Examination of Witnesses (Questions 60-77)
RT HON
HILARY BENN
MP, MR MARK
LOWCOCK AND
MR MARK
BOWMAN
19 OCTOBER 2006
Q60 Richard Burden: Would you see
that procedure as applying to situations where the focus is not
particularly corruption? When we last discussed this I think Mr
Davies asked you about this whole area and you said you would
go away and reflect on some kind of common procedure and approach
being established. Is this the one you were talking about?
Hilary Benn: In the end it is
going to depend on the decision that each individual donor makes
and different donors may be giving their aid in different ways
anyway so there are some that do not go in for budget support
and therefore they could not be part of any consensus to change
and move away from budget support because of problems in a country.
Mark is absolutely right; it is much, much better if we can try
to act in concert and we certainly seek to do that. There is a
great pressure in part because people do not want to be left out
on their own, but you have to recognise that it may not be possible
in all circumstances because the pressures a country is under
back home, what may be a big issue in one donor country may not
be a big issue in another. The circumstances do vary.
Q61 Chairman: In those two countries,
Uganda and Ethiopia, how much coordination has there been?
Hilary Benn: In the case of Ethiopia
a lot because we came to a view right across the piece that we
would not give direct budget any more and then some of the donors
took the view that there are a lot of poor people in Ethiopia
and we should not walk away—the point I was making a moment
ago—and therefore have found another mechanism through the
Basic Services Grant. Some of the donors came on board; some have
been a bit reticent, waiting to see how things unfold. We took
the lead in that because we thought it was important to find another
way notwithstanding the real concerns that we had about governance.
The Government of Ethiopia was extremely cross that the international
community took this step but I am absolutely clear it was the
right step to take in view of what had happened because it did
breach one of the principles of the Development Partnership that
we have laid down. I think it is important to show that those
principles mean something and when something goes wrong there
is a consequence, otherwise why would one adopt the principles
in the first place?
Q62 Chairman: If I can pursue that
on the Uganda point, it does create a problem for your own department
in as much as budget support is easier to manage and what you
did with the money was to give it mostly to two UN agencies and
other people questioned whether that was the best way to do it.
I appreciate it was an easy and legitimate way to do it, but the
question that then arose was that if we get any kind of peace
deal in northern Uganda people are saying they want development
money to replace aid money, but they need to ensure that it goes
to the north and is not siphoned off to the south or corrupted.
How can you manage that if you do not coordinate with other donors,
and even if you do does it not put an awful lot of pressure on
the DFID post in country actually to manage it? Is there not a
big difference between simply giving budget support and having
transparency, and trying to deliver poverty relief which you cannot
work through that route?
Hilary Benn: It certainly does
put pressure on. In the case of Uganda, as you say, we found another
mechanism and there are great needs in the north; I think everybody
recognises that. In the case of Ethiopia it was an enormous amount
of work to change tack from the budget support arrangements that
we had been assisting with and developing to say that we have
to do something completely different. I have to say that the team
responded magnificently, but not without a lot of very, very hard
work in the circumstances. As far as a peace deal in the north
is concerned, it all appears a bit in the balance because actually
at the moment it is not clear how this is going to turn out. I
fervently hope that there is finally going to be a resolution
to this terrible trauma that the people of northern Uganda have
suffered and I think it is very important if there is a deal that
President Museveni and the Government show that they are then
going to turn their attention to supporting the people in reconstructing
their lives and developing in the north. It is one of the priorities
that he has set himself if there is a peace deal because he recognises
the importance of building on a foundation of peace after all
of these years of the most appalling suffering.
Q63 Mr Davies: Perhaps I can make
a practical suggestion. I know the executive branch does not always
appreciate practical suggestions, but I just wondered whether
there might not be merit in formally raising this with your EU
counterparts with a view to ensuring that where a warning needs
to be given—and hopefully warnings are given before sanctions
are imposed or it is subsequently necessary to take action—that
that is done on an EU basis involving all the Member States and
the Commission speaking with one voice because it seems to me
that the leverage you could get there would be greater and the
warning would be more likely to be heeded and therefore perhaps
the sanctions less necessary to apply. Certainly you would get
the coordination before you started with a very substantial portion
of the total donor players in that particular country in almost
any case you can think about.
