Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 1-19)

RT HON HILARY BENN MP, MR GRAHAM STEGMANN AND MS MELANIE SPEIGHT

19 JULY 2005

  Q1 Chairman: Good morning. Thank you very much indeed for coming to give evidence to us at our first evidence session of the new parliament. We very much appreciate your being here and the circumstances in which you are here, after a generally regarded successful G8 Summit. I wonder, first of all, if you would introduce your team; and then you might want to make a brief opening statement to set the scene on the G8 situation and then we will move into questions.

  Hilary Benn: Thank you very much indeed. Can I introduce, on my right, Graham Stegmann, who heads our 2005 Unit; and, on my left, Melanie Speight from the Unit. To be honest, I would be very happy to go straight into questions, if that is all right with the Committee. I had not come prepared to say anything by way of introduction because I am sure we will want to get into the issues pretty quickly. There is a lot to talk about after what has been a very interesting and, I think, a significant G8 process that has certainly moved us forward; but there is a lot to do.

  Q2  Chairman: If that is all right with you, let us go straight into questions. What the statement has said is "100% debt relief". However, this is not quite true, is it, because it is not 100% for all countries; it is 100% for agreed countries and then the queue is coming down the track. First of all, could you elaborate on who is getting 100% debt relief; what is the process for that; and how the other countries that are not yet qualifying can do so?

  Hilary Benn: First of all, to say it relates to multilateral debt owed to the World Bank, the IMF and the African Development Bank. It is 100% debt cancellation for those that are eligible to participate. There are 14 African countries that will benefit immediately because they have reached HIPC[1] completion point, so it will flow. Subject to the IMF and the World Bank meetings in the autumn sorting out the details, that first group of countries benefits straight away; and then there are others in the queue waiting to come. It flows from having completed the HIPC process. As far as how it is going to work technically and the funding of it is concerned: stage one is that the new loans and grants to the eligible countries are reduced by the equivalent amount to the debt service that they are no longer going to be having to pay; secondly, donors then provide additional resources (because that was the key to getting this agreement in the G7 Finance Ministers). As you will know, Chairman, there were really three camps: those who wanted multilateral debt cancellation, but did not want to put any more money into it; those who wanted it and were prepared to put more money into it—and the UK was part of that camp, because we had started doing that from 1 January with our multilateral debt service relief arrangement; and then a third group of countries that were not wholly convinced of the argument for a comprehensive approach. It was getting agreement that we would put in additional resources to make this happen (so we were not just taking the money out of existing aid flows) that was the key to reaching that agreement. Therefore, in putting in the additional resources they would then be distributed to all World Bank, IDA and African Development Fund recipients. In other words, poor countries that are not themselves receiving the benefit of the debt cancellation will also benefit from the additional resources that are made available. That is the way it is going to work.

  Q3 Chairman: It is quite complicated, so can you explain the difference between debt relief and aid, and what is additional within that context?

  Hilary Benn: What is additional is the commitment of countries to put in additional funding to make sure that the money that would otherwise be available to those multilateral institutions was not just drawn upon to fund the debt cancellation, because then we would have been taking out of the existing resources and we would not have put more money in. That was the very clear position we took. That is the first point. The second point is, obviously the agreement on aid that has been reached really received a very significant boost when, as EU Development Ministers, we met in May and agreed the new ODA GNI target; and that, I think, really gave the process very significant momentum. As a result, we have ended up through the G8 process, according to the OECD DAC, with commitments to increase total global aid by $50 billion by 2010, of which half is going to go to Africa—which is $25 billion—and that is the sum by 2010 which the Commission for Africa recommended was needed. That money will be available for a whole raft of things which no doubt we will come onto later.

  Q4  Richard Burden: My question is about the debt/aid relationship. I understand what is being said there but one of the points which has been made is if debt relief is given there, potential aid is reduced to then be put back in via the multilateral institutions. That process of putting it back in via the multilateral institutions may then dilute where that aid goes. How can we ensure that it is additional in the right place?

  Hilary Benn: I would not say it dilutes it, because it spreads it. In a sense it goes back to the original question, Chairman, that there are certain countries which benefit (14 African countries immediately) from the multilateral debt cancellation agreement; 38 countries are potentially eligible in total, depending on how they come through the HIPC process, and 32 of those are African countries; but the way that this is being funded means that other countries, in addition to those that get the multilateral debt cancellation, are going to benefit from the additional resources countries have said they will put into it.

  Q5  Chairman: Can I raise an issue that ran over the weekend in some of the media, and you did mention it in your response to me at the beginning—subject to the tidying up by the institutions in the autumn. We saw an initiative led by the Belgians basically saying that they wanted strict controls over the 18 countries, and that the IMF should have the right to approve key economic policies, which implied some additional conditions. This was interpreted by some of the campaigners as being a dilution of the agreement of the G8. Is that in fact the case; or can you explain what this Belgium initiative is; where it stands; and how you will deal with it?

