| Previous Section | Index | Home Page |
11.49 pm
Clare Short: I beg to move, That the Bill be now read the Third time.
The purpose of the Bill is to convert the Commonwealth Development Corporation, which was founded by the great post-war Labour Government in 1949, into a public-private partnership, in order to increase the amounts of private-sector investment going into the poorest countries in the world.
If this were a straight privatisation, the investment pattern would move away from the poorest countries. That is why there has to be a partnership. If the corporation were to remain entirely in the public sector, the quantity of investment would be limited and it would have to be a lender of last resort so that it did not compete unfairly with commercial investment. Our objective is to reduce poverty in the world by assisting the poorest countries to attract beneficial investment and to grow their economies. We sought to entrench the public sector interest in an ethical code and by placing in the Bill a requirement to invest in the poorest countries. Anyone who seeks to invest in the CDC will know what it involves. There is no dependence on the use of powers by any fickle Secretary of State.
Mr. Streeter:
We support the Commonwealth Development Corporation, which has flourished for 50 years, primarily under Conservative leadership. We certainly support the objective of reducing poverty in the developing world, and we recognise the need to take the CDC into the next millennium in a new way.
We continue to have some reservations about the means that the Government have chosen. We will not be able to judge the Bill's success or failure for many years. We will not know whether the Government obtain a fair price for the investment of the past 50 years. Nor will we know for years whether the new CDC will be able to raise its return on capital invested from 8 per cent. at present to the 18 per cent. that investors must receive. We shall not know for several years whether shareholders will achieve a proper return on their investment without bringing pressure to bear on the board of CDC to shift inch by inch away from its developmental objectives--the vital niche roles of investing in pre-emerging markets, creating jobs and changing lives.
The jury is still out on the Government's Bill. We want it to succeed, but we are taking a step of faith. We have done our best to improve the Bill, but the Government have chosen to turn their back on our wisdom, preferring their own prejudices. I regret that they have done so, and I continue to hold grave reservations.
Mr. Wells:
The Select Committee on International Development issued two reports on the Bill, setting out detailed considerations that face the House. We are experimenting, and the Commonwealth Development Corporation will move into a different world to that in which it operated before the Bill came before us. It is not only a matter of enabling the CDC to borrow in the private sector, an objective aimed at by the Department for International Development, its predecessor the Overseas Development Administration and the CDC itself. Because of Treasury mumbo jumbo, borrowing by the CDC is part of the public sector borrowing requirement and has been deemed to be Government borrowing. If the CDC wanted to borrow for good reason to invest overseas in good, productive assets, it was prevented from doing so, and we wanted to free it from that.
The Secretary of State and the Minister have explained that that is not the motivation for transforming the CDC. The Select Committee report accurately reflected what they said. A different CDC has been set before the House, which will begin to function in a new way.
Some things will change radically as a result of the Bill. I do not think that there is any difference between us on how they will change. The CDC will have to look for a much higher return on equity, so it will not be able to undertake some of things that it has traditionally undertaken, such as initial infrastructural development. It will not be able to undertake to plant a forest in Swaziland, which for 25 years earned no money, but was transformed into a viable, vibrant business in paper production and other wood products.
The Department should replicate that activity but in a different way. It should set up a fund that works with the CDC and uses grant money from the Department to undertake infrastructural green-field site developments alongside the CDC, which it now cannot do. The Department could get the CDC to manage such developments in the initial stages. An example would be a farm producing avocado pears. We do not get them in the Tea Room at eight o'clock in the morning, when you normally have tea, Mr. Deputy Speaker. A farmer must wait seven years before a tree produces an avocado pear. For that seven-year period, it may be sensible for the Department to invest in the avocado pear farm, have it managed by CDC and then let CDC buy it or have it transferred--I would suggest buy it--when it comes to fruition. It could then take it into the commercial world. That is a serious consideration if we are to get the initial development that the CDC would not otherwise be able to undertake.
There will have to be a closer relationship between the Department's grant money and initial pump-priming development--which the Department is interested in--and the commercial and private sector. The Bill will separate the two functions, and make each directly accountable.
The Department will have to consider whether it will give additional loans to the CDC during the period from which it will be formed into a public limited liability company, with all the shares owned by the Government. As I understand the current Treasury rules, the CDC will not be permitted to borrow from the private sector. To develop the CDC--I know that this is in the Government's mind--we want more of its activity in the private sector to be in the least developed countries. I am glad to see in the Department's estimates a provision for lending the CDC up to £1 million, if I interpret the annual report and the estimates for the next three years correctly. I urge the Government to put aside some money to inject additional capital into the CDC when required during the period from which it will become a public limited liability company and before the shares are sold off in the future.
My next point relates to the sale of the shares when the track record of the CDC has been established. At present, the CDC's annual report reveals that, this year, it made a loss for the first time in many years. It has traditionally made a return on capital of 7 per cent., falling to 6 per cent. It will need to build up its track record to between about 16 and 18 per cent. That requires a huge change in investment--in the direction of investment and in the type of people conducting business in the CDC. Those people will need to find investments and put deals together so as to make that sort of money in some of the least developed and most poverty-stricken countries of the world. Like the Secretary of State, I am convinced that it can be done--it must be done.
The Secretary of State has often said that she sees the measure as a catalyst that will pull in other private sector investment to the least developed countries. If we achieve that, that will be hugely beneficial to those countries. However, after we have established a record of good investment and returns, we shall have to sell the shares to private sector investors safely in order to undertake that catalytic role. If we do that, it will release more funds that will--I hope--return to the Department for International Development to be used for pump-priming investment in the least developed countries.
I can see how that would enable the Government's proposals to work. The balance sheet structure will be crucial; that relates to the point made by my hon. Friend the Member for South-West Devon (Mr. Streeter) about selling off the CDC for a fraction of its real value. If we are to avoid doing that, we must get the track record right. We must then sell the corporation to extremely discerning investors, who want an ethical investment in the least developed countries. I suggest that they would be looking for a supra-normal return because they are taking extra risks. However, that does not mean that the countries in which they invest will be exploited--rather it will encourage other people to invest there.
If the CDC can pull of that kind of track record, it will make a huge contribution towards the solution of a problem that we have never been able to solve: how to get private sector investment into the least developed and poorest countries of the world. It will take some time to do so--perhaps between three and five years. On the other hand, there is the possibility of selling earlier. There are attractions in doing so, but it would mean that we should have to sell the value of the CDC at a discount. I am sure that the Secretary of State and those who succeed her will make a judgment as to that. However, there would be value in taking the course that I have described, because private investment could be attracted, not only in shares, but in the ability to raise private capital in the private market. That is a huge prize to be grasped at the right moment. We do not have to obtain the maximum value for the shares in the CDC, if we can find a way to expand it earlier than we might otherwise have done, hence achieving the objectives set out in the Bill.
The Secretary of State has chosen to produce a unique taxation arrangement for the CDC. I have always argued that the CDC should never have had to pay British taxes--I made that point in Committee. The CDC was a vehicle for investment in overseas development. Many of the countries in which it invested did not make a tax charge on the CDC; it seemed immoral that the British Treasury should exact tax. In some cases, the CDC was paying more tax than it was returning in capital and interest to the Treasury. That was stupid because matters then had to be reversed through investment by the Department for International Development.
With this unique taxation arrangement, the CDC avoids going offshore. Of course, its competitors operate offshore; they invest offshore and raise their money offshore, and there is absolutely no reason why they should not do so. The Secretary of State has set her face against that solution and produced a unique taxation arrangement that puts the CDC on an equal footing with its commercial competitors.
| Next Section
| Index | Home Page |