Hilary Benn: I undertake to reflect
on that. As a sort of first reaction it strikes me as a sensible
way to proceed and by and large I think that is what donors try
to do. There is particular incentive for coordination and cooperation
amongst EU partners and I accept entirely the point that if donors
are able to reach a shared view then it has much more effect if
there is a single approach, a single view expressed to partner
countries when there are problems rather than a lot of different
ones.
Q64 Mr Davies: I wondered if you
raised it formally and got a formal protocol—I see Mr Lowcock
is nodding—you would obviate the danger either that some
other country gets out of line in advance and does something which
then surprised you, or alternatively you take sanctions against
some country or give a warning and some other EU country says,
"Do not worry; we'll compensate. We'll carry on and we can
give you more aid." That, of course, would negate the effect
of your action. It would mean that our actions would be much more
effective. If one were to raise the idea I cannot anticipate what
the response would be, but I have no reason to suppose that other
EU donors and indeed the Commission itself are not confronting
exactly the same kind of pragmatic problem that we face here and
have faced recently in Uganda and Ethiopia.
Hilary Benn: We certainly are.
Mr Lowcock: I think, as the Secretary
of State says, we need to reflect on this. Your proposal builds,
in fact, on two things that already happen but it does extend
them somewhat. The first thing that happens is that there are
provisions in the Cotonou Convention for what to do when there
are certain breaches of the fundamental principles. Those provisions
of course affect only the European Commission's own money. Nevertheless
there is that process and it reads across to bi-lateral flows
as well. The second thing that happens is that EU heads of mission
in a country will very, very frequently issue a collective point
of view, a statement—
Q65 Mr Davies: Often they do and
sometimes they do not, I agree. My suggestion formalises and makes
it more transparent and clearer to all concerned. I am grateful
to you for taking it on board. Perhaps I can ask another question,
a slightly different one, which is just to have on record, Secretary
of State, your response to the Norwegian initiative which has
been to fund some studies into the concept of defining illegitimate
debt with a view to writing this off. This is an interesting new
development in the development area and we would like to know
what you think about it.
Hilary Benn: I am not sure it
is funding studies. As I understand it Norway recently cancelled
some debt for failed ship export projects.
Q66 Mr Davies: I have not done any
research on this myself but my briefing tells me that the Norwegian
Government has sponsored studies currently being undertaken at
the World Bank and the United Nations into illegitimate debt.
My question to you is what is your response to that initiative?
Are we joining that initiative? Are we supporting it? Are we waiting
with interest for the results? Are we sceptical about it? Is there
anything else relevant you would like to tell us about it?
Hilary Benn: I am happy to confirm—you
are better informed than I was until a moment ago—that Norway
are funding the Bank's work. The Bank and the UN are doing some
work on this concept of odious debt and Norway is giving it some
funding. Personally I think there is a difficulty trying to define
what an odious debt is. I was discussing it with the representatives
of some of the NGOs yesterday and the example was given of lending
in the past, as I recollect, for an energy project that had not
been very successful and had not produced a lot of power. Whether
you classify that as an odious debt, to be honest I am not entirely
sure. I see there is an issue here because I do recognise that
in the past—and maybe in some cases continuing—there
has been bad lending and bad borrowing (if I may use that term),
but quite how you would quantify something called odious debt,
to be honest I do not see how you could do it. Therefore our position
at the moment is that we look with interest at what Norway has
done on the ships. We note the fact that they are funding this
and we are going to wait and see what comes out of this UN and
World Bank work and then we can reflect upon it.
