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Clare Short: Does the hon. Gentleman think that it is possible for the poorest and least-developed countries to attract private sector investment? If he is right in his critique, no investment in those countries will be attractive to the private sector. Although I know that he is wrong about that, perhaps he will either agree that he is wrong, or state plainly that he believes that those economies will never attract private sector investment and, therefore, are in long-term difficulty.
Mr. Streeter: I do not think that the Secretary of State is listening to me--I was not saying that at all. One of the points that I shall make in a moment is that many private sector investors are already investing in those emerging markets. However, the CDC that she is shaping for the future will simply become another investment bank or investment fund manager. Unless we get the matter right--this is why we have to examine it very carefully in Committee--the CDC will not be distinctive from any other fund manager.
Of course we want private sector investment in emerging markets, but such investment is already being made. Surely it is right that the CDC should play a particular and peculiar role in development, as it was established to do.
I am not saying that it is wrong for the CDC to move from loan to equity. I am simply saying that, in a volatile market, such a move may not offer the panacea that the Secretary of State believes it will. What will happen if investors in the new CDC do not receive the rate of return that they are expecting? She has not answered that question.
The directors of the CDC are people of good faith. They will try hard to meet the financial targets, while remaining true to what they understand to be the CDC's developmental focus. We wish them well and hope that they succeed but, if the rates of return are not adequate, the shareholders will gradually turn the screw, insisting on higher-value investments and better returns. Gradually, the developmental focus will be all but forgotten as the new CDC becomes just another investment bank or fund manager. I have noticed before that, when the Secretary
of State knows that she has lost the argument, she starts chatting to the person next to her. I wish that she would listen. She might learn more about the industry.
Mr. Streeter:
Does the right hon. Lady want me to give way?
Clare Short:
That is what standing up at the Dispatch Box means. I was saying to my hon. Friend the Under-Secretary, "Poor chap, he cannot seem to understand how the entrenched requirements on the proportions of investment make what he is suggesting impossible." I was listening to the hon. Gentleman. It would have been rude to make my comment loudly, so I made it quietly, but as he wants me to be rude in public, let me be so.
Mr. Streeter:
I am grateful to the Secretary of State, because she has made my case. I shall explain why she has not entrenched the developmental objectives of the CDC in the Bill. She thinks that she has done so by saying which countries the CDC can invest in, and through and by the incorporation of the statement of business principles, but that does not protect against shareholders wanting to take the investment portfolio away from creating jobs and investing in long-term communities in the developing world and putting it into high-value, high-tech investment that will result in the CDC being no different from any other investment bank or fund manager. She has not entrenched that principle properly. The shareholders will gradually turn the screw, insisting on higher-value investments and better returns. Gradually, the developmental focus will be all but forgotten as the new CDC becomes just another investment bank. The CDC that is filling the vital gap between aid and the full-blown private sector will, little by little, inch by inch, relocate itself firmly in the private sector investment camp, leaving a huge void behind it.
I do not take any pride in saying that. I wish that the truth were otherwise. I want the plan to succeed, but the Secretary of State expects us to vote tamely for the Bill. She hates criticism and questions. I am simply trying to point out to her that she may not have achieved her objectives. I wish that she had discovered a magical way of combining two mutually inconsistent principles--riding two horses at the same time--but I fear that she has not. It is likely that, within a few short years, all the noble aspirations of the CDC when it started 50 years ago will have been left behind.
The Secretary of State thinks that she has entrenched the CDC's development principles but, after closer examination, I fear that she has not. I was sent the statement of business principles on 11 May. It is a worthy document and I do not disagree with a single word in it. It contains some excellent phrases. It says:
The principles do not in any way prevent the CDC from investing in top-drawer, highly successful companies which make high-tech products, employing only a handful of local people, in the permitted countries. Nothing in the statement of business principles prevents that investment from becoming the norm. If I am wrong, the Secretary of State can intervene and tell me so.
