APPENDIX 1
Memorandum from Christian Aid
INTRODUCTION
At the Open Business Forum of the Commonwealth
Heads of Government Meeting on 22 October 1997, the Prime Minister
announced the transformation of the Commonwealth Development Corporation
(CDC) into a "public-private partnership". This transformation
removes the restrictions on the Corporation's commercial borrowing
and thus enables it to expand faster and to play a significantly
larger role in developing countries.
Christian Aid welcomes the prospect of an expanded
and a more dynamic CDC. In a world in which private capital flows
show tremendous growth but are unevenly distributed geographically,
large population groups and entire countries run the risk of being
relegated to the margins of the global economy.[12]
In this environment, an organisation like the CDC can play a significant
part, both in terms of its own contribution and as a model for
private sector development.
Christian Aid is also pleased with the Government's
decision that any proceeds from the sale of Government holdings
in the CDC will be used to boost the aid budget.
The challenge in designing and operationalising
the public-private partnership is, as both the Government and
the CDC are well aware, to make investing in the CDC an interesting
opportunity for the private sector, while maintaining its developmental
priorities. This asks for a fine balance between the profit-seeking
motives of private capital and the ethos of social responsibility
that underlies a development agenda. Christian Aid is reassured
by the Government's intention to retain a substantial minority
holding and a golden share in the CDC. We are also pleased to
learn about the CDC's commitment to maintain its development focus
and to provide an exemplary role in striving "for the highest
standards on social, environmental and health and safety issues."[13]
Christian Aid would like to take this opportunity
to contribute some thoughts for consideration in the operationalisation
of the public-private partnership for the CDC. We will comment
briefly on
— CDC's role in poverty eradication;
— CDC's role in promoting ethical business;
— Monitoring and reporting.
Finally, this submission will offer some comments
on the use of the proceeds of the sale of Government holdings
in the CDC.
Investing in poverty eradication
The recent Government White Paper on International
Development puts poverty eradication at the heart of the British
contribution to development. Private sector development has a
crucial role to play in poverty eradication and the CDC can be
a leader in this area. The positive experience of the CDC in working
towards development and contributing towards poverty eradication
can be maintained and enhanced in the following ways:
— Through its golden share, the Government
should ensure that the need for a higher rate of return on investment,
which will emerge because of the CDC's borrowing on the private
capital market, will not affect the Corporation's focus on poor
(IDA eligible) countries. The current target of 70 per cent of
board approvals to be in IDA eligible countries should be maintained.
— Using its minority holding and its
golden share, the Government should ensure consistency between
DFID's priorities for development and CDC's investment decisions.
In those countries where DFID has a programme guided by a country
strategy paper, investment decisions should be in line with the
priorities in DFID's country strategy. For countries where DFID
does not have a country strategy paper, CDC investment decisions
should be guided by the White Paper on International Development.
— The CDC anticipates a continuing
shift from loan business into equity business, which is partly
motivated by the need to achieve a higher rate of return. This
also increases the opportunity for CDC to provide governance and
management skills. In this way, the CDC can make a major contribution
to building local capacity in the private sector. Perhaps this
is the most sustainable contribution the CDC can make towards
development and poverty eradication. In order to exploit this
opportunity to the full, it is strongly recommended that equity
investments are accompanied by a clear capacity building strategy.
Capacity building should be a primary objective of equity investments
rather than a beneficial spin-off.
Investing in ethical business
The CDC is firmly committed to social, environmental
and health and safety standards and is developing a code of ethical
policy and practice. In promoting ethical business, the CDC can
make contributions in two ways. Firstly, the CDC should adhere
to the principles of ethical and socially responsible business
in its own investments and activities. Secondly, the CDC can play
a role as advocate and example for ethical business in the countries
where it works. Christian Aid would like to recommend the following:
— All CDC investment decisions should
be preceded by a social (including gender) and environmental impact
assessment. NGOs, both in developing countries and in the UK,
should have unlimited access to these assessments and be offered
an opportunity to give their views.
— Ethical business requires a code
of conduct and codes of conduct require independent monitoring.
We recommend that, in collaboration with DFID, the CDC actively
promotes the formulation, the adoption and the independent monitoring
of codes of conduct for ethical business in the countries where
it works, beyond the companies it is directly involved in.
Monitoring and reporting
It is essential that CDC enhances its monitoring
and reporting procedures. This will enable it to demonstrate its
success in blending commercial interests with developmental interests
and will facilitate learning on private sector development beyond
the CDC.
— In its progress reporting, the CDC
should be urged to move beyond crude economic indicators such
as the rate of return on investments, on which it currently focuses
in documents such as its annual report. The corporation should
be encouraged to set up monitoring and evaluation systems to assess
its developmental impact (paying special attention to the distribution
of its contribution to development) and to report along those
lines.
The public-private partnership and the aid budget
Christian Aid welcomes the Government's decision
that any proceeds from the sale of Government holdings in the
CDC will be used to boost the aid budget. While the availability
of additional resources for the aid budget is positive, clearly
the proceeds of the sale of Government holdings in the CDC will
result in no more than a one-off windfall. We would like to stress
that Christian Aid and other British development agencies expect
to see this Government permanently increase the aid budget. We
have accepted the Government's point of view that there was a
need to keep public spending within the framework set by the previous
Government for this Government's first two years of office. The
reverse of the decline in the aid budget, which we all expect
to start in the third year of this Government's term, will need
budgetary re-allocations that go beyond the proceeds of the sale
of Government holdings in the CDC. We have argued that the Government
should strive to reach the current average EU spending on aid
of 0.37 per cent GNP by the end of its current term.[14]
In order to reach this target, at least an additional £800
million should be allocated to the annual aid budget.
Given the fact that the proceeds of the sale
of Government holdings in the CDC are a one-off windfall, perhaps
the best use of these funds would be to let them contribute to
debt relief for highly indebted poor countries. The burden of
unsustainable debt is crippling many countries in which CDC is
active. Debt relief for those countries would have many benefits
and would also result in a more healthy environment for private
sector development.[15]
Christian Aid
23 June 1998
12 For Christian Aid's perspective on globalisation,
see M Lockwood and P Madden; Closer Together, Further Apart.
A discussion paper on globalisation. London: Christian Aid,
1997. Back
13
CDC; Reports and Accounts 1997, London: CDC, 1998, p. 27
Back
14
House of Commons; International Development Committee, Second
Report. The Development White Paper. London: HMSO, 1997. p.
53. Back
15
For Christian Aid's thinking on debt, see Christian Aid; Forever
in your Debt? Eight poor nations and the G-8. Millennium debt
relief for eliminating poverty. London: Christian Aid, 1998.
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