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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 921-iii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE INTERNATIONAL DEVELOPMENT
Tuesday 28 March 2006 MR JAY NAIDOO and MR ROBERT ANNIBALE MR PETER CAMERON and MR PETTER MATTHEWS Evidence heard in Public Questions 155 - 210
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Tuesday 28 March 2006 Members present Malcolm Bruce, in the Chair John Barrett John Bercow Mr Quentin Davies Mr Jeremy Hunt Ann McKechin ________________ Witnesses: Mr Jay Naidoo, Chairman, Development Bank of Southern Africa, and Mr Robert Annibale, Global Director of Microfinance, Citigroup, gave evidence. Q155 Chairman: Good morning gentlemen. I am sorry we are a little late. As you appreciate, there was a fire alarm. Thank you very much for coming in and giving evidence to the Committee, which, as you know, is investigating the scope of private sector development to help poor countries grow out of poverty and the contribution that can make. I wonder if you could introduce yourselves - we obviously know who you are - first of all, to make sure we have the pronunciation of your names correct and if there is anything in particular you feel you wish to draw to our attention, and then we will proceed perhaps to questions. Mr Naidoo: I am Jay Naidoo. I am a South African based in Johannesburg. I chair the Global Alliance for Improved Nutrition, which is a foundation based in Geneva that does work on fortification, working particularly with the private sector to deliver vitamins, minerals and nutrients to basic foodstuffs. I also chair the Development Bank of Southern Africa, which is one of the largest infrastructure banks in the southern African region, prior to that I was a member of the Cabinet of Mr Mandela and prior to that I was a trade union leader. Chairman: Sounds like enough for now! Mr Annibale: My name is Bob Annibale. I am the Global Director for Citigroup in Microfinance. I have worked for twenty odd years around the world, part of that based in the UK for Citigroup. We base our global microfinance business out of the UK and we cover some 30 countries from here in that area. Now I represent, Citigroup also, a number of microfinance networks, the Council of Microfinance Equity Investors, I have also served at the University of London, including the Institute of Commonwealth Studies and St Anthony's College, Oxford, the Centre for the Study of African Economics, and I have looked for many years from a commercial perspective at how we can expand access to financial services, particularly through the efforts of microfinance. Q156 Chairman: Thank you very much. Obviously you are here because of the background that you have, which we hope will help to inform and enlighten the Committee. One of the things I have to say on a personal basis that slightly concerns me is that, having decided that we ought to look into private sector development, a number of people, witnesses and others who have written in, have said, "We are glad the Committee is doing this because it is becoming important to recognise the role of private sector development in tackling poverty." I think there are many of us who have felt that that always should have been central to solving the problems of poverty, but I just wondered if, perhaps by way of a start, you could comment on how the Department for International Development is putting an emphasis on strengthening the financial sector in a number of initiatives that they have taken as part of their strategy of poverty reduction. How do you think you can address financial reforms in ways that benefit the poorest people in the poorest countries, because that seems to me the nub of the problem? Mr Annibale: How we can or how you can? Q157 Chairman: How can the financial sector be reformed in a way that would deliver, and to what extent do you think what our own Department for International Development is doing can assist in that? Mr Annibale: I think the whole premise that there is a role for the private sector in development, particularly in financial development, and financial inclusion is key. I think there has been a great deal of work done by great innovators in this area, many of them funded initially by donor programmes. We can go back as far as Bangladesh, the Grameens, the BRAC and other professional units and people who have been innovators for a very long time around providing financial access to reform out of many years of support, and I would say the same has come out of Latin America. We particularly see examples there of successful institutions which were founded with either donor money, through bilateral and multilateral funding, as well as increasingly with private sector funding. We found institutions that came up with very innovative ways of reaching much deeper certainly than commercial banks. Commercial banks have to be very humble in this whole context because they created the gap. Clearly, as banks, we did not reach the majority of people in the countries where many of us operate, and we are in 102 countries or associations. We can clearly see in a very large number of those countries people are extremely under served. The private sector, I think, brings with this innovation that we see coming out of sometimes very, very focused, rich players, if you will, of say the microfinance institutions that we are all familiar with. We find that we can probably bring to that table issues that they have not all reached, which is scale. How do you reach large numbers of people at a low cost in an affordable way? Most of us are used to having our banking services today primarily in a hole in the wall. Very few of us go into a branch and speak to our banker regularly; we do it on the web, we do it on the phone, we do it by card. One of the issues of bringing the cost down for the poor is to reach scale. I think one of the things that the financial sector has is a history of reaching scale. The other is that an enormous amount of money has already been spent in the private sector on technology to achieve that. It has not been leveraged, however, around this population, and in some countries that could be the majority of the population, but we have the technology, we have the product knowledge, we have experience of developing institutions and microfinance institutions that have found alternative ways of assessing people's risk and capabilities and with incredibly impressive repayment histories that commercial banks envy in many countries. But we have not merged these two skills very well, and I think what is a challenge and something that we look at is very much how do we link our capacity, our capital, our franchise, our investors and technology with the objectives and some of the really specific skills developed by the microfinance sector to reach much greater access to financial services for the poor. I think that is an area where DFID has put some focus, and I think that has been a good area because it has been about trying to combine some of the skills of these two sectors into actually saying: what can we learn from what has been done in the Grameens of the world, if you will, when you have to merge them and have them meeting with the HSBCs and the Citigroups, and, more importantly, maybe even the large domestic private banks. I think this is an area which has been focused on, and it is one where there has not been a need necessarily for large capital so much as it has been research and data also. There has been a lack of knowledge around the majority in the sense of financial services by the private sector, and that is an area, I think, which is being challenged but is one area where DFID seems to differentiate itself from many other donors that we deal with or see. Q158 Chairman: I think we saw an example of that in Mozambique when we saw the Banco Oportunidade, which DFID had supported, but I think we would also agree that, whilst it was an interesting prospect and we met some of the customers, it is unproven in terms of what it will actually deliver. It is interesting to hear your comment that you think there is potential. Mr Annibale: I think the model of very high repayment norms, of ability to reach and to show that the poor are also bankable has been a challenge in the United States, it is still a challenge here, financial exclusion being amongst the highest in Europe in terms of people without a bank account. I look at that area too, just out of curiosity, but what we have found is that you need to merge that very much with institutions that know how to reach scale, and I would not replicate only, I would look at how do you leverage the existing financial networks. How do you use Post Office banks efficiently? They either can be a failure or they could be like the Giro system in Europe, which many people still use. It is a matter of how do you leverage some of the banking system that is there today in the infrastructure to reach many, many more people. Mr Naidoo: One of the challenges that we face, and I am using the example of South Africa, is that, where the vast majority of people have been excluded from banking services, the disincentive has been high transaction costs and it required policy reform. Part of the transformation of South Africa as it continues into the fold is the agreement around the table of the banking institutions, the civil society organisations and the trade unions who have negotiated a new policy framework which requires the banks, the financial sector, to invest in creating a viable and cost-effective banking system where there is a negotiated transaction cost which utilises all the technology for innovation that has taken place; so it does require government to put into place the appropriate regulatory policy frameworks and that is part of a broader transformation of the financial sector which requires banks to invest into community reinvestment initiatives, to make access housing loans and a range of other services that many people have taken for granted in the South African situation. I think there is an important role that development agencies like DFID can play in the policy process of finding what has worked elsewhere in the world so that we do not reinvent the wheel and in making sure that that information is shared with governments like that of South Africa. I think there is an absolute basis for me. The broader issue is: is there a role for the private sector in addressing the developing needs of what we call the bottom of the pyramid, the poorest of the poor, and the GAIN model has proved very effectively that we can harness the infrastructure off the private sector. In that instance we are seeing that we are fortifying the vitamins and minerals, basic foods, whether it is soya sauce in China, whether it is wheat flour and maize flour in South Africa, and we have invested approximately $40 million in projects that will give us grants to alliances at the country level, and that has, in a sense, generated investment on the side of the private sector close to $250 million