Q67 Chairman: You will know that
there is some controversy about the extent to which debt relief
should be treated as ODA and I think a group of NGOs have said
that it inflates our percentage target by a significant amount.
Indeed, if you take the debt relief out this year they did not
even increase their aid at all. It is not an argument against
debt relief or indeed the issue of illegitimate and odious debt,
but do you accept that there is an issue here? If you are writing
off debt that you were not going to get back anyway and crediting
that towards your aspiration of a 0.7% target, in reality you
have not made an additional contribution to reducing poverty.
Can I anticipate your response? You are going to say that the
governments can now spend the money they would have spent on the
interest, but if they were not paying the interest anyway is that
a real test?
Hilary Benn: It is not us who
counts it this way; it is the OECD/DAC that counts it this way.
You can see the figures with the debt in it and you can see the
ODA figures without the debt in it. It is all available for people
to look at, but I do accept that depending on the pattern of debt
cancellation you can get spikes from your ODA/GNI and we are certainly
seeing that currently because of two big debt deals. Secondly,
my argument on this has always been: additional to what? How did
you know what the aid was going to be without the debt cancellation?
Thirdly, there is no doubt that the debt cancellations that we
have seen, and here we are 15 months after Gleneagles with 20
of the poorest countries—this was reported of course to
the annual meetings—all of the debts they owed to the World
Bank, the IMF and the African Development Bank have been written
off and that is real progress. When you look at how the countries
are using the benefit of that debt cancellation—because
they no longer have to service those debts—for expenditure
that is helping them to make further progress towards getting
all their children into school, improving health care and so on,
this is real progress. This argument has been going on for a very,
very long time. That is the position that I take on that question.
Q68 Hugh Bayley: At the G8 last year
climate change was a priority and I would like to explore what
seems to me to be an inconsistency between our own climate policy
with the development dimension of our climate policy. The Energy
Review which the DTI published a few months ago envisages an ambitious
five-fold increase in generation from renewables. The World Bank
puts a lot of money into energy lending but only 6% of that currently
goes on support for renewables. The Extractive Industries Review
called for a phase out of World Bank funding on fossil fuels and
an increase in funding for renewable energy by 20% annually. How
strongly committed is your department to driving that forward
and reflecting it in its own development lending?
Hilary Benn: I hope people would
feel that we are strongly committed and anyone reading the White
Paper—having seen an entire chapter devoted to natural resource
use, climate change, the impact on developing countries—would
see that reflected in what we are saying and in what we are seeking
to do. Last year the Bank more than doubled its investment in
renewables. We had a further report on progress on the energy
investment framework but the fundamental issue we know is this:
developing countries have a need for more energy. We were talking
about Uganda a moment ago and when I last met President Museveni
he listed three priorities. One was progress in the north and
the second was that they need more energy supply. China is building
one new power station every 10 days. This is happening. The issue
is that developing countries want increased energy supply. We
know we have an enormous problem with climate change; the figures
are quite stark, they are very frightening and we do not have
a lot of time left. The question is: how can we better pool together
existing Bank lending for energy? About a third of the Bank's
work is on infrastructure and a lot of that is energy. How can
we ally that with where most of the money is going to come from
for this investment—and the answer is from the private sector
together with the other regional development banks—to both
help developing countries to acquire greater energy supply (because
that is what they are going to do anyway) while at the same time
helping them to do that in a way which is cleaner while in time
we will try to get to a position where energy supply in the world
is clean and we can cope with the CO2 emissions without raising
the temperature to an unsustainable level. This is a huge challenge.
When Nick Stern's report is published in the near future it is
going to lay this all out in pretty stark terms. We have to understand
where developing countries are coming from and if the Bank were
to say that from now on they were not going to lend for any of
that and countries say they have coal and gas and they are going
to draw on that because that is the easiest resource they have
in the short term to get energy supplies up, we are going to be
passing each other in the night. The question is how do we ally
what the Bank is trying to do to support other types of investment
and to work with developing countries which themselves are becoming
more aware. This is a process of change that we are all going
through, including our own country, in order to ensure that we
can both meet the needs for energy (there are 1.6 million people
who do not have access to energy at all and that is essential
for development) but at the same time be able to make rapid and
fast progress when dealing with the problem of unacceptable levels
of CO2 emission.
