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Clare Short: The chief executive is a very fine man who strongly supports the Bill. We have worked closely together on the proposals. He is coming up to 60 and wants to be replaced before the transformation so that the organisation goes from strength to strength. He will do so in all honour and with the full agreement of the Government. There is no suggestion that he has any criticism of the Bill, nor that we have any criticism of him. It is a question of his age and of ensuring that the CDC is led by someone who can see it through its transformation period. I think that it is important to have that clarification on the record.
Dr. Tonge: I am delighted to hear that, and glad that the Secretary of State has had an opportunity to say so. None the less, I share many of the reservations expressed by the hon. Member for South-West Devon.
I must confess that I have no experience of investment or the workings of the City. My lifetime investment has been in my children and in working for the national health service, a very public company, though perhaps not, I suspect, for much longer. Nevertheless, I have considerable reservations. The International Development Committee was told that private investors are interested in ethical investment. We were also told, conversely, that the companies looking to sustainable development in low-income countries are few and far between. The ethical investment market currently amounts to £2 billion per annum, a tiny proportion of the entire market.
The CDC's returns in 1998 showed a loss of 3.4 per cent. compared with a modest Government growth target of 8 per cent. The CDC is not currently required to pay any interest on loans. In future, the CDC will aim at an overall rate of return of 15 per cent. in order to attract private investors. I simply cannot see how that can be achieved without compromising the purposes of the CDC.
We were told that there have been special factors recently in India and Pakistan, in which the CDC has experienced huge difficulties that affected the rate of
return. Emerging markets have been turbulent, but there will always be countries in difficulties. The areas that really require CDC attention, such as sub-Saharan Africa and south Asia, have far more serious problems than those of India and Pakistan, and conditions there are much more turbulent. Those are the countries most in need, and I am sceptical that the project will benefit the poorest of the world.
We have heard something about taxation, and I shall not--indeed, given my background, I could not--go into it in great depth. However, the Bill is only half a Bill as the detailed tax proposals have not been put before us. No doubt, greater business minds than mine will tackle the tax proposals in Committee, but I feel that it insults the House to fail to table those proposals with the Bill.
The Secretary of State said that an offshore banking arrangement would be unacceptable. She previously told the Select Committee that such an arrangement would be intolerable. Tailored tax arrangements have been announced to put the CDC in a special category. How fair will that be for other companies that trade ethically? We must see the detail. I am unconvinced that the CDC can be a one-off case in a special taxation category, and I hope that the muddle can be sorted out satisfactorily in Committee.
The CDC sent the Select Committee a copy of its business principles before the Bill reached Second Reading, and they are laudable. The CDC aims to implement the best ethical practices itself and in all subsidiary companies that work for it. It will exhibit "honesty, integrity and fairness." It will employ good environmental, health and safety, and social issues policies. However, the document is full of verbs such as "recognise", "seek" and "identify". I should prefer it to contain words and phrases such as "insist", "enforce" and "make legally binding". The document reminds me of the Organisation for Economic Co-operation and Development code of conduct for multinational enterprises, which is advisory and full of hope but which contains no compulsion. We have heard it all before, during the negotiations on the multilateral agreement on investment.
We all know that multinationals--unlike the hon. Member for South-West Devon, I shall name no names--produce glossy brochures containing codes of conduct. Sadly, we also know that the companies do not always adhere to them. We understand that the Governments of poorer countries are responsible for ensuring the protection of their environment and the welfare of their people. However, they are desperate for investment and industrialisation and they are tempted to turn a blind eye to bad practice. The CDC must not be allowed to follow that path.
The so-called golden share, held by the Government, is claimed to be the mechanism by which CDC investments will be reviewed and monitored. Will it ensure a legally binding adherence to the business principles set down by the CDC, and will that cover any subsidiary companies? Or will a thin veil be drawn over that aspect of CDC business so that investors can be attracted?
My final concern is the percentage of CDC business that will be done in the very poorest countries, such as those in sub-Saharan Africa and south Asia. What percentage will be done in countries in which a larger return on investment can be assured? The Government
require that at least 70 per cent. of investment should be in poorer countries. That is fine, and we have heard today which countries are the poorest.
