Examination of Witnesses (Questions 280
- 299)
TUESDAY 9 MAY 2006
MR BOB
FITCH AND
MS ANN
GRANT
Q280 Ann McKechin: The current fashion
for donor strategy at the moment in private sector development
seems to centre on investment climate work, and I am trying to
get some indication of what the relative importance is of the
financial sector development as part of that, and how you would
attach the same significance to financial sector development as
you would to corporate governance or infrastructure development,
because all of this is very key to current thinking in DFID.
Mr Fitch: I would not even like
to tackle the issue of which is more important. We have to accept
they are all extremely important elements of the same approach
and integration is often the key, I think, to making these things
work and perhaps one of the weaknesses, the integration between
those different aspects of an economic development programme is
lacking. The financial services and the development of it is essential
but I think we have to be clear, or at least my own view is that
financial services are not the driver of development; they are
an enabler. The fact that people can get money is going to enable
their development but it should not necessarily be seen as the
driving feature of their development. Other things should be driving
development and financial services should be empowered to respond
to whatever kind of commercial opportunity arises.
Q281 Ann McKechin: So it is a secondary
line of development?
Mr Fitch: Yes. I think this whole
issue of sequencing is extremely important. When we look at the
private sector engagement in development, there are some sectors
you could identify where there is potential for systemic change
in developing countries, and financial services is one of them
because it reaches out to every other service. Information and
Communication Technology (ICT) may be another because it has the
ability to improve information transfer in a way we could not
dream of even 10 years ago, lack of information being one of the
critical impediments to development, so I think we need to look
at sectors having different potential roles, and infrastructure
has been given quite a high degree of focus by this Committee.
Clearly, also, so many studies into the impediments of private
sector growth keep coming back to the fact that financing is often
seen to be the critical one but infrastructure is often the one
that gets pinpointed most, particularly amongst small businesses,
as the real impediment to their development.
Ms Grant: I would agree with all
of that. I think it is not an either/or; it is a commonplace thing
to say. When you look at who is going to do something about it,
for us as a banking financial services sector the regulatory framework
is very important. It can have a multiplier effect and be system-wide,
but it is a means to an end and, if it is not implemented correctly
and if you do not have the commitment or, indeed, the people to
apply the regulatory standards then that is a genuine problem.
There are very few countries where there are enough people to
tackle regulatory requirements, even once they have them in place.
Those are the kind of things which are very important. For us
certainly one of the things we do around the world is help regulators
in countries where we ourselves are regulated to make those systems
work, and that is an area of expertise where we can really help
and where we are already getting involved. The question is whether
I suppose we do that on a systematic or structured basis, but
I think that is one example. Another example where I think the
financial sector could be really important is working on the credit
ratings of countries. Again, a lot of multilaterals are doing
work on that and public sector NGOs and governments, but in the
banks people do credit rating for a living and some of that expertise
could be quite usefully borrowed and have a multiplier effect.
It is a bit like microfinance; it is not an end in itself but
something which would enable people to join the formal economy
and to prosper, but they are not going to do it because they have
microfinance. That is one of the things that is a necessary but
not sufficient condition for taking off.
Q282 Ann McKechin: Donors are sometimes
criticised for being better engaged with large-scale enterprises
and multinationals rather than Small and Medium-sized Enterprises
(SME), and certainly in developing countries there seems to be
quite a gulf between the two sectors. There is in our own country
but I think it is more marked when you go into the developing
area. Do you believe that is true of DFID in particular and, if
so, how would you believe they should address the needs of the
SME sector as well as the large-scale international companies
they are already engaging with?
Ms Grant: I think it is a spectrum.
Especially for things like the regulatory environment you do have
to deal with the big players globally but DFID's tradition is
to work at grass roots and with quite small people. What is happening
now maybe is a rethinking, as Bob and the DFID people who gave
evidence to you said themselves, looking at the whole spectrum
of DFID's activities with a view to looking at the relevance of
the private sector. So I do think there is a focus obviously on
microfinance, microcredit, on small and medium enterprises. The
difficulty again, which is something that all governments find,
is of getting involved at the right level with people who are
extremely numerous and perhaps not easily dealt with in a collective.