where that cost, to take the cost of fortified foods, it is 25 US cents a year that could save the life of a young child or a pregnant woman or poorer communities. We have found that we are harnessing the operational capacity, because the private sector produces the food, they distribute the food, and working closely with them to share a development vision brings them into the group of delivering to the poorest of the poor, and I think that is the role that DFID should continue to play in initiatives that promote the role of the private sector in delivering to the poorest of the poor. Q159 Chairman: In the answers you have both given, not just because you are here, you really suggest that microfinance is one aspect but the two run together. They are not options. Mr Naidoo: Absolutely. Q160 Chairman: Within the different options, we have had discussions about the role of the microfinance aspect but remittances in particular. Everybody says the volume of remittances to Africa is possibly greater than the volume of aid. Is there a scope for the banking sector, in partnership with those who are passing remittances, to develop an infrastructure that will actually add value? At the moment, presumably, the remittances are going either in direct cash or in telephone credit, by-passing the banking system altogether in some cases. How do you ensure that they can be used in a way that adds value? Mr Annibale: It is an area that I have looked at. The banks have done a pretty poor job of it in the past, whether the United States to Mexico, which is picking up some enormous sums, or to Latin America, it is the largest source of foreign investment, more than all FDI, all foreign direct investment donor funds combined. We figure we have done a pretty poor job, but what I think we are trying to do---. I see this whole issue of remittance, if you want to really transform it, it is much more than a transfer. A transfer is easy. We transfer billions of dollars a day out of London at very, very low-cost extremely efficiently through the financial sector alone, through the foreign exchange and investment banking world that goes on here. We have all that. What has been lacking is to look at the people who remit and their family who receive as clients. They have been seen as a transactor: go up, pay the cash - green-grocer or whoever you have invested in, whatever live service you use since the banks did not generally do it - and cash goes and cash received. When I have remittances sent to me to test it in Mexico and elsewhere, even standing in the queue, people just hand me cash. No-one asks if I have an account or, "Do you want to save anything with us?" They just hand me cash. There is no added value. We have tried something now. I am trying a pilot from New York to Ecuador and for Citigroup we are not using Citibank in Quito as our partner, one of the largest commercial banks, we are using Banco Solidario. Banco Solidario is a microfinance bank with a very strong network linked to the co-operatives, and they really look to give financial services to the beneficiary; and until we look at the people who we give remittances for as clients, as banking clients, and realise we are connecting a family with this transfer, the economy of just two pieces of a family, I think we will continue to see these transactions. We have dropped the price in the US from $40 to $5, but it requires the person to become a client, and that gives them, very often, their first bank accounts and elsewhere. I think remittances are undervalued in terms of the contribution they make to a country, and the contribution of their people, who work so hard that send them so regularly, get no credit by the banking system today, no credit scoring nor any other recognition, for the very disciplined and regular transfer that they make. We are looking at how do we change our credit scoring to acknowledge remittances. Q161 Chairman: You are talking about the donors or the recipients or both? Mr Annibale: In both cases, because if you are sitting in Ecuador in a very vulnerable economy and you get a transfer reliably in dollars twice a month, you are appreciative. They are a pretty attractive client. Mr Naidoo: The challenge that we face is that a lot of the microfinance institutions can only welcome a personal touch. I can give you a real experience of us at the Development Bank of Southern Africa. We do large projects. We tried microfinance. We did not really succeed at it, and so the issue is what would be the appropriate partner, and I think, as Robert has indicated here, his appropriate partner in Ecuador is not Citigroup, it is someone who has the experience and the personal touch and the relationship with people who require very small amounts of money and where for our big bank the transaction costs are too high. I think that it requires a different paradigm of thinking. One of the things we do when we give these concessional loans is we require the client to justify to us how many people are employed, how many women, how many young people are trained, how many small and medium enterprises, but still these are large amounts of money, and so I think that we should not reinvent the wheel. In South Africa itself we have this informal savings system between people who have no bank account and each one contributed per week to something called the "Stockveldt", which is like an informal savings thing. Q162 Chairman: Like a credit union. Mr Naidoo: Like a credit union. You have to take what exists and then begin to institutionalise them without raising the costs of transactions, the cost of administration, and that is our big challenge. If one looks at the Grameen Bank, that is part of it. As they grow bigger, the costs of running an institution rise, and we need to refine a mix where we can keep the transaction costs low, we can keep the efficiency there and we can meet the needs of customers. Mr Annibale: I would draw the analogy: you are used to probably having your bills paid on-line for free. We do not pay anything for that today. Your bills are paid automatically by direct debit. That is a transfer. That is not much different. It is a domestic transfer. The banking platforms exist today to do high-value at very low cost or even free, and they do it for you because they bought your credit card and your savings account and your mortgage and so they allow you to make these payments for free domestically today. Think a few years ago what that would have cost you to make a domestic transfer. The technology aspect is there in the banking system. It has to look, though, at people using it, transacting today as clients and provide them with that level of competitive service that we get as consumers. Q163 Mr Hunt: I am really interested in what you have to say, but I wonder if you could answer a question about the role of microfinance. I can understand microfinance in the context of someone who is living in poverty in the developing world who wants to start a business of some sort, and I am sure that my colleague, John Bercow, will ask you about property rights in connection with that at some stage this morning, but what about individuals? What about if you are a soldier in the DRC who is on a salary of say $10 a month, or you are living in a slum in Kibera in Kenya earning significantly less than one dollar a month. Is there a development benefit? Is it going to help you to break out of extreme poverty to have a bank account even if you cannot read or write, and, if there is a development benefit for you, if it is going to help you to have some kind of a bank account, is there a minimum level? Even if you are reducing your costs to the minimum possible level, so Grameen costs rather than Citibank costs, is there a minimum level of salary below which it simply is not economical, because of the transaction costs, to have a bank account? Mr Naidoo: I think there is. The question is: what is the real benefit of someone who is earning $10 to pay 50 cents in transaction costs? There is a certain level. I use the example also of fortification. We can reach in Africa, through the work that we do with large-scale millers, 60% of the population who suffer from micronutrient deficiencies, but the other 40%, which are dependent on smallholdings and villages, we are going to struggle to reach and the costs are going to rise and suddenly from 25 US cents per person we go to double per person to reach them. I do not think that we have found an answer to that; it is just that on the back of microfinance can you grow other economic activity? On the back of microfinance, which enables subsistence farming in the Grameen Bank in Bangladesh, suddenly you bring new applications on that, the Grameen form and other forms of economic activity, which does raise the level of disposable income; but there is a point at which you say, even in places in South Africa, they are indigent people who can never pay for their services, no matter what we say, because they do not have jobs, they do not have incomes and so we have to provide a free basic service in water and electricity. It does reach a point where you say that requires direct government intervention or donor intervention. Mr Annibale: I very much agree with Jay. There is a level. We have seen it go very low, though, the level at which you are providing access on a viable basis to places like Bangladesh, Bolivia and elsewhere, and yet there will be communities, just as there are here or in any other country, which will not be reached at the same viable level. You see it with Post Offices in the Outer Hebrides or somewhere. There is a public good about providing a certain level of inclusion into the society, and some of that may need to come from specialised institutions that post conflict, war or isolated communities or indigent people may not be reached by commercial models, but I think that is a lower number than what we see today that are not getting access. Chairman: Presumably if you reach lower than you are reaching now, you create a dynamic within the economy that helps to put more effort into it. Q164 John Bercow: Given that there are always several variables in the equation, and specifically, in this context, several factors that are relevant to the generation of private sector development, what, in your judgment, is the relative importance of financial sector development within donors' broader strategy to facilitate favourable investment climates? Very specifically, how much significance do you attach to financial sector development by comparison, for example, with infrastructure development or the wider issue of economic governance? Mr Naidoo: In my mind, the situation I know best is South Africa, they are all integrated. You cannot say you have financial sector reform and then we are still in a country that is at civil strife. You have to look at governance issues. The one experience I have found, taking infrastructure as an example, it is not that we have no large-scale infrastructure projects that are really commercial in Africa, there are a range of other