Oral Answers to Questions

Sam Gyimah Excerpts

Wednesday 11th July 2012 Commons Chamber

[Tim Farron (Westmorland and Lonsdale) (LD)]

6. What humanitarian support his Department is providing for Syrian refugees; and if he will make a statement.

[Mr Sam Gyimah (East Surrey) (Con)]

7. What humanitarian support his Department is providing for Syrian refugees; and if he will make a statement.

[The Minister of State, Department for International Development (Mr Alan Duncan)]

In addition to the support that we are providing within the country itself, my right hon. Friend the Secretary of State recently announced that we were increasing our funding to £3 million to support the UN-led response for Syrian refugees, providing humanitarian assistance for up to 185,000 people in Jordan, Lebanon, Turkey and Iraq.

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[Mr Duncan]

The answer to the hon. Gentleman’s question is emphatically yes. More than 35,000 Syrian refugees are being assisted in Turkey and thousands more are fending for themselves. The Turkish Government are leading and co-ordinating the assistance to Syrian refugees, supported by the United Nations High Commissioner for Refugees and other humanitarian agencies. Registered refugees are hosted in 10 camps, which are fully funded by the Turkish Government, but there is, by and large, no problem with access.

[Mr Gyimah]

I thank the Minister for his comments on the humanitarian support that the British Government will give to people inside Syria. Will he specify which agencies our extra support will go through?

[Mr Duncan]

We have channelled significant funding through UN agencies such as the World Food Programme, the UNHCR and the Office for the Co-ordination of Humanitarian Affairs. Some humanitarian agencies have requested us not to name them publicly as they are concerned that their staff and operations could be put at risk. We fully respect those concerns, and I can assure the House that all UK funding is nevertheless going to humanitarian agencies with a proven ability to operate in Syria.

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[Mr Mitchell]

The hon. Gentleman accurately identifies the position of children in South Sudan, which I set out in answer to his hon. Friend the Member for Warrington North (Helen Jones). It is true that diarrhoea needlessly kills thousands upon thousands of children every day. That is one of the reasons why last year Britain led the replenishment for GAVI—the Global Alliance for Vaccines and Immunisation—so that Britain will be vaccinating a child in the poor world every two seconds and saving the life of a child every two minutes, precisely from these sorts of ills.

[Mr Sam Gyimah (East Surrey) (Con)]

T4. Further to my visit to Helmand with the International Development Committee, I would like to pay tribute to the hard work and dedication of our forces and DFID staff operating in extremely difficult circumstances. The Secretary of State is aware of the shocking execution in Afghanistan a week ago of a 22-year-old woman accused of adultery. What are the Government doing to mitigate the risk of a return to Taliban-style treatment of women in Afghanistan, post our withdrawal in 2014?

[Mr Mitchell]

The Government vigorously condemned the execution to which my hon. Friend referred. One of the key ways of transforming Afghan society to prevent the return of the Taliban’s evil practices is, of course, to get girls into school. When they are a critical mass, that will have a big effect on Afghan society. Nine years ago, there were no girls in school in Afghanistan; today, there are nearly 2.5 million.

Future of CDC

Sam Gyimah Excerpts

Thursday 14th July 2011 Westminster Hall

[Malcolm Bruce]

I thank the hon. Gentleman for that intervention. CDC opens up the opportunity to do a lot of things differently in the future that could unlock funding from a variety of different sources. That will be a mark of its success.

We also recommend that CDC should try to invest funds where private capital otherwise might not go—or not on a scale or on terms that would meet the needs of the poor. There is plenty of evidence throughout the world that some market opportunities do not always attract adequate investment because they are regarded as unfashionable or remote, or because their benefits are counter-intuitive. One example from the not-too-distant past, and from quite close to home for me, is the Highlands and Islands Development Board. An interesting thing about the board is that it invested in its heyday in stimulating new companies and initiatives across the highlands and islands region.

