Examination of Witnesses (Questions 92
- 99)
TUESDAY 21 MARCH 2006
MR RICHARD
LAING
Q92 Chairman: Mr Laing, thank you
very much for agreeing to give evidence to us. You obviously heard
the previous evidence session. The Committee has met with you
in the past. It is interesting that in the article that you had
in The Guardian on 22 February[10],
which interestingly enough for us related to Mozambique, you make
the point that investing in the Maputo Corridor toll road—we
were looking at roads and railways there—has reduced costs
to the local community, but it does raise the question of how
you identify projects that reduce poverty and the extent to which
you are doing things that would not otherwise happen because would
not other people have invested in the Maputo Corridor if CDC had
not done so? I wonder if you could identify the extent to which
your strategy is targeted at reducing poverty, whether it is by
going for low income countries, or identifying poverty in other
countries, and also how you relate to other investors in terms
of stimulating the private sector. As you are a public corporation
accountable to DFID what we really need to know is what do you
do that the private sector or the aid community cannot do?
Mr Laing: Chairman, it may be
worth explaining how we do what we do to get to the answer to
your question. To remind the Committee, we are fully owned by
government. We now have about £1.5 billion worth of assets.
Earlier the split of CDC into two entities was mentioned; that
is CDC remaining with the assets owned 100% by government and
the creation of a fund management company called Actis, which
takes our capital and other people's capital and they then manage
that money and they do the individual investments. We are now
putting our money with them and with other fund managers as well.
We now have a total of about 17 fund managers; that is people
where we allocate capital to them and they will then go and do
the individual investments. The question therefore, to answer
your question, is how do we allocate that capital and how do we
make sure that that capital is going to places in the world where
there is a shortage of capital? The answer is that we will select
funds and fund managers to manage our money on our behalf in areas
where we feel there is a need. The first target we have been given
by our shareholder—we are 100% owned by DFID—is that
70% of our investments have to go in the very poor countries of
the world.
Q93 Chairman: That is your own target?
Mr Laing: I would say it is a
non-negotiable target in that we will ensure that that does happen.
Our definition of poor countries is those with a GNI per head
of less than US$1,750. There is a second test which is that 50%
of our investments, again over a five year rolling period, must
go into sub-Saharan Africa and South Asia. That way we allocate
our capital to those parts of the world where it is most needed.
Secondly, this new structure we have is that we are now able to
choose sectors where we feel there is a particular need for capital.
For example, in the last 12 months we have allocated capital to
companies who manage our capital on our behalf involved in microfinance;
into agribusiness—last month we finalised terms of a US$75
million sub-Saharan Africa agribusiness investments—black
empowerment in South Africa—we have closed in the last year
two funds involved in black empowerment—and also small and
medium enterprises (SMEs) where we have a specific target to get
capital to work in SMEs.
Q94 Chairman: You have explained
the anti-poverty strategy but, for example, taking the Maputo
Corridor, what do you do that other people will not do when you
are operating? We have identified that you put into those countries
the majority of the money, but what do you do?
Mr Laing: What we do is provide
the capital and in a sense that is all we do. We will provide
capital to teams of people on the ground. We will identify those
areas which I have just outlined where we feel there is a need
for capital. It will then be up to the individual manager of that
capital to decide which individual projects to go into. Clearly
if we said that we want this to be an agribusiness fund, then
all those projects, by definition, will be in agribusiness, but
we, based in London, do not get involved in the individual projects
other than monitoring them.
Q95 John Battle: I have a sense of
the structure now post-restructuring, but the CDC has been going
a long time as well and it is not too far removed from what the
original intention was back in the 1960s and that notion of trying
a thin string and then a thicker string of investors will follow
in. Could you give me any specific examples of countries? You
mentioned the new ideas of black empowerment and agribusiness,
but examples where CDC has pioneered the investment, got the structure
up and running on your terms, but then other investors have followed
after and you have been able to move away. Have you any examples?
Mr Laing: I will use the small
and medium enterprise as one of the top examples. The entity that
manages our capital is a company called Aureos, which we will
have a 50% shareholding in. That has a series of teams of people
around the world running SME funds in Africa and in Latin America.
We have recently committed US$20 million to a fund in India and
South East Asia, the Pacific Islands and so forth. Since 1 January
2003—for the last three years—they have raised a total
of US$145 million in addition to our capital of a similar amount.
By starting with them seeding a fund that gives a kick-start,
they can then go out to other providers of capital and say CDC
is here—and let us use South Asia as an example, the India
fund—they have committed US$20 million, this fund will work.
We are now able to build the team up, we have recruited the team,
why do you not come and join us? The seeding of that fund enables
other people to say yes, this is real, and they will commit capital.
Alongside our capital others will follow.
Q96 John Battle: Will follow or have
followed? Has it happened yet in India?
Mr Laing: Yes. The chief executive
of the Norwegian Development Finance Institution came to see me
yesterday and confirmed that his institution would be committing
initially US$10 million and then a further US$10 million in the
future. I know there are discussions going on with local financial
institutions, some of which are ready to sign up.
Q97 Joan Ruddock: I am a little confused
because what you are saying is that things are going very well
and that you are doing lots of things, but we have been given
information saying that the number of people employed by firms
managed by CDC has fallen from 34,000 in 1999 to around 17,000
today. Is that because money is going to other bodies who are
then doing the management and so you have actually taken yourself
out of management?
Mr Laing: That is right. CDC today
consists of 28 people. CDC three years ago consisted of about
300 people and they would manage the individual projects and there
would be direct investments that we would make into those projects
run by those 300 people. The new model is exactly as we say; we
have now created two fund managers who will manage our capital
and we are investing with others and the investments are now run
by those fund managers and those investments, that is where the
people being employed are. The people are still being employed;
it is just not directly by us and not subsidiaries of ours any
more because they are investments of those separate pools of capital,
the funds that we have invested in.
Q98 Joan Ruddock: Are you confident
that with that new arms-length you can still deliver to the poorest
people and you can still create the employment, which has to be
the major aim of this exercise, does it not?
Mr Laing: I agree, it does, and
in a sense I am more confident. The original model back in 1997,
when the Prime Minister announced that CDC would become a PPP[11],
was that shares in CDC would be sold and that CDC as a whole would
remain and we would sell shares in that. The implication of that
was that we were going to have to provide very high returns for
those new shareholders. The advantage of the current structure
where we are still owned by government is that we are less return-sensitive
and we can direct capital to those areas where maybe we will not
maximise our return, but we will see the capital go to areas where
we think it is necessary. The examples I have given, such as microfinance,
agribusiness, SMEs, we are now doing more of that than we would
have done under the old privatisation-type structure.
Q99 Joan Ruddock: We have also been
told that your involvement in agriculture has fallen from 18%
of portfolio five years ago to 10% now. Is there a similar explanation
as to why that is the case?
Mr Laing: It is true that our
exposure to agriculture fell. One of the reasons was that returns
on agribusiness were quite low. I also said that we have just
this year committed US$75 million to agribusiness because we recognise
that that is a very important area to be in. We are now able to
reverse that pure emphasis on returns to emphasis on certainly
returns are vital—we must make profits, we must do this
sustainably—but also put capital to work in places where
there is a lack of capital.
10 "The rich get richer, but so do the poor",
The Guardian, 22 February 2006. Back
11
Public-Private Partnership. Back
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