issues that surround making those things successful, and part of it is political governance to ensure that the environment is created with stability, part of it is the role of donor aid and how that donor aid is blended into development finance, into national revenues of government, into private sector money in a way that mitigates risk, because all of it is about risk. For me, financial sector reform is one part of a broader set of reforms that have to be in place for there to be sustainable economic development. Therefore, you cannot separate and say: microfinance, of course, it is fundamentally important, especially in places like Africa where agriculture is the mainstay of the majority of people and having access to small amounts of money will enable people to have economic activity, but on its own we cannot solve the problems that face us. Mr Annibale: I agree completely with Jay. We have looked at groups like Promahur(?) in Latin America, a very interesting group that looks at livelihoods and very clearly speaks about livelihoods, because providing a key tool for them is microfinance and they have a phenomenal performance level, a repayment norm that we would be envious in this country if a single bank had a repayment norm like that for credit cards or mortgages or anything. Yet they are right that, if they cannot provide basic healthcare programmes, simple access to healthcare to the women who borrow from them, it is going to reflect itself in the financial performance too. Whatever motivates you, you make these choices. If we do not educate people enough, they cannot take advantage of the opportunities; so governance is, of course, important. When we get to land rights and other issues, of course, if the judicial process does not function, it cannot advance beyond a certain level of financial products for people because we cannot enforce anything or we will not be regulating properly; so I think it is important that we look at the overall context, just as we do domestically when we make choices about supporting career, education, healthcare, financial sector reform. It is, in many ways, a blend and a choice that policy-makers have to make, more so that we can make necessarily from the private sector. Q165 John Bercow: I understand, and to some extent can empathise with, your reluctance to put all your eggs in one basket or to plump for one option to the detriment or even perhaps to the exclusion of all others. That said, we on this Committee are charged sometimes in our wide-ranging inquires, and we have to remind ourselves that we are charged, with the very specific task of scrutinising what DFID does, and to do so effectively requires us constantly to ask the question: is it making a difference? That really is the litmus test. Therefore, I wonder if I can come back to a similar theme about prioritisation by putting this to you. DFID currently contributes about £30 million a year directly to microfinance or financial sector development programmes. Does DFID's move to direct budget support, in your view, jeopardise its grass-roots level support to the financial sector, for instance, through smaller microfinance skills? Mr Naidoo: Robert. Mr Annibale: I can speak on what I know of DFID's work and where I see it has an impact not just on the area of microfinance and its outreach and evolution but also, even more importantly, on how we respond to this issue: because I think no matter how much we talk about £30 million, it is not that much money. In financial services globally, this is not a lot of money, not even in property prices or anything else in London, but it is significant if it is done well, and I think DFID is differentiating itself. I just give it enormous credit. Things like the FinMark Trust. I found that the work that was done with the FinMark Trust, whatever that was, £5 million over a number of years, has influenced the way we look at household finance and household income and understanding. It was great. We have gone into South Africa now. There are a number of other countries in the region. Last year we were very active in the area of microcredit - on the Steering Committee, Stan Fischer of Citigroup, who was the Vice Chairman, now he is Governor of the Bank of Israel - we worked very much to influence the World Bank & IMF and encourage DFID to have the FinMark Trust present there about financial sector household income data collection, about understanding the true dynamics of an income in a community. We did not know that. We did not bank this community. The World Bank, I do not believe, knew it either. I think they were at too high a level of collection of data. We do not use much of their data. It is not translatable to what we have to do and in reaching more people. The FinMark Trust was a very good example of something that has, I think, had an impact on the multi-laterals and certainly on us in the private sector about going deeper, about the needs of low income people, very specific mechanisms for savings, as you mentioned, analogies to credit unions which are familiar to more of us and realise this is what many of the informal sector are doing. They are creating savings clubs and credit unions which will help the infrastructure. The governance issue is a very important one and the work that they have done also with SEGA.[1] DFID is supportive of SEGA, with the World Bank, which has been a leader about issues like governance and the microfinance sector, setting rights and consumer issues for the very low income and the poor and standards that need to be addressed by institutions getting donor money. I think the pay-back for what is a little of the challenge funds, I also was familiar with, having some years ago been involved in one of the first links in East Africa that DFID had that had external people looking at some of the proposals for innovation. Not a lot of money, but I think it engaged multi-laterals and bi-laterals and some of the people like ourselves and the NGOs, the grass-roots people, in a forum in which we do not normally have an opportunity to get together. Q166 Chairman: Lastly, if I may, interest rates on the provision of microfinance. In Mozambique recently we learned of some truly excellent work on microfinance and we witnessed some of the individual projects ourselves - very, very small-scale projects. We were I think - and I can probably speak for colleagues - initially rather taken aback by what seemed to be ferociously high interest rates, but the argument was made to us that in fact, where the sums involved are relatively small and where the challenge is to establish a decent business plan and then provide upfront the resources with which it could be kick-started, the interest rate itself was not of such importance. Is that a view you share or is there a problem with rates? Mr Naidoo: Let me give you an example. In South Africa we have a serious problem with microfinance institutions that have grown up in an unregulated environment which really are very mercenary, and a lot of people who are workers, domestic workers, in the lower levels of remuneration in terms of the scales, ended up in debt traps until the Government intervened and started to regulate it. Microfinance institutions have to operate in a regulated environment, otherwise the poor get, I think, exploited terribly, as happened in South Africa. I suppose that part of the work, as Robert has said, about building up a policy environment, creating a regulatory environment, creating the case studies which can be proven models is very important work that DFID must continue to do. There is not going to be an organisation of scale in microfinance. I think we have got to operate on the basis that they have to be very entrepreneurial, they have to be very low-cost, they have to give a very personal touch where people can trust their money when investing with someone else. So, yes, I think we should target the grass-root operations, but I absolutely share your point of view in that some of those interest rates are exorbitantly exploitative. Mr Annibale: I think the whole issue of notional interest rates is always---. First, it has got that headline impact, the fact that they are high by a notional amount, as on credit cards here, for example, consumer finance, when you see people paying 20 something%, 40 something% a year, which is not uncommon. In India at the moment in many ways there is a problem around Kadesh. There is very much a debate going on around the interest rates of some microfinance institutions. When I compared them, however, with the banking sector's interest rates for consumers, what we would have called inclusive, the included financial sector, people with overdrafts, people with credit cards who are prime clients, they were very similar, and yet our challenge is much lower in terms of delivery costs. I completely agree with Jay, financial services need to be in an appropriately regulated environment. We all are and we accept that, and I think people have to feel that they are safe as well in terms of the transparency and certainly if anyone is taking deposits. What has brought down interest rates in microfinance, as it has elsewhere, has been in markets where there is competition. We have seen it in Bolivia, we see it even in Mexico starting off where notional rates were very high. It is very similar to what our consumer finance company and HSBC's and others are charging working-class, middle-class people, but it is still high. The real question will be getting that innovation that microfinance has around blending and credit judgment of low-income people and products to a scale that is more familiar to the commercial banking sector, and platforms that can bring costs down, but, yes, all of us want to see rates coming down. Getting them down by forcing them or capping them is not going to achieve scale. All that happens is that we withdraw as banks from lending and then the black market comes back because people are paying much, much more. Chairman: We have had exactly that debate in the House of Commons on the Consumer Credit Bill. Mr Annibale: People will exit that segment and they will have less choice than they do today. The important thing is to give people a choice in finance. There is traditional barring, there is the black market or the money lenders, which are the most prevalent, and then there are smaller growing niches of people like microfinance, and, yes, microfinance is the lowest of all those, probably, other than perhaps within a small community, which would be like a credit union approach, but I still think that if it is to take public money it needs to be very transparent in what it is charging people and where those costs arise, especially those institutions that take public money. Q167 Ann McKechin: Mr Naidoo, can I ask you one or two specific questions. Your development bank states that it wants to become a Knowledge Bank that goes beyond funding to offer knowledge products and services. I wonder if you could give us some examples of infrastructure investments by the bank that have