Q69 Hugh Bayley: Can I broaden to
infrastructure more generally? The Commission for Africa identified
the need for an additional US$20 billion a year to be spent in
Africa on infrastructure and there has always been an assumption
that a large proportion of that finance will come from the private
sector. We noted in our Private Sector Development Report
that the priorities of the private sector may not be poverty reduction—that
may be a bi-product but that is not going to be their core focus—and
within the energy field there may not be investment in renewables
because generation from renewables is usually less cost effective
than generating from fossil fuels. Does your Department think
that we have the right balance of investment between the private
sector and government funding for the growth in investment in
infrastructure in Africa? Do we have the right level of involvement
from local African private sector partners? How do you ensure
that this infrastructure is infrastructure which will lead to
the poverty reduction that we wish to see in Africa?
Hilary Benn: I think the first
thing to say is that one of the things that came out of the Commission
for Africa Report was the Infrastructure Consortium for Africa
and we played, as you know, Mr Bayley, a really important role
in getting that up and running. I can tell the Committee that
since it was inaugurated in October 2005 eleven regional infrastructure
projects have been funded to the total value of 765 million dollars.
Thirteen studies to develop new projects have been funded; 7.9
million dollars have been put into those studies. Sixty-one projects
have been funded at country level worth 3.5 billion dollars. What
the Infrastructure Consortium was about was trying to pull together
a number of the different players in this field to say, "Come
on folks, how are we going to work more effectively together to
meet the needs that have been identified in the face of sub-Saharan
Africa by the countries themselves?" That is the first point.
The second point is that it is for the countries themselves to
determine what their priorities are. One of the things I know
that Don Kaberuka at the African Development Bank has been working
on is trying to make sure that the Bank's money could be shifted
more quickly to support infrastructure projects because frankly,
as you know, it has had problems in the past in getting the money
out of the door. You might as well get the money you have out
of the door more effectively because then you are in a better
position to argue for more cash to make further progress. The
third thing I would say is that in some areas of infrastructure
one sees the private sector investment coming. I think mobile
telephony is a really good example of that because there is absolutely
no doubt that the investment is coming to Africa (there are three
times as many mobile phones in Africa as fixed landlines, skipping
a generation of technology); it is the fastest growing market
in the world and there is no doubt that mobile telephony is helping
economic activity. For all the reasons that we have discussed
before, it enables people to do business more effectively. There
are areas where the private sector investment is coming; there
are others—one thinks particularly of roads and other transport
infrastructure—where money from the Bank and the European
Union and others is going to have to help make a difference, but
it is for the countries themselves to determine what the priorities
are.
Mr Lowcock: The latest figures
we have seen indicate that there is a growth in investment in
Africa and infrastructure both, in fact, from the private and
the public sector. The Bank's own infrastructure lending—this
is not just Africa but in total and it reflects an African growth
as well—has increased from 5.4 billion dollars in 2003 to
7.3 billion dollars in 2005. That is largely public sector obviously
but there is a lot also on the private sector side. It must still
be the case though that that rate of growth needs to increase
if we are going to meet the kinds of needs that African countries
legitimately have.
Q70 Hugh Bayley: Could I ask a final
question about progress with the IFFIm[9]
and what the Treasury sees as the timescale for launching a fully-fledged,
generalised IFF[10]?
Hilary Benn: On IFFIm I think
we are pretty close to the issuing of the bonds. I was at an event
last week for investors who were coming along to look at the proposal
with a view to encouraging them to subscribe to the bonds. I would
say on the bigger IFF, why IFFIm is so important is because it
is just about to demonstrate that the model works. You put the
key in the IFF engine, you turn it and, lo and behold, you can
raise funds for development, in this case the hugely important
cause of vaccinating in the next 10 years five million children,
saving their lives. It is absolutely right and proper to go for
IFFIm as a way of demonstrating that this works because then that
means we can continue to keep up the argument with others: if
we can do that for vaccination and immunisation, why can we not
do that for other things as well?