I remember the chairman of the board giving evidence to a Select Committee. When he was asked what return the board made on its investment, how many losses and bad debts it had and how that compared with the private sector, he answered, in summary, “Actually, our rate of return and bad debt is almost exactly the same as in the private sector.” That prompted the question, “Well, why do we need you, then?” and he answered, “Because the private sector wouldn’t go where we went.” That is classically the case with CDC. It will and can go to places where investment might not otherwise be made, but where genuinely positive economic returns can be secured. [Interruption.] I am glad that my hon. Friend the Member for East Surrey (Mr Gyimah) has found his right place in the Chamber. I hope that he might catch your eye in due course, Mr Walker.

It is right that a development finance initiative such as CDC should have, in addition to such priorities, an investment code that meets the Department’s environmental, social and governance standards. That code should be used not as a barrier to attracting funds, but as a means of effectively certifying the quality of investment and attracting money from investors who want to meet certain high standards. There are examples of ethical investment funds in the UK. People with such investments want to invest their money in ways that have particularly beneficial social outcomes. I am certain that people will want to invest in ways that deliver benefits to the poor, but they will also want to know that it is being done in a businesslike and commercial way—not through a charity, but through an organisation designed to create sustainable economic development.

One problem with and criticism of a fund of funds is that, by definition, it creates long lines of communication and limited direct control. Many transactions are happening at a long remove. Given that it is a development finance institution, it is therefore necessary, first of all, to ensure that the impact is properly assessed and measured. We have called on the Government to ensure that that is done more effectively than in the past. A proper assessment should be made of what jobs were created, whether they were quality, permanent jobs, and whether those jobs were adequately paid. That is the essence of sustainability as well as of the pro-poor benefit of the investment. The same applies to transparency. People need to know where the money is being invested and whether it is being invested in appropriate things with which people feel comfortable. They need the assurance that the primary outcome is benefiting poor people.

That point raised a debate in the Committee about what people should be paid. It is somewhat embarrassing that the CDC has suffered criticism for that in the past. Given that its primary purpose is to help the poorest people in the world, high rates of remuneration and bonuses for its executives create an uncomfortable anomaly that needs to be addressed.

[Mr Sam Gyimah (East Surrey) (Con)]

Does the right hon. Gentleman agree that it is not just about the absolute level of salaries and bonuses, but about the time horizon within which they are paid? If we are to do serious development work or to make investments with a development impact, people should be thinking about the long term, rather than about short-term gains.

[Malcolm Bruce]

I absolutely agree. My view is that that is a good criterion for every form of investment, but especially in this context.

The Committee received interesting evidence on remuneration, which we debated. The standard response on CDC has been, “It has been set up as a market-based model competing for funds in the marketplace, so we have to pay people market-based salaries.” I am not saying that there is no connection between those things, but we received significant evidence that there were people who would be prepared to work for considerably less than the market rate, although not necessarily for peanuts, given that, in the peak year, the chief executive’s package totalled £1 million, which included a salary of several hundred thousand pounds. However, there are people who will work not for £20 a week, but perhaps for £50,000, £100,000 or £150,000 a year, on the grounds that they have an opportunity to give something back from their own career by contributing their experience at a time when they do not need the money. We asked the Government to look at that. I appreciate that that can create tensions, but as long as the process is done openly, the model would draw some of the sting out of the criticism that has been levelled in the past.

Similarly, the Committee had an interesting discussion about the use and role of tax havens. We recognised that things were not as simple as we had thought when we started to look into the situation. The argument for their use is that they create financial efficiency that attracts more money than would otherwise be the case, and that that does not, in fact, mean that taxes are not being paid. Unattached—orphan—money that was not directly related to a particular geographical area or activity could be reinvested in the fund and, in effect, the tax not paid on the tax haven funds represented money available for reinvestment. The Norwegian development finance institution recently took a policy decision to pull out of tax havens, and doing so dramatically reduced the attraction of additional finance. Our view is that we should look at the situation clearly. There should be transparency and institutions should always pay taxes appropriately and properly, but we have asked the Government to consider whether they should provide a rule about the correct role of tax havens. To be frank, the Committee did not feel that there was enough authoritative evidence to make a definitive recommendation.