successfully stimulated markets in southern African countries, particularly in the area of knowledge transfer? Mr Naidoo: Yes, the challenge in South Africa is very peculiar to the rest of Africa where we do not really have a challenge of money, it is your capacity to take money and make it into bricks and mortar, and so what we recognised very early on is that we have to extend the envelope in the DBSA[2] to deal with those challenges. Therefore, the concept of a Knowledge Bank, where in a sense we are a provider of concessional money for projects, and so our lending role is very important, but beyond that we have a partnership role to work with governments, work with the private sector, work with ordinary communities around projects that they would see their quality of life improved, and part of it is also a third role to provide technical assistance. We have invested enormously over the last three years, in fact we have invested over £50 million, in actually building capacity of local governments, of private sector, of our clients, in risk management, project management, financial management skills, so that they can build sustainable enterprises, sustainable governments, and that has been, I think, our biggest success. In fact we have taken it one step ahead of that now and we have actually invested in creating a permanent taskforce with that capacity that will help our clients to deliver capital projects. There is a range of different examples where we have done that. In South Africa we work with local governments and, in many cases, where these governments have been in a state of crisis, we intervene and we will send teams out to work with them to straighten out their administration and finances and the link systems. In the region we have been taking initiatives such as governments that are privatising enterprises or enterprises that have gone bankrupt, and we will go in there and work with the client. Q168 Ann McKechin: Can you give perhaps one example of such an enterprise? Mr Naidoo: Let me give you an example. Mozambique would be an example. Mozal is a big aluminium smelter set up in Mozambique to process aluminium and to export it, so it is a largescale capital project, but what we have done was to provide the end support in terms of infrastructure around that so local communities could have access to clean water, have access to electricity and in a sense create economic activity around that major investment which is primarily driven by the private sector. We would go in, in terms of that project, and say, "Okay, what is it we can do that would support economic activity in the communities that surround such an enterprise?" Q169 Ann McKechin: We were in Mozambique as a committee recently and that particular project was discussed quite significantly. However, I think there were a number of concerns (a) about how much actual local employment was created because of the high-skilled nature of the project, and it was difficult to find capacity within Mozambique, and (b) the contribution to the tax-stream from Mozambique and government was negligible, and, given the scale of the project, I am sure local projects in the area to improve roads and water sanitation are very welcome, but they are not equivalent to making a major contribution to the taxable income stream. I am just wondering whether you have learned any lessons from that and whether you would repeat that type of investment in the future? Mr Naidoo: The reality is the project was taking place. The terms of that investment were really negotiated by the Government of Mozambique. The choice we face in the Development Bank is: "Can we take that project and create a downstream activity that benefits local communities around it?" Our bank focuses on infrastructure delivery, which is water sanitation, road access, et cetera, and that is a priority, that is the mandate of the plan. That is what we would do in the regular course of our work. It really depends on projects that are brought to us, and our clients usually are either private sector or governments, and we have to work with the client that brings the project to us, and so part of our big challenge as the Development Bank is that we do deal with large scale projects. What we are trying to do now is to work downstream and say: How do we focus? That is why we have created a stand-alone section 21 not-for-profit company called a development fund, which is really our grant-making window, where we will work on a much smaller scale with the local communities and help develop those projects, but we are an infrastructure bank at the end of the day, and that is our mandate. Q170 Ann McKechin: Do you make any assessment on the effect on the poorest people in the community? Mr Naidoo: Yes, we have done impact analysis, cost-benefit analysis post investments. Q171 Ann McKechin: Moving on, South Africa's financial sector is obviously the most robust in southern Africa and it has got a very strong regulatory framework. I wonder what lessons you believe to be learned about financial sector development from the case of South Africa. Could it be extended as a model to other southern African countries, or do you think it is in a rather unique position which is difficult to replicate? Mr Naidoo: The important lessons one can learn, but I think South Africa, in a sense, is pretty unique in many respects, because we do have a highly developed private sector, the institutional framework of government is very strong, the macro-economic climate is very disciplined and so you can draw lessons. I do not think it is a model you can replicate elsewhere. There are important lessons, and one of them was the recent financial sector reform process which led to a Financial Services Charter which was negotiated. It was negotiated between the stakeholders, between government, society and the financial institutions, which requires certain outcomes in the financial sector review and reform process. Part of it is the access of banking services to the 'unbanked', and there are very concrete targets set and investments that have to be made to deliver on those targets, there are requirements around community reinvestment initiatives and the role of government in facilitating those reinvestment initiatives, there are equity transformation targets set for the sector itself. So, yes, I think from South Africa there are important lessons to take, but it is also a pretty unique economy in Africa, so I would doubt that it is a repeatable model in its totality anywhere else in Africa. Mr Annibale: I would only draw an analogy to somewhere like Brazil. You find almost no microfinance, for example, in Brazil, it is negligible, and certain NGOs and very specific communities have been excluded and still continue to be, but you have a very strong banking system with quite a comprehensive public and private sector banking presence and consumer finance, for instance, that is going deeper. It is that sector that needs to be taking, as Jay said, the right incentives, I hope, rather than punitive if you do not go deeper. Brazil is putting in incentives for microfinance. Q172 Ann McKechin: But it is much easier for the private sector to deliver the project? Mr Annibale: It can deliver. Private banks are opening branches in all the Post Offices, for example. There is a window. One of the bank's private sectors has a bank branch, so the infrastructure is there all over the country. Why do you not use it? You cannot replicate the capital base in a country like South Africa or Brazil, which is a well regulated, capitalised commercial banking sector, in public banks too, but they need to be encouraged to go deeper. That is where the simile innovation of the microfinance may be helpful in a partnership with those banks, because they do not have the experience of working with that segment and some of the microfinance groups do. Q173 Chairman: Maybe you should have a word with RBS and HBOS about the value of a Post Office network. I have one quick question, Mr Naidoo, on GAIN, which you chair, and then we have some final questions on microfinance as well, and it is supposed to be a partnership to improve nutrition, but ultimately, after pump-priming, to be self-financing. I wonder if you could give us very briefly an indication of how this works and whether or not you have had success in getting projects that deliver the end gain which are self-financing and whether they have passed the initial stage? Mr Naidoo: I think that is a very important question because in a sense that is a case model of success. I made a point earlier in that $40 million of contributions have made so far to 15 projects in 14 countries. They have required in the totality of the implementation of these projects an investment from the private sector over $350 million. If I give you the example of South Africa, we deal with basic foods. The basic food consumed by the poorest of the poor in South Africa, the staple diet, is maize and wheat flour, and we give grants of up to $3 million per country to set up a fortification alliance at a national level that brings to the governments and civil society and industry and helps the process of consultation that eventually sees a policy refund component, which is a requirement by government that wheat and maize should be fortified with the products that are specified, with the additives that are specified that are laid down by the World Health Organisation, and industry feels comfortable because they can absorb that cost in the long-term, because over a year it costs 25 cents per person. So our role has been at advocacy level, at education level, at bringing together the stakeholders to find a common vision and a common strategy, and today in South Africa all maize meal and wheat flour are fortified with minerals and vitamins and a lot of the flour that is produced in South Africa is exported into the region, so it has a multiplying effect. We are having soya sauce in China, we are having fish sauce in Vietnam, and the nice thing about it is that we are mobilising the private sector to make these investments, and our role, like in South Africa, ends. We play a role in establishing the systems to monitor the impact, but it now has a life of its own. It does not require further contributions from our side. We will not make another grant to South Africa. We are now working in about six or seven other African countries with another three or four in the pipeline, and so we will reach those countries where there is a demand and where there is an appetite for people to make an impact, and I think in your whole political representatives here is a low-cost, big impact, it is very good for even the representatives of government to take this initiative forward, and we find that a positive thing. I think what we are looking at is the way in which one can take these projects. It might be very focused and very narrow, but the impact is large and we can deliver. On the back of the success of fortification we are now looking at early feeding schemes, feeding schemes for children post the