  Hilary Benn: I cannot explain what the Belgium initiative is; the Belgians will have to answer for that. Our view is very, very clear: the G8 have reached an agreement. Insofar as we are talking about conditionality—and that is, of course, one of the issues that has been raised, the HIPC process has its own conditionalities (as we are aware) within it—once countries have reached HIPC completion point then they are eligible to benefit from this new multilateral debt cancellation agreement. I am not in favour of further burdensome conditionality being applied to countries; but everyone wants to be sure that the debt relief and the debt cancellation that this agreement is going to bring, is used for the purposes of poverty reduction. The HIPC framework has within it ways of ensuring that that is the case. I think we should stick with that. I myself and the UK would not be in favour of any dilution of that. If, when we get to the World Bank meetings in the autumn, others bring proposals which run contrary to what has been agreed then we shall make our views very clear.

  Q6  Chairman: To pick up that exchange of views that appeared in the media, some people were saying this could be a dilution. We have an agreement; it could be undermined. The argument that seems to run is that the G8 countries clearly, if they are all agreed, will stand by it; but I understand it takes 15% objections to modify it. What I am really asking you is: is there a danger that qualification be asked? I have a comment, this is Willy Kiekens who says, "Under my proposal if a new type of PRGF[2] programme goes off track the expected grants would not be made available". He is clearly saying this 100% debt relief could be clawed back if certain conditions were not met.

  Hilary Benn: As I say, if other countries that have not been party to the agreement that has been reached so far bring proposals to the table at the World Bank annual meeting then we are going to have to argue it out. I have tried to make clear this morning what my view is about how we should proceed on this. There having been this very strong political commitment on the part of the G8 to make progress, it is very important that the world together delivers what it is we have promised.

  Q7  Chairman: You are sure that the other seven will back you up at least?

  Hilary Benn: The heads of government, the heads of state, signed the G8 Communiqué, and that is the clear and settled view of the G8. We now have to take that into discussions that will take place in the autumn.

  Q8  Hugh Bayley: I would like the Secretary of State to focus on the outcome on poverty reduction. Is it the case, in your view, that a doubling of aid will double the rate at which poverty is reduced? Is there the absorptive capacity in Africa to use twice as much aid, as well as the existing amount of aid? Where are the examples which show that aid is used? If there are problems with absorptive capacity what will your Department be doing to enable recipient countries in Africa to develop their capacity to use aid more effectively?

  Hilary Benn: As you know, Mr Bayley, there is not a straight causal link between the quantity of aid which is committed and the progress; but, undoubtedly, there are countries which currently lack the means to get all of their children into school, to buy the drugs that will treat people who have AIDS, TB, malaria or other diseases from which they die. One has to look at what was agreed as far as aid is concerned at Gleneagles in the context of the overall package: because we know that without progress on peace and security, governance, building capacity, ability to trade, access to world markets, economic development, debt relief and aid, without progress on all of those Africa is not going to meet the Millennium Development Goals (MDGs). Part of the answer to your question is: what are we going to do about the question of capacity, including absorptive capacity? I think there is absorptive capacity. Part of what we have to do is to help the countries of Africa to build that capacity. That is why I welcome so much, in the wake of the Commission for Africa report, the debate there has been about governance and capacity. I think it has been the most striking thing, because we have moved beyond just talking about aid. If the quantity of aid was the solution alone—if we could raise the money we could fix the problem; and it is not as simple as that as we know. Does aid work? Undoubtedly it does used in the right way. There are many examples of that: in Kenya where aid helped to pay for the abolition of school fees and they have got a million more children in school there: progress has been made in Tanzania and Rwanda; there is nearly a doubling in the number of people who attend primary health clinics in Uganda after they abolished the user fees. It is a combination, it seems to me, of using those resources—to support African countries in the context of the $25 billion, and other developing countries in the context of the rest of the money—to meet the needs of their people but, at the same time, to help them to build their capacity to spend their own resources and the money which the world is making available effectively. It is going to be a big task, because we are moving from a world in which we have $79 billion in aid to, by 2010, a world where there is $129 billion in aid. This is a very big step up. Working together, we have got to make sure we use the money effectively so that in the end it does change people's lives, and we are able to make the kind of progress towards achieving the MDGs that currently we are not seeing, particularly in sub-Saharan Africa.

  Q9  Hugh Bayley: After quite some years of emphasis on basic social needs, on health and education, the Commission for Africa report surprised some people and broke with tradition by laying greater emphasis once again on investment and infrastructure. I would be interested to know where those ideas came from. Of course, ministers in Africa, as elsewhere, like opening new roads, airports, ports and buildings—but what is it that convinced the Commission that investing in infrastructure was the key to higher growth? What does that mean for your Department's staff? Are you going to be taking on a lot more engineers? What will the mix of public sector donor money and private sector pilot investment be in the 10 billion extra of aid or investment in infrastructure each year between now and 2010, and the 20 billion thereafter which the Commission for Africa was talking about?