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[Mr Sam Gyimah (East Surrey) (Con)]

It is a pleasure to serve under your chairmanship once again, Mr Walker. Most of us here agree about the vital role that an organisation such as CDC can play, if it gets its model right, in driving growth and prosperity and in alleviating poverty in the process.

I was not a member of the Committee when it conducted its inquiry, and I was quite worried, before I looked at its excellent report, about changing CDC’s business model. I was concerned about whether CDC would be able to make the same returns. I thought we might be asking too much of an investment fund that operates in some of the most difficult parts of the world if we told it to focus only on those places that need its help the most, on those sectors where it can make the most difference and in environments where levels of corruption could be quite high—as we know from organisations such as Transparency International, governance regimes are simply not there in some of these countries, and especially in those that face conflict. Ultimately, the UK taxpayer could suffer as a result. There was therefore the difficulty of returns, the political risk and the issue of operating in conflict areas. That was the attitude with which I approached the Committee’s report.

Having looked at the report and been on our visit to Rwanda, the Democratic Republic of the Congo and Burundi, I realise that private sector companies simply will not take on certain types of investment, because the returns are not there, and they will not allocate capital to such projects. With that in mind, it makes a lot of sense to see whether much of CDC’s effort could be refocused, and the horizon is absolutely important. When CDC changed its business model, a lot of bankers and private equity players ended up working there, and from my experience in banking, I know that their outlook is slightly different and the returns they look for are very different. If an organisation is staffed by such people, it might not always be consistent with looking at agriculture or infrastructure projects, which take quite a long time to deliver the development output that we would expect.

Having seen the Secretary of State’s response to the Committee’s report, I have a couple of questions for him. The first relates to sector focus, which was touched on by the Chair, who also mentioned the experience and expertise of my hon. Friend the Member for Stafford (Jeremy Lefroy) in agriculture. In the whole of Africa, we are seeing some of the consequences and difficulties that come about if we do not have some of the best practice in agriculture. As we know, people in CDC had that experience before it changed its business model, so is there a case for saying that we should look at some sort of sector focus to make a development impact? That is particularly relevant given what DFID came up with after the bilateral and multilateral aid reviews. They did not say much about agriculture, so could CDC be the vehicle for looking at the issue?

My next question for the Secretary of State relates to the skills and the knowledge base. If CDC is to change its business plan, I want to know a little more about how it will get the skills to deliver what will be a very different investment model. If it is going to focus on sub-Saharan Africa and Asia, it will need a lot of country knowledge and to be able to identify the best transactions. It will also need people who are committed to the sector they are dealing with, which is very different from a fund-of-funds model, where people’s skills base probably relates to choosing the right fund to put money into, rather than identifying the right investment and the right management team, which will then be given ongoing support to ensure that the investment yields a return. What work has been done on that? How will CDC be almost re-engineered to deliver the new business plan?

The final point I want the Secretary of State to clarify is how the accountability link to the UK taxpayer will work. Obviously, it will be through the Department, but I would like a greater sense of how that will work. The Secretary of State has rightly focused on results as regards our development and aid budget, and the Committee’s report focused a lot on how we can assess development impact, but I want to know how we work out whether the UK taxpayer is getting value from what is done.

[Anas Sarwar]

As the hon. Gentleman has rightly said, he was not a member of the Committee during our inquiry. Having immersed himself in our work since he joined the Committee, however, he will agree that it was bizarre that when CDC’s managing director, chief executive and chair came before us to give evidence, they could not, between the three of them, answer basic questions such as how many staff they employed, what the total wage bill was and what the total bonuses paid to their 46 members of staff were. Is that not an indication that we need improved transparency, so that we can show those things to the British people and get their trust in the process?

[Mr Gyimah]

I thank the hon. Gentleman for his point. I totally agree that the British public need transparency about how the organisation is run. However, the success or failure of the fund’s operations also depends on such details.

I want the Secretary of State to clarify the points that I have raised. Let me say once again what a pleasure it is to serve under your chairmanship, Mr Walker.

[Mr Charles Walker (in the Chair)]

I call Miss Ali. [Interruption.] Sorry, Mr Lefroy—it would be helpful if Members could stand so that I can see that they want to speak.

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[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?