have seen recently, in many middle-income countries, economic inequality coupled with injustice are a devastating combination and can lead to conflict. Economic development is vital. Growth is vital, but it must go hand in hand with tackling global inequality. We must be mindful of that responsibility in our investments through CDC and in our other investments.

The right hon. Member for Gordon also discussed the linked matter of ethical investment and the need for social outcomes and sustainable economic growth, and other hon. Members have reinforced those points. Historically, while CDC’s role has been important and has often been positive, it has had a mixed history. This is a great opportunity for us to look ahead at how it can play a bigger and more significant role.

My hon. Friend the Member for Birmingham, Northfield (Richard Burden) raised the important question of about 50% of the international development budget to India being channelled through private sector investments. He sought clarification from the Secretary of State whether that figure is accurate and whether that investment will be channelled through CDC or some other route. I will appreciate that being clarified in the Secretary of State’s response.

The hon. Member for Brighton, Pavilion (Caroline Lucas) raised some important issues about compliance with the spirit and letter of international law and about tax, transparency and money laundering laws, among others. She reiterated the role of ethical investment and the need to be mindful of human rights, in particular when investing in mining companies and others. Many organisations have expressed concern about the impact that particular kinds of investment can have and the need for greater care to ensure that such investments are ethical and that human rights violations do not take place.

[Jeremy Lefroy]

Does the hon. Lady agree that we have the opportunity not only to be careful about bad practice, rooting it out wherever it occurs, but to promote good practice with investments made by CDC, whether through funds or perhaps in future directly?

[Rushanara Ali]

CDC has an important opportunity to lead by example, and we must require it to set that example and to implement the focus on human rights, given the interest in human rights in those countries. I very much accept the hon. Gentleman’s point.

I also want to mention what the hon. Member for Brighton, Pavilion said about CDC acting as a fund of funds as well as a poverty alleviator. It is important to consider compatibility. There are many examples of incompatibility and, as she rightly stated, some bring into sharp focus the tensions between the two objectives. The two are welcome, but greater monitoring is needed to ensure that the objectives do not contradict each other.

The hon. Member for East Surrey (Mr Gyimah) discussed returns on investment. His insights included recognising the importance of creating the appropriate investment horizons and environments. He raised two key issues on skills: first, on skills and the knowledge base, he pointed out the importance of ensuring that that capacity and technical expertise is available as the investment takes place in developing countries; and, secondly, he indicated the importance of sector focus, in particular in agriculture. Several hon. Members mentioned accountability and transparency.

I will wrap up, because I am conscious that I do not have a huge amount of time.

[Mr Charles Walker (in the Chair)]

You have plenty of time.

[Rushanara Ali]

I have lots of time, which is good.

In 2010, CDC’s capital was invested in about 143 funds, supporting 930 individual companies worldwide. Companies benefiting from CDC investment employ almost 1 million people in 70 different countries. As the International Development Committee report acknowledges, CDC has contributed to employment and the tax base in developing countries, which are critical to development and economic growth. That is, however, only part of CDC’s contribution, and other notable examples of success can be found in developing infrastructure and technology and in linking those countries to the international economy. So CDC has a vital role to play in the future in infrastructure development and in poverty alleviation, although a number of issues were raised by the Select Committee report as well as by those who submitted evidence and who have campaigned for continued reform of CDC.

I want to ask the Secretary of State about ensuring the appropriate monitoring of impact, of what happens to the investment and of how development objectives are met. I also want to reiterate the points made in the debate about investments being ethical, fulfilling human rights objectives and not contradicting our overall national aims to ensure that our investments are appropriately geared towards economic development as well as poverty alleviation.

On smaller investments and support to SMEs, as hon. Members have mentioned, we must be vigilant in ensuring that CDC does not merely replicate what other investors do but provides added value. It should give support and investment to smaller investors or those from diaspora communities. As was acknowledged, such communities provide more investment in developing countries—their countries of origin—than all development aid put together. CDC has a great opportunity to tap into that resource and channel the aid and investment going into those countries to help fulfil economic development and poverty alleviation objectives.

I will cite one recent example from my constituency. A small group of UK Bangladeshi entrepreneurs developed a cargo business with their own investment—only a small amount of money—because they could not get access to resources elsewhere, and it is now a multi-million pound business. That is a small but significant example, because those entrepreneurs did not have access to investment from organisations such as CDC and because it illustrates the profound interest among diaspora communities in investing in their countries of origin to develop the economies of the cities that they come from. Many of their ideas are incredibly innovative, as in my example, and have the capacity to promote investment and connections between the two countries.

[Mr Gyimah]

I certainly agree with the hon. Lady’s comments about focusing on small and medium-sized enterprises. Given the high failure rate, however, especially among small enterprises, does she agree that if we have greater focus by CDC on SMEs, we must accept that it might not have the returns that it has previously achieved?

--- Later in debate ---

[Rushanara Ali]

I accept that point. If CDC wants to be a trailblazer and to encourage investment by others, there must be some way of framing its activities to enable some appropriate risks to be taken. That might involve a special innovation fund to identify potential investments, which could recognise that failure rates are greater with particular kinds of investments such as smaller businesses.

Although innovation journeys in business, technology and elsewhere may attract a large amount of investment, there are often only a small but significant number of successes, but they may generate new sectors. There must be discussion about the level of risk that CDC can take, and it would be helpful if the Secretary of State were to reflect on some of those points and tell us whether particular efforts can be made to recognise that, for example, diaspora and smaller communities have a big role to play in those countries, but that there must be a way of enabling them to invest. The pool of investors is often smaller. Is there a way of pooling investments or collaborating to ensure that more targeted investment from those groups goes to developing countries? Those matters should be explored.

[Pauline Latham]

Is it not true that diaspora communities invest in and send money back to the communities that they came from, because they know those communities? Trying to get another organisation to co-ordinate how they spend their money might seem to them to be telling them how to spend that money. Would it not be better to leave them to form their own associations to help their own communities, because they often know many people in the area? They are better left to get on with funding in areas that they know and whose needs they know, instead of giving it to someone else to invest. If we are not careful, we might stop them investing at all.

[Rushanara Ali]

Diaspora communities may be interested in developing businesses that connect between, for example, the UK and Pakistan. They may need advice, support and technical assistance, and they sometimes need access to investment funds to start up a business. There may be areas where they can do that themselves, but my essential point is that opportunities are being missed. We do not want to duplicate or squeeze out direct investments to help families, but second and third-generation British citizens with links to their countries of origin are increasingly interested in investment in and support for business rather than direct support to family members. It is important that CDC looks at opportunities for such investment, which is different from the traditional support to families and friends because it involves putting money into businesses in their home country or city, or the area where they come from.

CDC’s business plan, which follows the various reports, including that of the International Development Committee and the Government response, is welcome, as is the general thrust of its focus on economic development, including its fund-to-fund focus, and on poverty alleviation, but we must look closely at where CDC goes next and how it implements the overall vision that it has set for itself, recognising the many issues that have been raised. Those issues include internal practices and how CDC is perceived by the public. Hon. Members have acknowledged that there are still concerns and reputational issues about how CDC is perceived to be using resources, remuneration packages, pay and so on, and how its money is spent. The public deserve the best value for money, as well as transparency and accountability, so that our investments create a genuine space for others to follow. In areas where CDC invests, it creates new opportunities for others to follow, and it acts as a trailblazer and a catalyst. That is the ethos that we all want CDC to achieve. We all want it to succeed.

I again commend the work of the International Development Committee and look forward to seeing CDC thrive and succeed in increasing investment in developing countries, in helping to reduce inequality through economic growth and in making its contribution to reducing poverty.