Q283 Ann McKechin: Do you think we
should be spending more time trying to build up connections between
the SME sector on the one hand, and the larger multinational corporations
on the other in terms of supply chains, distribution chains? These
seem to work in some areas but they are very weak, and there seems
to be no connection in other parts at all.
Ms Grant: I think most multinationals
have a very strong network of small and medium businesses. It
is difficult to generalise, and it depends what business you are
in. You can fly in, do it yourself and fly out but that is perhaps
not the norm, and certainly for a bank we have a renewed and a
strong focus on small and medium enterprises everywhere we work,
and we do spend a lot of time with our suppliers and customers.
So I would not say there is no attention paid to it but I think
it is difficult to get it right, and it is difficult to generalise
across countries as to what works. But it is also a job for the
countries themselves to look at their own relationships with business
and their own communication not just with the top business people
who maybe advise the President on a regular basis, as is the case
in South Africa, but also to make sure there is the right kind
of support and communication with people lower down the economy.
Mr Fitch: The important words
in your original question were "engaging directly".
By definition donors cannot engage directly with SMEs, there are
too many of them, and in terms of making impact on development
you have to have an impact on a large number of SMEs, and in the
past—and still, in fact—there is a huge amount of
money spent by donors on trying to promote development of the
SME sector but it is done in a very different way. It is being
done increasingly through looking at the enabling environment,
and in the past it was done looking at things like business support
services. The real challenge in SME development and micro enterprise
development is how you foster their development without really
disrupting the market.
Q284 Ann McKechin: Global market
forces?
Mr Fitch: This is where, you are
absolutely right, bringing bigger businesses into the supply chain
mechanisms is something which worked very successfully in some
of the east Asian targets, where they attracted inward investment
and made sure it was well connected then to the indigenous economy
and the benefits moved downwards, and DFID again have tried to
look at this with the Business Linkages Challenge Fund and they
have worked on trying to promote that kind of connection. I think
much more could be done and much more strategic effort could be
done and this is where the real opportunity is with the investment
climate facility and the Africa Enterprise Challenge Fund working
in parallel. What was lacking perhaps in earlier challenge fund
work, where it was kind of a bottom-up initiative to try and encourage
business to do things, was that top-down initiative also to address
enabling environment issues, and I think that is one of the things
we have all learned from the earlier challenge fund initiatives
and is one of the things that DFID should be applauded for, for
seeing that potential connection.
Ann McKechin: Should it spend more money
in terms of training, to be specific? You have pointed out lack
of capacity in financial advisers even within your own organisation,
and it seems to me that training and technical skills—
Q285 Chairman: Think of the role
of the banks in this country which is taking somebody who has
an idea and saying: "You need to understand the basics of
keeping a cashflow and how to do a business plan before you go
and talk to a bank or anything else". Is there a role in
poor countries for organisations like DFID to help people at that
stage?
Mr Fitch: There is and there has
been plenty that has been done. The big difficulty with that approach
is, again, sustainability because services are often set up on
a free service basis, often with a lot of expatriate overhead
built into the delivery, so as soon as you take away the external
subsidy that process stops, and this has been one of the challenges.
How do we prevent things coming to a juddering halt as soon as
that external assistance comes to an end? What is the smooth exit
plan? That is the real challenge. There is no doubt that training
is an essential part of it, and capacity building, but it is training
and capacity building at government level as well to change the
mindsets, so that when you are developing the regulations and
the legal frameworks it is not just a theoretical construct but
something that they believe in and want to pursue.
Ms Grant: Even on the training
it is a question of who does it, and I agree very much with Bob.
We had an interesting conference last year in Standard Chartered
called "Banking the Missing Middle" for people who are
not quite subsistence but also not regular bank customers, and
we launched our own small and medium enterprise-sized business
in Africa last year also, helping people to get to the point,
where they can bank, and then there is a point of investing in
future customers. If you can get banking people to help with business
plans and with financial literacy and get customers to first base,
that is probably more efficient than setting up some kind of DFID-led
super structure which then hands them over to a bank. So it is
getting banks to look at the financial incentives for them to
invest in future customers looking further down the line, rather
than for DFID to set up its own training programme, for example.