breast-feeding period where there is a period of intense risk that they face by micronutrient deficiency, so you can start adding things on that build up the health strategy of the particular country. I think that the important thing in this inquiry is not just about the finance level, it is the way in which one can get other people to invest in development outcomes, and the best case that we have to prove today is that the private sector is investing in delivering the benefits of development. It does not require subsidies. That is the whole thing. How do we take the money that DFID has and leverage that money up into a sustainable model to get others to deliver on an economic and commercial basis? I think that has been for me an important element of success in the work that we have done. Chairman: I am extremely interested. It sounds as if you have gone a long way in a relatively short time. Can we turn to some questions on microfinance. Q174 John Barrett: 2005 was the year of microcredit and there were some notable successes. I can remember clearly an African chicken farmer opening the London Stock Exchange, not something that happens every day. The attempt to raise the issue of microcredit with the general public was one issue but raising awareness in the banking and conference centre was that a success? Looking back and carrying on, now that 2005 has now passed, has it made a lasting impact and are people prepared to take on the initiatives that were raised last year? Mr Annibale: We were one of the large funders of the year of microcredit in the private sector, and actually in aggregate we gave more than the UN did, and the cost of the year has been shared as well around programmes that we launched in the UK at the beginning of the year, a microfinance club of the UK, at which we had over two hundred people. Today each meeting has about 80 to 100 people - and it impresses me - across the banks, the law firms. We host it sometimes in Clifford Chance, sometimes in Citigroup, sometimes in HSBC, so it engaged an issue around a lot of people who do not do microfinance most of the time, and we thought that was key. It was just preaching to the converted, or within a development circle, an existing audience that had plenty of conferences and events to go to. Getting into a wider sector was a challenge, and to making sure that people like myself, who are not in the community department or in the public investor relations department, or whatever, but actually report to CEOs in the business, are involved on this issue was key. We thought the year went very well. It led to a number of events, and we have just had another one in the Netherlands with global banks looking at microfinance and comparing what they did. Princess Maxima, who as an ex-banker in the Netherlands, herself was a catalyst. I hosted a lunch for her here with bankers to catalyse them. She has seen presidents of the banking associations as she travels around the world, she has visited our branches and sent me emails about our credit policies may not being broad enough or inclusive; so I found that it actually reached a much larger group and it caused us to work with some of the leaders in the microfinance sector and the multi-laterals in a way we had not before. Q175 John Barrett: Obviously, for microfinance to expand and to be a success collaboration of the banking centres is important, but it is difficult to get the banking sector to be involved with the poorest of the poor in society; so how can that collaboration take place without the mission behind microcredit, microfinance being squashed? Mr Annibale: I think an important thing is that we are doing everything. From my world it is the strength of our commercial capacity. We give $10 million a year to microfinance, we give thirty to financial sector reform, we probably do maybe $50 million in the financial sector development in Citigroup philanthropically alone. It is just a drop in the bucket when we have a trillion dollar balance sheet and we have 300,000 people. It is leveraging that business around this issue. In the UK it is for me too a quandary. It has a lot to do with immigrants, it has a lot to too with people who have never banked before, who are excluded, there are those who have fallen out of the system, and we talked about that, or from a credit perspective a truly falling out of the system, indeed, we have much broader social issues, but in fact a lot of people are never let in, who never came in, and I am looking at credit unions in the UK to understand again: are they a mechanism for reaching people? What is the intermediary between us and our capacity as an institution and these communities? That is why everything we do in microfinance I do with a guide. I work with other people, I work in their country, I work with a partnering microfinance institution because I cannot be pretentious that I know the poor as a client. I have never banked with them, or we would not have this problem. I feel that there are those who have the trust and the knowledge of the community. We have certain other capabilities to bring. In the UK I am just starting an initiative here and getting some staff to actually look at it and say who is reaching this group, why are they excluded and why is it so hard to open a bank account? Q176 John Barrett: Are there specific products that the commercial banks can see make absolute sense, both from a banking perspective and from the poor's perspective? Are there examples which say this has worked? Mr Annibale: I think savings have never to be underestimated and neither should the ability to have a simple transaction account to put savings in or to pay bills out of. We used to have that in the pass book accounts at post offices and places for many years. There was a place where the very old saved and the very young had their first account. It did not quite fit into the banks' minimum balance product but it was such a pervasive presence and was made so friendly and easy to open. The first thing most people need is a safe place to save and to begin a history in the financial sector. That became very difficult and many banks, of course, have minimum balances and things Jay alluded to which makes it prohibitive to have a bank account. Try to open one and see how difficult it is. In India we are now involved in a deposit programme with an MFI and the European Bank. The documentation required dates back to the Indian Banking Act under the British in 1912, or something, and requires documents that 400 million people in India do not have in so how can they open an account? To know your client and the requirements of money laundering and all these sensible things, when you have no materiality threshold means you are excluded. You are simply making the transaction costs of opening an account and the documentation required so prohibitive that ordinary people will not find a low-cost, simple place to put money and to have a debit card so that they can then access the whole national network of cash machines. So it is about looking again at things that you put in for sensible purposes that actually further exclude people. Q177 Mr Davies: Mr Annibale, I wonder if I could just explore first of all where Citigroup is coming from in all of this. You are the global head of the firm's microfinances and I just want to get a clear picture of what your remit is. Is microfinance regarded in Citigroup as a commercial activity among others, as a profit centre? Is it your job to maximise return on that share of Citigroup's capital which is deployed in microfinance, commensurate with the risk of your activities there? In other words, are you just another profit activity like trade finances or consumer credit or derivatives trading or is that part of the public relations or good citizenship aspects of Citigroup's activities? Mr Annibale: That is a very intelligent question. I do not have a peer in the major banks. I have people in community groups, investor relations, public affairs, foundations, or whatever. I do not have somebody else who works for the CEOs. My group's work is not mentioned in the community section of our annual report that came out 2005. It is in the letter at the beginning of the annual report by the CEO chairman as something that is five initiatives. It refers to our building commercially viable and sustainable relationships, beginning with microfinance institutions, microfinance networks and investors. I am remitted with finding ways of growing commercially viable relationships and investing in doing this. We begin with such a low base of knowledge as bankers in this segment but we have a lot of expertise. How do I develop a large-scale deposit savings programme for microfinance institutions in India which cannot take deposits for their clients and do it for them? In Mexico we did the first investment grade bond issue for a microfinance institution and it was three times oversubscribed by institutional investors and it was profitable. We have done insurance which we never did before for this segment. We now insure 12% of our clients in Mexico. In six months we have gone from zero to insuring 12% of self-employed rural women that are clients of microfinance institutions. That will grow to 40% this year. We have discovered that it is a significant client segment. If we can provide quality and appropriate products to this segment I believe we can scale it and do it at a commercial return which is enviable. Yes, there is definitely a resource investment to be made to do that, but it is coming out of our businesses, it is coming out of the budgets and the product areas of Citigroup; it is not coming out of a special --- I enable that with the boutique of expertise perhaps that we are building but people who do the actual work are consumer businesses in countries and capital markets groups. It has a double bottom line. It is recognised enormously by the shareholders, by the media and by everyone who seem to feel that it is a great initiative to have. Q178 Mr Davies: It sounds to me that your answer to my question is really it is a bit of both. It is image building and government relations and so forth and assisting in the achievement of your other objectives, but also if you can build genuinely profitable businesses out of this or gain some customer relationships that you otherwise would not be able to achieve, then that is it as well. Mr Annibale: We start with a ladder. I believe we can reach very large numbers of people in a viable programme. 