Mr Bowman: That is exactly right.
On the IFF for Immunisation the legal framework documents are
all in place; everything is now ready to go. What is happening
at the moment is that a series of road show events are happening
with investors, discussing the bond and there will be a launch
of the bond in the next few weeks. A date has not been set yet
but it will be in the next few weeks. Clearly once this is up
and running it is all about proving the concept and going out
to people to show them that this works as a model and it is a
mechanism for front loading resources which can be used to immunise
children pretty much straightaway.
Q71 Hugh Bayley: I wish you well
but how long will it take for a successful IFFIm to create the
confidence in the market to launch a fully fledged model? Are
you talking about a couple of years?
Mr Bowman: There will be very
real demonstrational effects very soon. The bonds will be launched
in the next few weeks. The resources will then come in and be
dispersed and on the ground children will be vaccinated very soon.
We will be able to demonstrate that a very significant amount
of resources have been front loaded and are actually having a
real impact on the ground. We are not talking two years; we are
talking the next month in terms of actual, real, concrete front-loaded
activity on the ground.
Q72 Hugh Bayley: So you could be
selling bonds—making a bond offer—for the generalised
IFFIm this time next year.
Hilary Benn: You mean the IFF
proper?
Q73 Hugh Bayley: The generic IFF,
yes.
Hilary Benn: It all depends on
how many countries are prepared to come in for the IFF proper.
We have a group of countries, as you know, who have supported
IFFIm and I think we will be in an even stronger position to argue
the case but I cannot say what the reaction of other potential
partners is going to be as to whether they are prepared to come
on board for the bigger IFF. Undoubtedly, as Mark says, we will
be able to point to the model at work, in this case saving children's
lives.
Q74 John Battle: You mentioned technology
and the internet. I seem to remember 20 years ago a report suggesting
that the key to India getting out of poverty and becoming a middle
income country was actually technology in the form of the aeroplane,
internal air flights and external connections, international travel.
I just wondered in terms of climate change and the environment
policies, I think I read in the corner of the White Paper that
DFID is committed to supporting an air travel levy (which is a
little bit like the rejigging of the Tobin tax, a way of raising
extra ODA funding) and I want to know if I have read that correctly.
I particularly want to ask whether there has been any estimate
or any work done on the implications not only of a levy for ODA
but if we did have a carbon tax on travel and transport what would
be the effect on trade for Africa given, for example, that Kenya
sends its flowers every day to Europe? If we tax it will there
be compensation? I am not saying we do not do it; I am asking
do we think it out. Even representatives of poorer countries coming
to meetings of the World Bank and the IMF, if they are all in
the north how can they get there if they cannot afford the air
fare because we have put two lots of levy on them? Have we thought
that through and re-thought how we enable the countries—particularly
in Africa that are locked out of trade at the moment—will
be unable to join in if we actually decide to claw back on air
travel?
Hilary Benn: The UK does, as you
know Mr Battle, have an air passenger levy and I think that is
the reference in the White Paper that you were talking about.
There is a real dilemma here and you have just expressed it because
for countries like Kenya, Ethiopia (which is now into the same
sort of market), Zambia (with green beans that turn up in our
supermarkets) this is one of the ways those countries are participating
in the global economy and yes they look on air freight to get
things here fresh and in time so that we can buy them. Yet we
know we also have a fundamental problem with climate change. The
big political challenge that we have is: how can we continue to
create some space for developing countries to develop—in
the process of that there will be some CO2 emissions—while
keeping within the earth's total capacity to cope with CO2 emissions?