Q286 John Bercow: I am puzzled, Chairman,
because I just picked up on what Mr Fitch said a moment ago about
the difficulty of the exit strategy and the great problem of the
sustainability of such business advisory services, how to construct
a business plan and so on, and I understand in part but not altogether,
if you will forgive me saying so. It does not seem to me that
intellectually it is anything like on a par with Einstein's Theory
of Relativity. There is no great complex issue to resolve here
and, with reference to what Ann said, at the risk of being provocative
I do not think there is a huge debate to resolve as to whether
it is a DFID superstructure or a business-led and then business-continued
initiative. The question is, if it is accepted that this is supremely
of benefit in establishing and building a business class and therefore
promoting development, surely it is not beyond the wit of people
of good will in public and private sector alike to thrash out
an agreed programme which, if it is going to yield significant
benefits, need not and should not be short-term and from which,
therefore, one should not frankly at this stage be speculating
overly about the exit strategy. The question is not the exit strategy—when,
how, is it finessed—but when will it get started, for what
period will it operate, and with what likely results will it function?
Forgive me for being slightly impatient but it seems that sometimes
in these situations one can make them more complicated than they
are, and it is not that complicated.
Mr Fitch: No, and I have quite
a lot of sympathy with your view. What I would have to say is
what you would need to do to pursue that approach is create a
business plan to work out how much money you needed to pursue
things to the level you want to, to achieve the scale of impact,
given the number of poor people in the world, work out what the
cost of delivering that is through whatever financial means you
can, then work out where that money is going to come from, and
then say what proportion is going to be public sector, and work
out how you fill in the difference. That is the challenge; that
is why it is difficult. If you throw money at it I agree you can
do it, but have we got that amount of money to throw at one single
part of the development conundrum?
Q287 John Bercow: I understand that
there are always competing clients in the public resources and
political—
Mr Fitch: And there is an issue
of scale, as well.
John Bercow: Okay, but if it is accepted
that this is a crucial prerequisite for achieving growth and reducing
poverty, and given that both of you have a very good lead into
DFID at the very highest level, forgive me asking this obvious
question but why has this politically challenging but intellectually
fairly simple matter not been addressed? We do not want to exaggerate
our own importance but you knew perfectly well, Mr Fitch, that
you were coming to talk to us; I know you do not make the world
change yourselves overnight but these are really the essences
of the matter, and Ann made the very important point I thought
with a degree of frustration which I understood, that she was
not all that interested in sitting around talking about matters;
a brief analysis, look at the options and then get on with it.
If we were having a review in a year's time where in this crucial
matter would we be? Would we be talking about further discussions
to be had? Meanwhile people are dying.
Chairman: We have more detailed questions
on this from colleagues so you will not be let off the hook!
Mr Fitch: I said earlier that
I thought one of the strengths of DFID was its innovativeness
but in many organisations a strength can also become a weakness,
and I think sometimes there is too much of looking for new answers
rather than seeing what merit there is in existing approaches,
and there is a tendency—and this is not just DFID but the
development community as a whole—to look short term rather
than long. As consultants, as we are, we try to detect three-year
cycles in development thinking and development practice and that
is what we expect to see. And the cycles repeat, although sometimes
there are new words or slightly changed approaches. But I think
you have a valid point in asking why we can not have a more stable
approach. It may not be perfect, but we can deal with those imperfections
through implementations.
Q288 John Barrett: Very much following
on, with the use of challenge funds there has been that innovation
in DFID and there has been the success in that the Financial Deepening
Challenge Fund (FDCF) was able to stimulate twice as much private
sector investment as the amount of DFID grant funding but, as
you say, along with innovation there are risks. Can you say from
your experience with the FDCF exactly how DFID should be developing
to deliver its development objectives? To follow up John Bercow's
point, if the private sector is involved, if you are setting up
a successful business and part of that is not to have an exit
strategy for getting out of the business, it becomes self-sustaining
and that is the answer to one problem.
Mr Fitch: Again, at the risk of
being overly critical of one of my clients, one of the frustrations
we did have with Financial Deepening Challenge Fund is that one
of our roles as management was to go out and tell the rest of
the development community, and anybody interested, of the successes
and the strengths of the instrument and we got many positive responses
from other development agencies, whose question would generally
at the end be: "That is really interesting, that is great,
what are DFID going to do next?" To which my answer was:
"I do not know, what would you like them to do next?"