  Hilary Benn: In one sense I think President Wade of Senegal deserves credit and praise because I think he produced the original Omega Plan. We went through a period where, to be honest, it became a little bit fashionable to say, "Hey, the private sector will deal with all of the infrastructure". For some parts of the infrastructure in Africa that is the case. Mobile telephony is a really good example of that. The fact is mobile telephony has extended across Africa pretty quickly. People can make money. In a sense, it is a generational shift in the technology. It is bringing access to a telephone to people in some remote rural areas who might rent a phone for a minute and a farmer will ring up the local market, which may be ten miles away, to see what the prices are like today; and then he or she can decide whether they are going to take their goods today or wait until next week. There I think it is getting on with it. There are other aspects of infrastructure—the road and transport system—where the high cost of moving goods around in Africa is undoubtedly a bar to economic activity. There are many striking statistics in the Commission for Africa report but there are two parts I remember in particular: one is the description that it costs $1,500 to move a car from Japan to Abidjan, and then $5,000 to move the same car from Abidjan to Addis Ababa across the continent. When I was in Ethiopia last year the reason why farmers in Wollo find it very hard to improve their land is because fertiliser is so expensive. What is one of the big reasons why fertiliser is so expensive: because of the cost of transporting it. The other point made in the Commission for Africa report is, if you look at the historical legacy as far as transport infrastructure is concerned (and it does not quite fit because they are not the same shape), you lay a map of India over a map of Africa and the transport connections in India connect the country; in Africa, historically, they were built to take raw materials to the coast and away. Which is why businessmen in West Africa (and I met a group when I was there not long ago) complain that it is often quicker, if you want to travel across West Africa, to get on a plane, go to Europe, change planes and come back again. Those are all examples of how the lack of infrastructure gets in the way of economic activity. How is the money going to be spent? The African Development Bank has a big responsibility here. One of its problems, frankly, has been that it has been a bit slow in spending the money it has got already—partly because of its own internal procedures, capacity and procurement systems—but also because they are trying to do projects that involve more than one country, to reach agreement. There is a process of reform which is taking place within the ADB that is taking steps to improve that. I think we have some way yet to go. I think the other thing I would say is that it is really for the countries of Africa, through the structures they are setting up (and NEPAD[3] is doing work on this), to identify what the priorities are. The final point I would make is, there are yet other types of infrastructure, the most fundamental of which is water. Since almost all of the growth in population in Africa, as well as in the developed world, is going to be in towns and cities over the next 25 years, the need for water pipes, sanitation, schools and hospitals is going to be enormous. That is why one of the things I did on World Water Day was to say that over the next few years we are going to double our investment in water. Frankly, developing countries (and certainly in Africa) have been spending less on water in the last decade or so; donors have been spending less on water. We are now in the process of reversing that trend and I, for one, welcome that enormously because you cannot live without it.

  Q10 Hugh Bayley: In relation to water, can you say a little more about the balance between private and public sector funding? There has been a lot of NGO criticism of private investment in water schemes. Are there similar considerations in relation to, say, roads; or is there something special about water?

  Hilary Benn: Water is clearly more politically sensitive. In the end I do not think we should be detained for a millisecond by an ideological argument about how you do it. In the end what I am interested in, and what I think everybody else is interested in, is: what works? How do we get more clean water to more people? The evidence on bringing in the private sector is quite mixed. In some cases it has not worked at all; in other cases it has been successful. There is a lot of misinformation in this debate, I have to say. If you want to talk about water in Tanzania or you want to talk about water in Ghana, the best people to have the conversation with are President Mkapa and President Kufuor because they will tell you why they have taken the decisions they have. This notion that is about, that somehow the nasty old donors are currently twisting people's arms up behind their backs to say, "You must do this", does not actually reflect the truth. In Ghana they are bringing in the private sector to manage the water supply (they are not privatising because they are retaining ownership of the assets) because they lose a lot of water through leakage (a problem not unknown to us here in the UK and other countries) so they want to repair some of those, and they want to improve the production of water at the top end of the system. As I saw for myself in Nima when I was there last year, the people who really pay through the nose for water are those who buy from that bit of the private sector that sells it in plastic bags and buckets; and last year in Nima I was told they paid five to six times as much per litre of water if you bought it through that bit of the private sector than if you got it through the leaky, creaky water supply system—for those who are lucky enough to have access to taps. It is a really big complex problem. The investment has to come from somewhere. I do not think the private sector is going to provide a huge amount of it because, rather like roads and other bits of infrastructure, we went through a period in the 1990s when people said, "The private sector will do all of this", and that is not actually the truth. What works? What is going to be successful in doing this? That is what we should be interested in and not, in my view, a rather sterile ideological debate, if I may say so.