25% of people in Poland, an EU country, do not have a bank account. That is a significant number of potential people to reach. Q179 Mr Davies: I think we have got the flavour of it. That is very helpful indeed. You said earlier on that you thought the commercial banking system had not been good at handling remittances. That is possibly the understatement of the morning. This Committee has had quite a lot of evidence of appallingly inefficient handling of remittances. Of course these people are some of the most deserving people in the human race because, by definition, they are poor, they are hard-working and they are rather generous because they are supporting families in other countries and so forth and often work far from their homes and then paying regularly over 20% of their hard earned remittances into the banking system, so that is obviously very bad. Taking account of the progress that Citigroup has made, what would be the all-in typical transactional cost of remittances of, say, $50 to $200 from London to Bangladesh or New York to Ecuador which are some of the countries which you mentioned, including the cost of the foreign exchange transaction, including the transfer, the all-in remittance cost? Mr Annibale: For the banks it was not viewed as a stand-alone product. If it was it would probably have bought Western Union in the past or other banks would have done the same thing. It was not in a segment that was seen as a key product to deliver to the majority of your client group. I believe the banks never invested in it enough to bring the costs down to make it attractive. When I looked at New York to Bangladesh, the place where I am piloting now, we went from $40 a transfer to $5. That $5 is capped, if I remember, to $3,000 or $4,000. Q180 Mr Davies: $40 irrespective of amount? Mr Annibale: Irrespective, it is a $5 --- Q181 Mr Davies: For $100 you paid the 40% charge? Mr Annibale: It was a $40 charge, it was a flat fee. It is the same you would pay if you were to transfer from London to New York. Q182 Mr Davies: And the cost of foreign exchange would be on top of that? Mr Annibale: In that case it is dollar to dollar but it would be one or two%, like credit cards or other transfers that we have. If you take dollars out of your account, you would use your credit card in New York and you are debited and you are charged an exchange rate to convert sterling into dollars, and that is usually one to two%. The difference was the whole fees structure was based around it being a low volume of business for the banks. It was a one-off. We were not banking the community that were remitting very heavily. What we do with the Indian community here in the non-resident Indian programme we have is we do not charge anything for remitting to India. Why? Because it is such an effort to bank. Q183 Mr Davies: I can go to your office in London --- Mr Annibale: --- As a non-resident Indian. Q184 Mr Davies: --- tomorrow and I can send $100 to India and you will not charge me for that? Mr Annibale: If you are a client of ours and you are sending it to your account or any family account in India. That was the idea of banking to remit because if you want to bring the costs down, the transfer alone for us in the banks on the whole - with the money laundering regulations and people just walking in with cash to send it somewhere - made it unattractive as a stand-alone product, but creating it so that it is part of a product for your clients means that you can push the costs much lower. We are currently piloting one now - and we will announce it in the UK - with the Kenyan community. Q185 Mr Davies: But both parties, the sender and the recipient, would have to have an account with Citigroup? Mr Annibale: To be free. From the US to Mexico would be $8 if one of you was a client of Citigroup. We are working on the basis that you are a client to remit, one end or the other, and that is partly for the "know your client" and the money laundering requirements. Q186 Mr Davies: Okay and what would be the charge if the recipient does not have a bank account, possibly for the bureaucratic reasons that you have already described this morning? For someone who needs to pick up that money in cash from your branch in India, what would be the transaction cost? Mr Annibale: I am not sure. I do not remember the transaction cost In most countries we do not do transfers for people who are not a client, who just walk in with cash. That is why until we began to bank people and we saw the numbers of people doing remittances --- Q187 Mr Davies: I understand. You might transfer the money to somebody. The sender might be somebody with an account, working in the West and would therefore have the money and a regular job and so forth, enabling him or her to set up an account. The recipient might be somebody incredibly poor in a village in Bihar or Bangladesh who might not have an account. Hence my question. There is no money laundering problem if the recipient does not have an account. Would you allow the sender to transfer the money in such a way that the recipient can pick it up in cash? That was my question. Mr Annibale: In Mexico it would be $8 for the person to receive it. Q188 Mr Davies: We are all familiar with the De Soto hypothesis that says basically that there is not really a shortage of capital even in the poor countries, rather that all the capital is tied up and frozen in real estate without proper property titles and therefore cannot be transferred and the capital is therefore immobile and cannot be mobilised. As a result of your experience in this area, to what extent do you think that this really is a major problem of the importance that De Soto implies and to what extent do you think this is not such a major obstacle to potential growth from developing countries? Mr Annibale: I should declare that I sit on the board of advisers for the UN Commission for the Legal Empowerment of the Poor, which is chaired by Madeleine Albright, which was kicked off by the UN a few months ago. I think land rights is a key issue, not only land title. De Soto was an advanced thinker in its work on the path where we were talking about the segment and then more recently about the importance of land title as evidence of wealth. I think the importance of giving people specific, individual titles - again the governance issue comes up, the land registry, the enforceability of the title. The question really also is we are most concerned that land not be taken by speculators and by others who can lose your land if, inappropriately, you just give titles to people. Today what we mostly look at in the best of microfinancing is security of land tenure. Q189 Mr Davies: So it is the tradable rights in the form of a lease or a tradable tenancy, for example, is what you are saying, as opposed to title in respect of freehold title? Mr Annibale: I am not sure that today in the legal environment in Peru where they have given many titles that you have actually seen many people get mortgages who have those titles. Q190 Mr Davies: You are distinguishing between tradability and security? Mr Annibale: Yes I am. I am saying one of the important things is the security of land rights and tenure because that is an important part of our lending. We know people are not going to move their home in most cases unless they are evicted in the countries in which we operate. That is the net savings of the family in a home and they will repay as best they can to secure that. Whether that is best secured by a transferable title against a mortgage is questionable. There are many jurisdictions where we have those and it is good order to have them. It may make sense for other reasons to have that legal claim of enforceability and the ability, or even a desire, to enforce it, and the implications of that may be very much less of a factor than the psychological sense for both the person who lives there and for ourselves to know that that person has the right to stay where they are, and that their investment there and their income is more secure because they have a right to a home and permanency; and they are not going to be thrown out and therefore disrupt the whole cash flow of that family. If we look at the cash flow of people in that situation we need to know the variables. There are so many variables of risk and removal, replacement and eviction is a key one. The title itself is indisputably the right direction, yes --- Q191 Mr Davies: The lender has to have a mortgage on a tradable asset. It does not necessarily have to be a freehold, it could be a lease, but it needs to be tradable so if the lender forecloses the lender can realise the value; is that right? Mr Annibale: As you develop mortgages and you develop a legal framework that supports that, and a judicial process that operates correctly on that basis, you are absolutely right. Directionally it is the route that we would like to see it go on. Q192 Mr Davies: But it is very important that on the record we are quite clear about the advice you are giving us this morning. Are you saying that title is not really relevant and what is important is to have some sort of right? Are you saying that that right must be tradable or are you saying that even a right to remain somewhere, a right of permanent residence itself is valuable as a basis for making a loan, even if the right is not tradable? Mr Annibale: I am saying that as part of the progression towards a tradable title, I believe that the first thing to ensure is that people have a right to remain where they are. To get that directionally moving towards their having a title, which again allows them more options with their assets and their home, is the direction we should go. I think De Soto's output is to go in that direction and it is ours too, but I believe we have a need to begin and also to look at the very many ranges historically. We have co-operatives that have titles. Most of us live in freehold or leasehold premises in London. Many of those legal structures need to be considered along the way to getting tradable titles, but I think it is important to have the rights of people where they are today and then to incorporate that because it is a complicated and costly process of giving titles and remunerating those whose land they happen to sit on today. Q193 Mr Hunt: Mr Naidoo, you have been on both sides of the table. You have been a trade unionist, a campaigner, a part of a government which has got an explicit agenda to help the poorest, but also president of a large bank. I am trying to understand whether microfinance or microcredit is a good thing for consumers in poor countries. I think we would all accept that it is a very important thing for people who want to start businesses. In Brazil, which Bob mentioned, you have the largest electronics chain having very innovative ways to enable very poor people to buy fridges and white goods and things like that, but in this country, to take the poorest people in this country, there is a big problem of consumer debt. You find that people who buy a sofa that would cost you or me £500, for some of the very poorest people it ends up costing them £2,000 because they have to pay it back over a long period of instalments. So is microfinance and microcredit a good thing for consumers? In other words, enabling them access to credit which may help them get out of poverty could also increase their debts, or are there risks in that? Mr Naidoo: I think the most important issue for consumers, whether they want to buy things or whether they want to start an economic activity is access to credit. I believe that it is a prerequisite for development. So