Sometimes it is that lack of, I suppose, a strategic plan as far
as we can see. I think the FDCF was very successful. If you look
at some of the projects and work now being done by Vodaphone and
Deutschebank, as well as some of the organisations in the developing
world, there are some clear examples of how the private sector
can get embedded in very appropriate processes. We have learned
lessons about weaknesses as well; it is a risk-taking initiative.
Some of the projects that have been funded perhaps would not have
been, given what we now understand about how markets develop.
I think we have learned about some of the processes. We have learned
that maybe it was wrong to have a lower limit on a grant of £50,000
and an average grant size of around half a million because the
reality is you can only then fund fairly well-developed project
ideas and it stifles some of the innovation at the entry level.
So we have learned many things. My frustration is that here we
are now, designing the Africa Enterprise Challenge Fund in 2006,
I was involved in the design work of the Financial Deepening Challenge
Fund in 1998, and the funding for the Financial Deepening Challenge
Fund actually came to a halt in 2004, so we are staring at a three
to four year funding gap for the market place and the danger there
is that we are losing the momentum we built up if we believe in
the success of challenge funds. So I think this comes back to
your point, that this is a problem in development programming.
Q289 John Barrett: So is the new
African Enterprise Challenge Fund going to draw on that experience?
Mr Fitch: Yes, and DFID are working
hard to make sure that is the case, and there is clear evidence
that that is happening.
Ms Grant: Could I respond to your
challenge which is that if we are here in a year's time we will
just be talking in the same circle? I think with the dialogue
over the White Paper and your inquiry and so on, we can do it.
As you say, it is not rocket science. If it is accepted that our
major contribution to development in Africa, for example, is to
be a successful business and that what we want to do, what we
have a vested interest in, is to see a lot more people, small,
medium and large, also being successful, the countries themselves
being successful and having the right kind of regulatory environment,
if that is our starting point and I think it is, we just have
to find cost-effective, realistic ways of maintaining that dialogue
and getting some joint working going. I think we have that framework
in the discussions we will be having, not only as a bank but also
as Business Action for Africa, and I very much commend DFID for
setting that up. It really does the business for business; it
is very well run; it hits the spot in terms of the information
that we need, and it gives us a readymade platform for dialogue
and for a quick meeting if we want one on a particular subject.
So I think our financial sector colleagues in Business Action
for Africa and others do see this process and the White Paper
process as getting us to that point where we stop talking and
start doing things together.
Q290 John Battle: There is one element,
as we are on this subject of inventing new instruments, that seems
to me to be missing which is credit unions. Our Committee did
a report a year or so ago on remittances[4];
migrant workers who collect a lot of money from work and send
it back home. Much more than the aid budget goes back, but what
happens is the traditional banks and commercial institutions taxed
the transaction so that not all the money gets back. So in California
the fastest growing banks are now credit unions of El Salvadorian
migrant workers; a quarter of the people in El Salvadorian credit
unions are getting the money from the migrant workers in and investing
it in projects. In India it is the same; credit unions are proliferating
because that is where there is a source of credit, insurance and
investment capital. We are not seeing that in Africa and I just
wonder whether you are fostering credit unions to make a connection
between the remittances from migrants but also on the ground level?
There are commercial banks now in Africa but what you cannot get
is insurance because the rates are too high, but credit unions
have cut through that. Would you be supporting the development
of credit unions in Africa? In Latin America they are going, and
in India they are going well, and there is an alternative, but
is it being fostered in Africa?