  Q11  Mr Davies: First of all, can I just ask you, Secretary of State, for the greater clarity of everybody, to quantify what you were saying earlier about debt relief, and the increase in resources for aid. We have agreed at the G8 that there should be $48 billion more of aid by 2010 in relation to the 2004 figure. We have also agreed on the debt relief programme. You have said that a large amount of that $48 billion is being budgeted to pay for the debt relief. How much of that $48 billion is being budgeted to cover the cost of the debt relief? How much is resources additional to that, either for the countries that are also benefiting from the debt relief or for those other countries which you referred to who get no money and can expect no money from debt relief but may benefit from the second part of the additional resources? Can we just see how those additional resources are split between those two areas?

  Hilary Benn: There is a lot of information contained in that question and it might be helpful if I were to give the Committee a note[4].

  Q12 Mr Davies: It is actually a very simple question. It is a sort of A plus B equals C type of question.

  Hilary Benn: Indeed. I can tell you in relation to the UK, if that is helpful, what we think it is going to cost in terms of additional contribution. We think that by 2007/8 it will be between $130-$150 million dollars in that year. In the period up to 2015 it will be between $0.7-$1 billion from the UK.

  Q13  Mr Davies: That is the total of new resources or the total of debt relief?

  Hilary Benn: That is what the cost will be to us of this debt relief. We had already made provision in the spending review settlement last year as you will be aware—because that is where we got the resources from for the multilateral debt relief initiative that started in January before the summit agreed this funding. The money will come out of what is a rising UK aid budget so by definition that is additional.

  Q14  Mr Davies: What I want to know is: what proportion of the rising aid budget is being pre-empted by the commitment to pay for the debt relief?

  Hilary Benn: In 2007/8 you have got $130-$150 million, which is about £80 million; and our aid budget in 2007/8, from memory, is going to be about 5.3 billion in total, and this year it is about 4.5 billion. I will give you a calculation as to precisely what proportion it is, but you can see that we have, more than enough, made additional resources available to provide for this and the other things we are seeking to do out of our rising aid budget.

  Q15  Mr Davies: Globally, in broad brush terms, have you any idea of the proportion of the $48 billion incremental aid that will be taken up by the burden of paying for the debt relief?

  Hilary Benn: About just under 10% we think.

  Q16  Mr Davies: The debt relief itself will obviously relieve the benefiting countries from their present debt service burdens to the tune, I believe, of about a billion dollars a year. That is an additional billion dollars a year of cash flow available to them. It will result in a corresponding reduction in entitlements to aid programmes, as we understand. Is there any conditionality, however, attached to that $1 billion of the kind that would have been attached to an equivalent amount of current aid programmes? Or is that going to be free cash flow which, if they want to, they can spend any way they want on arms, on prestige projects, or anything of that kind?

  Hilary Benn: In order to qualify for the multilateral debt cancellation agreement countries have to have reached HIPC completion point. In order to reach HIPC completion point countries have to meet the conditions relating to governance, have a poverty reduction plan, and whatever conditions are put in place by the IMF or the World Bank as part of that.

  Q17  Mr Davies: That is to qualify in the first place. Once they have got the money on a continuing basis they are going to be, in aggregate, roughly $1 billion a year better off. Are there any conditions being applied to that $1 billion of incremental cash flow; or, effectively, can they spend it as they will, even on policies that we would regard as being perverse or wasteful?

  Hilary Benn: The conditions that apply to the HIPC process, and conditions of receiving facilities, PRGFs or PRSCs[5] from the World Bank and the IMF, continue to apply as part of that. These are running in parallel.

  Q18 Mr Davies: They will apply not just retrospectively—to the point at which you qualify under the HIPC rules—they will apply prospectively indefinitely in the future, so long as those countries continue to gain incremental cash flows as the result of having benefited from debt relief?

  Hilary Benn: It is the same conditionality that relates to what they were required to do in relation to HIPC, which I hope will give people reassurance that we are able to say, and people are able to see, that the resources made available are used for the purposes of reducing poverty. That is the whole purpose of doing the debt cancellation in the first place.

  Q19  Mr Davies: Can I just ask you a question about conditionality in general. You were saying just now, and very rightly so, that the main effort in combating poverty has to be made by the beneficiary countries themselves?

  Hilary Benn: Yes.


1   Heavily Indebted Poor Countries Back

2   Poverty Reduction and Growth Facility Back

3   New Partnership for Africa's Development. Back

4   Ev 40 Back

5   Poverty Reduction Support Credits Back


 
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