That is why a stabilisation target is what is required. You have
to decide first of all what you think you can manage with. You
know what the carbon sinks are going to take away, natural or
artificial. You then know how much—I always think of it
in terms of a bath tub—water comes in to stop the bath overflowing.
That, in essence, is the problem that we have. That is going to
require us, in the rich developed world—who have used much
more than our fair share of resources—to significantly reduce
our CO2 emissions to provide a bit of space. You are right; so
much of the world economy is now dependent on air travel. How
we are going to make that transition, how we can make air travel
reduce the CO2 impact may be partly technology, it is partly going
to be about a fairer distribution of resources. You are right;
it is an absolutely fundamental question that we face in trying
to tackle climate change.
Q75 Ann McKechin: Secretary of State,
I wonder if I could just tease out a little bit further this question
about investment and infrastructure. Mr Lowcock indicated that
really the rate of increase had to go rapidly upwards if we are
going to actually achieve the Millennium Development Goals. A
comment was made to me last week by the Rwandan Ambassador (he
is representative of a poor and small nation, as we know) who
said, "The thing we need the most is investment in infrastructure.
However, under the current IMF rules we are limited in how much
we are allowed to borrow. We are restricted in terms of availability
of grants and borrowing for infrastructure. Most of the aid which
we receive from our donors is concentrated on public services
such as education and health rather than investment in transport
and industry." The information as I understand it is that
the IMF increasingly wishes to move away from this kind of PRSP
structure and not be bound by it. I am really trying to tease
out what is the current interface between the World Bank conditionalities
of their own (grants and loans) and that of the economic controls
maintained by the IMF under the PRSP structure as I understand
it, and whether or not they are really cohesive, if we are talking
about trying to massively increase investment in infrastructure.
Hilary Benn: This really goes
back to the point that Mr Davies was pursuing at the beginning
of this session. All countries in the end are going to have to
make choices on how they are going to spend the resources they
have, the resources they raise themselves, the resources that
they get from the Bank, the Fund and donors. There is always going
to be a finite limit. That is the first thing that we have to
acknowledge. Secondly there are choices for the countries to make
within that total as to how they are going to spend it. Thirdly,
for some of this investment—I gave one example a moment
ago in relation to communication technology—the climate
that the country itself creates for investment for business (Mr
Davies gave two really important examples of that) can make a
difference. It is not just a question of the money because if
you create the right climate and that encourages people to come
in and invest, then they know we are willing to pick up some of
the costs of infrastructure.
Mr Lowcock: On the specific point
you raise about whether what the IMF says to countries really
makes all this much more difficult, the Managing Director of the
IMF, Mr de Rato, has been looking at this himself and made what
I think is quite an important speech covering this amongst other
topics on the Fund's role in low income countries at the end of
July. He did commit them to being much more pro-active in helping
countries deal with and absorb growing aid resources in a way
which sometimes in the past the Fund has been very cautious about.
Of course a lot depends on the terms. The Fund is right to advise
countries to worry about a re-building up of debt. If the Gleneagles
commitments on aid growth are achieved then many countries would
choose to spend more on infrastructure. Much of that ought to
be in grant form so should not be a problem.
Q76 James Duddridge: Coming back
to something Mr Lowcock said in terms of investment in Africa,
both public and private sector, increasing year on year, I would
certainly find it helpful if you could provide us with some figures
of where that money is coming from and where it is going to both
in terms of geography and also sector.
Hilary Benn: I will happily do
that[11].
Q77 Chairman: Can I just say, to
go back to where we started on the £50 million and the conditionality,
obviously we will look forward with interest to the point at which
first of all I guess the Bank produces their details and that
you respond. I would have thought that if you feel you have achieved
things you will be happy to come to the House and explain them.
I think a statement would be good if we cannot have a debate.
Hilary Benn: I am always happy
to come to the House.
Chairman: Thank you all very much for
coming here today.
9 International Finance Facility for Immunisation (IFFIm). Back
10
International Finance Facility. Back
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