The second attempt at entrenchment is to insist that 70 per cent. of all the CDC's investments are limited to an agreed number of developing countries, 50 per cent. in sub-Saharan Africa or south Asia. That is set out in the investment policy and, again, I support it. There is a long list of countries--involving about two thirds of the world--including South Africa, India, China, Zimbabwe and Kenya.
Surely the Secretary of State will not pretend that that measure prevents the new CDC from becoming a commercially driven investor in those emerging markets, no different from any other such investor. That is already happening. When I was in Kenya recently, I spoke to one of the CDC's field managers, who was being instructed to move away from the long-term, job-creating, community-focused investment on which the CDC has built its reputation. He was now being encouraged to look at shopping malls, office complexes and high-tech companies--sectors in which several other private investors are operating.
There are examples of fund managers investing in emerging markets. Perpetual Investors talks about its funds in Thailand, the Philippines, India, Taiwan, Indonesia and Malaysia. Genesis Emerging Market Funds has significant investments in Botswana, Ghana, Jordan, Kenya, Lebanon, Mauritius, Oman, Saudi Arabia, South Africa and Zimbabwe. Hundreds of private sector investment organisations are beginning to invest in the
emerging markets--and a good thing, too. My concern is that others are doing what the CDC is gradually going to get into.
The moorings to which the Secretary of State is attaching the new CDC are too weak, and the currents tugging the new CDC out to sea will be strong, and will get stronger. We know that a burgeoning private sector is the very thing that those developing countries need, but other organisations can help provide that. The Secretary of State is not facing up to the radical change of direction for the CDC that she is instigating. Unless we can strengthen the Bill in Committee, the likelihood is that, in not many years, the CDC will have floated free from its developmental moorings. The House should consider the Bill in the light of that clear risk.
A host of other matters need to be looked at carefully in Committee. The tax treatment of the CDC is a critical concern. As long ago as 7 July 1998, the Select Committee on International Development was told by the Secretary of State that preferential tax treatment would be forthcoming. She explained that it has been longer in coming than she would have liked, and that is fair enough. However, it is disappointing.
The House of Commons is debating the Second Reading of a major Bill, which has the consequences that I have explained. The tax treatment is at the centre of whether the company succeeds and flourishes in the private sector. We do not have a scrap of paper that tells us what that tax treatment is. That is not good enough. It is all very well to say that it will be brought before us in Committee, but the Committee is likely to start in a fortnight. Surely we could have the information now. We must reserve all our positions in relation to the tax treatment of the company.
Is the Secretary of State really saying that the Government will create a special tax status for one company in the United Kingdom, 75 per cent. of which will be owned by the private sector? What an extraordinary idea. She says that going offshore would be wrong. What is wrong with CDC funds going offshore? Has she consulted the Prime Minister, who talks about globalisation and our role in the global economy? Why is placing funds on a tax-efficient offshore basis politically unacceptable?
"The way we do business is to set out in our mandate:
It says that the CDC will
To maximise CDC's success in creating and growing long term viable businesses in developing economies, achieving attractive returns for shareholders and implementing ethical best practice."
"be open and honest in our dealings, while respecting commercial and personal confidentiality".
24 May 1999 : Column 55
It talks about the core values, saying that it will
"recognise that economic development results in environmental change"
and that
"Sustainable development seeks to maximise the potential of environmental resources".
It is all good stuff and I support it. However, the mission statements and developmental principles of other large corporations use almost identical language. Shell says:
"We aspire to be a leader in the economic, environmental and social aspects of everything we do; first choice for our shareholders, our customers, our employees, those with whom we do business, society and future generations.
I do not criticise the CDC's business principles, and I certainly do not criticise Shell's. I simply say that the adoption of those principles by the CDC is no more than any major international player does these days. It is part and parcel of today's global business environment, and it does not protect the special developmental status of the CDC.
We will strive to help to build a better world in which current and future generations enjoy greater economic, social and environmental security.
We will embrace the concept of sustainable development in our business decisions, large and small. In this way we will continue to create value for our shareholders and society, while being responsive to society's changing expectations."
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