Ms Grant: Firstly, we are basically
a trading bank so we are focusing a lot both on micro finance—although
I would say micro enterprises—but also on remittances, and
there is nothing micro about remittances. They are mega, really
big, and the way in which they have been managed, as you say,
means there must be a huge role for a more competitive and better
run business of transferring remittances. We are as a bank on
the UK Remittances Task Force looking into all of this but I have
to say we are looking at it as a business and systematically,
again, it is quite new for us. We were involved in the UN Year
of Micro Credit and there was a very exciting, very well run and
very businesslike UN Summit which I went to last November—and
I do not very often get the opportunity to say that!—where
we were looking at remittances, micro finances, the kind of flows
that go between our two businesses, for example, in the two markets
we know well in the Gulf, and in India, Pakistan and Bangladesh,
with absolutely huge transfers all the time. The question is how
we as an international bank can partner and link up with credit
unions, with micro finance institutions, which themselves are
turning into banks, as you say especially in Latin America, but
it is very exciting. I have been presenting it as a commercial
opportunity to the bank, not as some kind of corporate social
responsibility, though hopefully it would have enormous benefits
all round.
Q291 John Battle: Two final points.
Firstly, one of the reasons why there has not been that progress,
as far as access to remittances through local banking is concerned,
that banking cost is moving ahead, but what is not moving ahead
at the same speed is the legal framework in these countries. So,
if you are running a business and if the debt is not paid you
can pursue that through local courts or whatever. Secondly, DFID
outsources the management of challenge funds, but is that the
right thing to do?
Mr Fitch: To the first I would
just say "Yes". On the management of the challenge funds,
and given that I have a vested interest because I work for a private
company that earns money for managing challenge funds on DFID's
behalf, the answer is also "Yes, it is the right thing to
do" because I think we can do it on a far more cost-effective
basis than they could do it in-house; cost effective because they
push us very hard to deliver to a fixed price, and we have managed
to do what the private sector needed us to do which was to manage
things to fixed timescales. We never missed a deadline of managing
challenge funds, which the private sector was not used to with
donor level programmes, not just the DFID. Ann will perhaps be
able to comment more on this but from my point of view I think
we are better able to talk and interface with the private sector
about business issues because we are a private sector business
as well. So I do think there is a strong rationale for it.
Ms Grant: I would agree with that.
We were not involved in the previous challenge funds but we are
very much looking forward to discussing in a lot more depth the
Africa one which is coming up, and we have meetings set up to
do just that. On what else needs to be done in order for remittances
and other things to work well and to work the same, what we are
all talking about is how we bring poor people, or people not previously
participating in the formal economy into that field, and I think
credit bureaux is a very interesting and important way of making
sure that the financial sector can flourish. We have been lobbying
all over our footprint in Africa, and Asia in particular, for
countries that have not, to establish credit bureaux. It is a
basic step for getting to all the other more elaborate and fancy
things we have been talking about, and I think that is somewhere
where perhaps we can talk more systematically with DFID to make
sure that is part of their lobbying and, indeed, part of the British
Government's lobbying generally. They are one small example of
where what looks like a fairly technical boring issue that is
not worth bringing up might make all the difference between an
economy being able to take off or not.
Q292 John Battle: The traditional
role of a bank, Standard Chartered being one and the commercial
banks, has been as a vehicle for handling money and investment
well, really, and I am an aficionado of credit unions in my own
neighbourhood but I know we have to use another clearing house
bank to get there so I am very interested on that clearing house
bank being absolutely clean, managing the money well and not being
a rip-off profit operation. I can get loyal credit through the
credit union and drive out the loan sharks but I cannot do that
through a commercial bank who have withdrawn all their offices
or units from my neighbourhood. Let me ask about banks that have
operations in developing countries because quite often the criticism
is that they end up being the body that launders money that is
involved in the money that is collected corruptly, so how do you
help sort that out? I am not suggesting that you are in collusion
with those robbing the state and the public sector and taking
the aid money and shoving it in the bank, but you have it so how
can you help clean up the act so that money is managed well? What
anti corruption measures can the bank take to contribute to clean
money so it works for development, and can you name and shame
people involved in corruption? Would you go that far? Would you
refuse deposits from people when there are trials taking place
and they have been accused of mismanaging? How far would you go
in helping to clean up the money act so there is real transparency?
In a sense money is for development, not just for private gain
at the expense of everybody else.