access to credit is very important. The issue of what is the regulatory framework to prevent what you are saying could possibly happen (and has happened) is very important, and that is a requirement of what is the regulatory policy environment, what is the education that goes along with access to credit, what is the role of the private sector who is offering that, whether the private sector is a money lender off the street or whether the private sector is a bank. That is why for me it is fundamentally important that we go in partnership around extending the right to credit. That is so important. If you look at the role that Citigroup has had, I think it is very important. What we are doing is getting large institutions to see that there is a body of citizens who are quite substantial in any country that have a right of access to credit, but you have got to do it in a sustainable way so that you weed out the bad apples. Doing it in the way and playing the role through DFID or through the role of you as a Committee in getting large institutions in the financial services area to have a responsible way of how they want to extend credit to the poor is a very important process, I believe, and that can only come about as a result of smart partnership. The issue really for me is how does one harness the infrastructure that exists in these developing institutions in a way that makes them share the development goals that all of us believe are important. We want the private sector to succeed. I would certainly want to see the private sector succeed in fortifying as much food as possible as laid down by the standards that the WHO have. I would love the idea that the Citigroup gets every other bank to extend credit because one of the big challenges in Africa in entrepreneurial development is access to credit. I have started a business. I am in the private sector and I run an investment company. When I went into the bank, irrespective of what I had done in government and before, the first question I was asked is "What is your credit history?" I have handled a transaction in telecoms worth over $1 billion, I have helped build a trade union movement, I was a minister in government, but they wanted to know "What is your collateral?" It is access to capital to help grow business and we were saddled with the interest rate charges. I think that access to credit, whether for consumer activity or for entrepreneurial activity, is very important and getting the cost of money down is an important goal. If we can harness the resources of the private sector to get into the areas of development all well and good, but it has to be alongside other things like education so we avoid the debt trap that many people have got themselves into. Mr Annibale: I think the other reality is that where you get institutions - RBS, Citigroup, whoever - involved, we would be a catalyst to what should be the largest players, the domestic banks in these countries. Domestic institutions really are the largest providers most often of banking services. We know that they play a certain role there as a catalyst. We are accountable. At the end of the day if you do not like how the banks trade or act you have the FSA and you call us in; and you do. You call in bodies like Federo in Washington. We are totally accountable. The media holds us to a level of accountability which is not the case with money lenders or some of the smaller institutions that may fall under the radar. That is probably one of the important roles of public policy, that you do have a framework that sets the boundaries for banks and others providing finance, especially for credit, as you said, such as is there appropriate transparency in the kind of rates they charge? Is there financial education? It is a big programme of funding from our end too. Did the client know what they were really paying? Do they understand it? Because we will be held accountable for that at the end both financially and publicly if we do it badly. Mr Naidoo: There is just one final point I would like to add to that, which is that today people take credit. From my experience as a trade unionist, I have seen people who stand outside the gates on payday and zap the salary off the worker. So you cannot stop people taking credit. I think it is very important to institutionalise this and create a code of behaviour that requires responsible banking and extension of credit because it will happen. It has happened for thousands of years. You are never going to stop it. The important thing is to get a code of behaviour and conduct in the area of extension of credit that can be monitored. Chairman: Can I thank both of you very much for the fullness of your answers, your enthusiasm and that fact that you have shared some successes. I think the thing we are concerned about is the amounts are small against the problem, so clearly a lot more success and a lot wider spread of these kinds of activities will be needed if we are really going to see an improvement. Thank you both very much indeed for the exchanges and for taking the time and trouble to be here. Examination of Witnesses Witnesses: Mr Peter Cameron, Fellow, Institution of Civil Engineers (ICE) and Chairman of ICE's Appropriate Development Panel; and Mr Petter Matthews, Executive Director, Engineers Against Poverty, gave evidence. Q194 Chairman: I would thank you both for coming in and apologise, first of all, for the disruption at the beginning and the consequence that we are now overrunning. What I am going to suggest, so that we all know where we are, is that we aim to finish this at about 12:40. We want to hear from you so please do not misinterpret that, but if you could bear that in mind, the crisper you are the more information we can get. Otherwise one or two of my colleagues will leave and this will not be good for the dynamics of the event. Thank you very much for coming in. I trust that you were listening to the earlier exchanges. Clearly, we have made references to infrastructure and it is infrastructure issues that we particularly want to hear about from you. Can I ask you very briefly to introduce yourselves and tell us your main areas of expertise in the field. Mr Cameron: Thank you very much and thank you for inviting us. My name is Peter Cameron and I am a Fellow of the Institution of Civil Engineers and Chairman of the Institution's Appropriate Development Panel. For those of you who do not know what that is, it is a panel organised through the Institution of Civil Engineers but, unusually, it brings in a very wide level of expertise from DFID support, various NGOs, WaterAid, TRL, the School of Tropical Medicine and so on. So it does have a very wide impact and brings in expertise that has done a lot of work in developing countries, developing and encouraging small-scale improvements generally that will reach millions of people rather than the large ones that have a much more limited impact. My evidence has tended to be more towards the philosophical side looking at the key issues that surround the development rather than the development itself. Mr Matthews: My name is Petter Matthews. I am Executive Director of Engineers Against Poverty, known as EAP. We are an independent, non-governmental organisation, set up about six years ago by the UK's leading professional engineering institutions, including the Institution of Civil Engineers and the Institution of Mechanical Engineers. We enjoy a very close working relationship with the professional engineering institutions and do a lot of programme work with the Institution of Civil Engineers. We work on large engineering-related projects in low and middle-income countries, predominantly in infrastructure in the extractive sector. One of the key propositions that underpins our programme work is that social improvements, particularly poverty reduction, can in many instances be delivered through mechanisms that will also create commercial opportunities for the companies. Q195 Chairman: That is obviously central to what we are interested in. May I say also, Mr Cameron, that the ICE submission was both interesting and not what we would immediately have expected. I think your introduction has explained where you are coming from. There were a lot of very interesting comments in that. Perhaps I could start by saying that the Committee interacts regularly with NGOs, who obviously have a range of opinions but have a little bit of nervousness and sometimes opposition toward the engagement of the private sector in infrastructure. I think many of us recognise that the capacity is in the private sector, but I just wonder whether you have any take on the way that NGOs feel that there is a conflict between private sector involvement in infrastructure and poverty reduction, or perhaps the other way round, how you feel we can engage the private sector in ways that are central to delivering poverty reduction, particularly in the infrastructure area? Mr Cameron: Certainly, yes, NGOs do have and have had some poor views of infrastructure developments that have been carried out, supposedly in the interests of the poorer people. Jay Naidoo referred to a clause called "development vision", and we would translate that into four specific areas. Firstly, engage and empower the end user. In other words, many developments up until now have tended to be imposed on indigenous people, "We believe what we are suggesting is right", rather than engaging them and finding out exactly what the problem is and how they will best use it. Secondly, that we have in the past swept away the indigenous rights of people. We think particularly of major dam projects like the Sardar Dam in India where people's rights of fishing downstream rivers, and grazing the fields alongside the rivers have been swept aside in the interest of "major infrastructure development". Growth needs to be sustainable and often therefore bottom-up as part of engaging the local people. It is understanding exactly what they want but also ensuring that it is a development that they can maintain, that they have the capacity to deal with it. It is developing roads that they have the capacity and machinery themselves to be able to look after rather than like witness Zambia years ago where we built tarmac highways which quickly fell into potholes and they did not have the facilities to mend those properly, or the supply of water pumps through a cheap source but there is no immediate access to all the spare parts so after a year or so the water pumps fall into disrepair. It is avoiding social anxiety and marginalisation where if we come in with a big development, be it an extraction area of mining, where a certain part of the community immediately gets good jobs, immediately you have the marginalisation of those who have not got those better jobs and therefore you develop a social insecurity that can cause problems. However, I think that with a clearer understanding of what is needed for growth, the private sector and the government agencies can combine together very much more to develop that. However, it could be