The Government also require that the CDC should aim at 50 per cent. investment in sub-Saharan Africa and south Asia, where the poorest people of the world live, but if the Government wish to stick to their White Paper's excellent aspirations, which we all support, they must not "aim" but insist that those countries receive 50 per cent. of the investment. Furthermore, they must insist that that investment helps the poorest of those countries, not lining the pockets of the wealthy and corrupt.
If the Government insist on those things, will the CDC be able, given all the problems in those countries, to attract sufficient private investment that will provide a good return for shareholders? I fear that it will not. A memorandum to the Select Committee from Sir Michael McWilliam, a former member of the CDC board, pointed out that
Dr. Doug Naysmith (Bristol, North-West):
Thank you, Mr. Deputy Speaker, for allowing me to make a few remarks in this important debate. I do so with a little trepidation, because I feel very much an amateur in this area, and I know that most hon. Members present have much more experience of development matters than I do. Nevertheless, as a long-time member of the World Development Movement and a supporter of other charities and pressure groups that aim to redress the clear imbalance between the richer, mostly western nations and the poorer, developing countries, I welcome the Bill. In particular, I welcome the safeguards outlined today by my right hon. Friend the Secretary of State.
The Bill has benefited from the scrutiny that it received before it came to Second Reading. It started life in the other place, and it has been well aired in the Select Committee on International Development. The Government have promised that that type of pre-legislative process will become more common. Apart from the Financial Services and Markets Bill, the Immigration and Asylum Bill and the draft Food Standards Bill, the process has not yet become the norm. I look forward to the process happening more frequently in future, and I welcome today's publication of a draft Freedom of Information Bill.
I support the Bill, which will convert the CDC into a plc with a difference. The public-private partnership and the ability to attract private sector funds into parts that other public limited companies cannot--or will not--reach will be important. However, the difference that an ethical dimension will build into the whole project is even more important.
From reading the transcripts of previous debates and evidence sessions in Committee, it is obvious that the CDC is already a well-respected vehicle, which has
supported much high-quality development work--at present, about 400 projects in 50-plus countries. It is also obvious that many people who know a lot about these matters feel that much more can be achieved if private sector investment can be levered in where it is wanted and needed. The CDC has not been able to support as much potential development as it could have, at least partly because of Government financial rules and the limits on Government expenditure and because, unfortunately, direct state involvement can sometimes be a disincentive to prospective private partners.
It is clearly the case, however, that the Government's known commitment and explicit priorities for development help to establish trust. Much of the CDC's success has come from its close ties with the British Government. Therefore, the loosening of those ties must be undertaken with care.
Probably the most important feature of current CDC projects is that a high proportion of them--as high as 80 per cent., and a mixture of equity and loans--are in the poorest developing countries, which are those with a per capita gross national product of less than $1,600 or thereabouts. Certainly that should continue to be the case, and it has been mentioned in virtually every speech today. The eradication of poverty must continue to be the aim.
Existing policies try to ensure that supported projects are economically and commercially viable, sound in development terms and satisfactory when judged as ethical businesses. Christian Aid has advocated social and environmental impact assessments before investment decisions are taken, and independent monitoring of codes of conduct for ethical businesses in each country.
If it can be shown that private investors can achieve attractive returns in the markets of the poorest countries without exploitation, it will be of great value. Christian Aid has also welcomed the Government's decision that proceeds from the sale of holdings in the CDC should be used to boost the aid budget. That should certainly happen, with the proviso--unnecessary, I hope--that they are an addition to an increasing aid budget and not a substitute for part of it.
The Government have already done much and they intend to do more to protect the CDC's development role, particularly during its transition into its new form. Despite the strictures of the hon. Member for South-West Devon (Mr. Streeter), many non-governmental organisations already believe that there are sufficient protections.
The concern now must be that the CDC must become sufficiently attractive to investors so that it can run successfully as a business. Judging by the story in last Friday's Financial Times, it may yet be some time before the CDC's investment portfolio is in shape to attract private sector investment, but the Secretary of State has explained the background to that story. Nevertheless, the aim must be to complete the legislation and put the change in place as soon as possible, so that there is no delay when the time is right to set up this public-private partnership.
I support the Bill and wish the CDC every success in its new form.
"the CDC should be made to satisfy two masters--the God of the Development Community and the Mammon in the City."
It remains to be seen whether the CDC can deliver.
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