Ms Grant: I very much hear what
you are saying and endorse it all, and I know it is one of my
Chairman and CEO's strongest messages that, as we said, our major
contribution wherever we are is to be a successful business but
also to operate to the highest standard. I think something that
has changed even more recently than you talking about DFID's thinking
having evolved is the regulatory framework around banks now. I
had no idea about that before I joined a bank and I am no expert
on the constraints now and the extraordinary combination of anti
money laundering, anticorruption legislation, now antiterrorism
legislation, designed to track the movement of money. The fact
that as a bank we are subject to a regulatory environment in the
US, the UK and Hong Kong to say three of the tightest, it is just
not possible, even if you really were trying hard, to buck the
system. It is very difficult now, I think, to have the same kind
of freedom to transfer corrupt monies that was possible in the
past. There is a legal constraint; there is a huge effort and
commitment in our bank on legal and compliance issues. A very
large part of our resources and time goes into making sure that
we do not get it wrong and that all our staff are trained. Operating
like that, for example, as we do in Nigeria to the highest global
standards is also one of the reasons why we are managing to recruit
and retain good staff. There is competition for talent but also
there is competition between banks on reputation—otherwise
we are pretty much the same—but the reputation of a bank
like ours which works, say, in Asia, Africa and the Middle East,
if we were to do a corrupt deal or mess around in the Philippines
or in Ghana, that would affect our share price in London and elsewhere
immediately, so I think there is a huge incentive for us to get
it right. Showing by example and working with Banking Councils
and Chambers of Commerce in all the countries where we work, we
would make the business case for doing the right thing, and I
think that is the most effective way of making sure that the regulatory
stuff is real and, of course, there is no question of us, as you
say, not getting involved.
Q293 John Battle: What about working
with governments and DFID, to give two examples? Sometimes the
governments themselves may well be corrupt and it may be the bank
being very outspoken, and courageously outspoken, to challenge
corruption in governments. When Hilary Benn was asked recently
whether he could sum up his White Paper in one word, he said "governance".
How can you work with DFID and governments in Africa to be more
proactive on behalf of transparency—well, especially clean
money?
Ms Grant: As I say, the one big
thing we do is lead by example. On your more proactive point,
just because things are not done publicly it would be unusual
to say the least, in my very limited experience in the bank, to
have a bank Chairman or CEO criticise in the way that a minister
might or a senior official in government or even somebody in a
multilateral organisation, but that does not mean those conversations
do not take place. I do think it would be unusual for them to
be public, but the fact that we work in Nigeria, and our commitment
to the money we put into Nigeria last year as a bank was very
considerable, had the effect of reassuring other investors. It
means we are one of the largest taxpayers in that sector, and
I think that is a real commitment, a long-haul commitment to a
country which does enable us to speak frankly at the top level.
I am not sure there is a market for an outspoken banking voice
but it does not mean that it could not be part of the mix, and
we do of course keep in very close touch with governments, with
the World Bank and the Fund, many of whom we also bank in many
of these countries.
Q294 Richard Burden: You have been
very clear on that issue, both in terms of your own business interests
in rooting-out corruption and how perhaps on a quiet basis people
can have an impact in some of the countries you operate in. You
also earlier on put some emphasis on networks internationally
and regulations for that network.
Ms Grant: Absolutely.
Q295 Richard Burden: You put that
forward as something that actually helps in that regard. I am
just interested to know whether you think that some of those international
networks and regulations you are building up can sometimes cut
across each other as well, and if so is there anything that needs
to be done in that area? You mentioned the States, you mentioned
the UK, very multilateral bodies; if they are all meshing together
to help root out corruption that is brilliant, but you could find
that they end up creating holes that you can fall down the middle
of.
Ms Grant: It is difficult for
me to comment because I am not an expert banker, indeed I am not
sure I ever will be, but also because there is competition between
regulatory authorities as to who can be the stiffest—certainly
the US, the UK and Hong Kong are probably the tightest. If you
are subject to one of those then you do not fall between two stools
because you accept those standards wherever you operate. The challenge
now is to bring the huge economies of India and China and the
banks and financial institutions that operate in those countries
into the same game, but with people needing to raise finance globally
and being global players, there is a very strong push for anyone
who wants to raise capital anywhere to be playing by pretty much
the same rules. I have heard people moaning about regulation because,
while it is very welcome in principle, it is often obviously extremely
tedious for some people in practice. We are very clear that the
balance of advantage is in the kind of regulation that we are
subject to. What we want is a playing field where everyone observes
that level of regulation and where we are able to compete fairly.
The trend is all one way and I do think it will be for better
and more comprehensive regulation for the reasons we have set
out.
Q296 Joan Ruddock: I am puzzled,
having heard everything you have said, which suggests that everything
is moving in the direction of more transparency, good governance
and everything else, how do you explain the fact that over the
last five years your bank has made very significant loans to the
Government of Angola which has a very bad record of corruption,
mismanagement of its oil revenues and is obviously desperately
poor. How do those loans sit with everything you have just said?
Ms Grant: The loans have actually
been to Sonangol, to the oil corporation, not to the Angolan Government,
and on the basis that we dealt with them as one of a consortium
we have been satisfied with those loans and the way in which they
have been spent and repaid. On transparency we are pushing for
more transparency so that other people can share the information
that is currently commercially confidential, but we work to the
highest standards in that loan context, although obviously we
have had a much longer relationship with the Angolan Government
than this new regulatory framework, maybe for 10 or twenty years.
Q297 Joan Ruddock: There is a contradiction
there, is there not, because you may say you are operating to
the highest standards in a financial context, but the impact or
lack of impact on that country's development is something that
is not being taken account of. The World Bank has suggested that
these particular kinds of resource-backed loans are, in the case
of Angola, the core obstacle to the country's development.
Ms Grant: All I can say is that
it is not true that we do not take those factors into account.
There is a very strong and very robust process inside the bank
for looking at the implications of that kind of deal. It is now,
with our reputation and risk management inside the bank, much
stronger than it has ever been and these issues are very fully
discussed. A judgment is made as to whether they should go ahead
or not and all I can say is that it may not come out always with
the answer that you would wish, but it is not true that it is
not very fully and very seriously considered when any such deal
comes on the table, and deals are walked away from on the basis
of, if you like, the non-financial factors.
Q298 Joan Ruddock: The level of indebtedness
of Angola is equivalent to half their GDP; it is not getting better.
The involvement of your bank in the basic resource industry, which
could and should be delivering to the people of that country and
moving them out of poverty, is not happening. Do you see any need
for change? Is there something that needs to be done that is not
being done at the present time, and are you the only people who
we might make this criticism of or, for example, do you see China
doing things that even you are rejecting?
Ms Grant: On all the financing
that I am aware of into Angola there has been a very large consortium
of international banks because of the scale of the funding that
is involved. Sonangol is not in debt to us, the repayment record
was one of the very significant factors in going ahead in the
past. If what you are saying is that we should not be lending
to Angola, that is a conclusion which the bank has not come to
yet and I can give you an assurance that the factors you have
raised and the factors that have been raised by the World Bank
and others are now fully considered every time there is a proposal
for such a deal with the bank, not just with Angola, and it would
be very carefully thrashed out inside the bank.
Q299 Joan Ruddock: You do not think
there is any need for any new mechanism that will actually ensure
that these sorts of resource-rich countries do not get loans that
will substantially undermine the path out of poverty and actually
contribute to continuing corruption and negative outcomes. You
do not think there is any mechanism that should be put there by
the international community or anybody else, this is just a fact
of life?
Ms Grant: No, I do not think it
is a fact of life, I think it is a matter of judgment whether
or not you are engaged in the economy of a country which has serious
flaws in its government and in the distribution of its resources.
To set up such a mechanism would be very difficult, and I would
myself say that the trends and the thrust of what is happening
is such that a commercial decision now is broadly based and takes
account of all the factors that you and others have raised. My
own view would be to rest on that commercial judgment, and if
you are taking a wider view and a longer term view of your bank's
involvement and your
bank's reputation and so on, I would rather
rest on that judgment rather than on some kind of sanctions system
which would prevent the private sector working with governments
that were generally not held in high regard by the OECD[5].
You would then really risk polarisation and your chances of bringing
in India, China and others would actually be less. I would rather
rest on the pressure and the reality of all the factors I have
spoken about being actually quite powerful drivers and becoming
more so.
4 International Development Committee, Sixth Report
of 2003-04, Migration and Development: How to make migration work
for poverty reduction, HC 79 Back
5
Organisation for Economic Co-operation and Development Back
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