slow growth. We need to be prepared to go slowly in places rather than a big hit. Mr Matthews: If I could maybe add a specific around the non-governmental organisations. I think that civil society - and NGOs are a key part of civil society - is a good deal more diverse than it was ten or 15 years ago. I sometimes think that non-governmental organisations in their interaction with business exist on a kind of continuum. At one end of that continuum you have campaign organisations like Friends of the Earth and Greenpeace, whose role it is to expose some of the shortcomings of companies, and on the other end of that continuum you have organisations like Engineers Against Poverty, some of the care organisations and the Overseas Development Institute which work with business in a far more collaborative way. I am often asked as the director of an NGO who works in collaboration with business if I see that as being in conflict with some of the activities of the more campaigning organisations. My answer is the same: absolutely not. We work closely with companies and we have the trust of the companies that we work with. I am aware that one of the reasons they are working with us is a consequence of the pressure they are getting from the campaigning organisations, so I believe that there is a synergy between the campaigning and the collaborative NGOs. In terms of their attitude to the role of the private sector in delivering infrastructure, I think there is a far more nuanced understanding of the importance of the private sector now that probably was not there ten years ago. I shared a platform recently, as did Peter, with a representative from ActionAid who has done some really good work in Tanzania and produced a report called Turning off the Taps before the Biwater pull-out debacle last year from Tanzania. The individual from ActionAid was saying, "Look, it is not an ideological position. We have done some work to identify some of the problems that there have been when the private sector has been involved in the delivery of infrastructure but it is not an ideological position." They are an absolutely key player and what we need to do is create an environment where they can make a positive contribution and avoid some of the problems there have been. There are still misunderstandings between NGOs and companies. There are different organisational cultures and different decision-making processes, but I think there has been an enormous amount of ground made up over the last ten years. Chairman: That is helpful, thank you. John Bercow? Q196 John Bercow: I am still keen to get a sense of the extent of the changes in practice that you think are required to bring about greater, quicker and sustainable progression? Do you, for example, agree with the Commission for Africa recommendation that donors should re-think their approach to infrastructure development in order to co-ordinate more effectively, to involve the local private sector, and to issue grants rather than loans? Mr Cameron: The simple answer is, yes, we certainly do think that there should be a much closer co-operation with the local people to develop what they actually need. A grant can be a good way of moving that forward, but so often the problem has been the conditionality attached to those grants. If it becomes too onerous, as I think they have been in the past, then the whole thing collapses. Q197 John Bercow: But on the other hand there is a fiduciary responsibility to the taxpayer, is there not, and therefore there is a question of trying to establish a balance between on the one hand wanting to give a relatively free or in some cases almost complete free rein to local operators and, on the other hand, having some regard to the fact that one has responsibilities domestically? Mr Cameron: Yes - and Petter will explain more - the Institution and the ADP have been looking at procurement methods that would help procure sustainable solutions for projects overseas. I think that is probably the way to go. What we do not want is the conditionality such as in order to do this development it must be totally privatised because so often that does not buy in and empower the community for whom it is designed. Q198 John Bercow: I am always keen to try to nail things down to have a specific rather than a general point. Can you offer the Committee one example of what you would regard as an overly onerous condition? Mr Cameron: I think probably the one we have just mentioned, the Biwater affair in Tanzania is a key one where, for whatever reason, it was partly pushed by the World Bank to say that we must have a fully privatised service. In the UK the problem of a privatised water supply tends to be looking more at the hiking of charges without enough concentration on the repairing of leaks. Overseas you can have the easy part very quickly established of an urban water supply but it still leaves the people in the ghettos, the margin towns without water, or if they want water they have to pay inappropriate levels of fee for it. Mr Matthews: Going back to your original question, absolutely I would agree with the Commission for Africa in its recommendation that donors re-think their role in supporting investments in infrastructure, but in some way I think the Commission for Africa was picking up on a trend that was already evident. I think that re-thinking had already begun. Probably in the 1960s and 1970s these investments in infrastructure were delivered largely through the public sector and there were enormous problems and a lot of failures. In the 1980s and 1990s the pendulum swung the other way and there was an overemphasis on the private sector, again ideologically driven in the same way it was in the 1960s and 1970s. Since then there is a more nuanced understanding of the role of the private sector which is less ideologically driven. I think that is correct and right and we would support that. Amongst the bilateral donors, DFID have been progressive in some of their ideas and their approach to this. For example, Peter mentioned the issues around conditionality. The way that I would see it, the removal of conditionality is not giving carte blanche where you hand over resources to be consumed in a way seen fit by that government, but there is an assessment of whether that government is a strong partner and a good partner. If it is, then I think you make the grants or the loans available and you allow them to decide what the priorities are, but if they are not a good partner - and I think DFID has done this recently in Kenya for example - then you may have to find other channels for your funds, if you believe there is a corrupt system in place and resources are simply going to fuel corruption. Q199 John Bercow: What are DFID's strengths and weaknesses in supporting infrastructure in developing countries? As a follow-up to that, do you think that DFID, which has been very wary of this, should seek to specialise in infrastructure, or is it right that it should effectively subcontract that responsibility to others? Mr Matthews: DFID has been involved and it has been a key mover in some very important and vital initiatives. The Infrastructure Consortium for Africa, for example, is getting widespread support among civil society organisations. They see the potential of that body. The existing infrastructure on the ground in sub-Saharan Africa at the moment has got enormous problems. Take, for example, the one of the lack of regional integration. The original stock of infrastructure during the colonial period was established primarily for moving people and goods out and into Africa rather than promoting regional integration, and even since the colonial period and periods I have talked about in terms of investment in infrastructure, it is still a problem. Regional integration still has not occurred for a complex number of political, social and cultural reasons, but it has happened, and the Infrastructure Consortium is a key employer that can make that happen. DFID's role in driving forward that process of being involved is a progressive one and we would support that. The Investment Climate Facility is another one DFID has been supporting quite actively that can create the conditions that can encourage investors to get involved in sub-Saharan Africa. In some ways the problem in sub-Saharan Africa is not so much over-exploitation; it is one of indifference where investors have not been prepared to put any money in, and therefore it is still seen as a high-risk, low-return environment to work in by many companies, rightly or wrongly. I think DFID's involvement at those kind of levels is extremely good. In terms of specialising, I am not certain. That is what I think they do well at that kind of level, the multi-lateral level. I think they also do well quite often at a micro level in the example of supporting Engineers Against Poverty, where we work in the larger scale of things on relatively small and individual projects but they are supporting us to try and develop innovative initiatives with one company within one project and then use that to influence DFID's policy and corporate and government policy. I hope I have at least begun to answer your question. John Bercow: Indeed and I am most grateful to you. Q200 Ann McKechin: I think, Mr Matthews, you have answered part of my first question about the working between cross-border and regional infrastructures which I think you quite rightly say are very important, particularly for a number of small and land-locked countries in Africa. After a move away from many years of supporting large infrastructure projects the donors, including DFID, are moving towards them again. Perhaps you could let me know what your view is as to what you attribute this change in fashion. As the Chairman has mentioned earlier, there is a danger that it is a changing fashion which is going to be a fad and then move back to small projects again, or do you see this as a new permanent way of thinking which is going to result in a sizable change? Mr Matthews: I guess my answer necessarily will be partly speculative and what I would like to see. It is a good question and I am not sure I have thought about it specifically. I guess one of the key reasons is likely to be the problems there have been in making progress towards the Millennium Development Goals, particularly in sub-Saharan Africa. I do not think based on my own anecdotal experience there was ever a view that investment in infrastructure is not an important part of the pro poor growth and development. However, I think previous experience has shown that investments in infrastructure are incredibly difficult, so part of that --- Q201 Ann McKechin: Risky. Mr Matthews: --- may have been the fact that it is very difficult if we are putting money into projects and it is fuelling corruption and it is leading to projects that are not meeting the needs of the poorest, so instead you jump on to another bandwagon, as it were. It is extremely welcome that there is this new interest in infrastructure and it has come to the surface again. We have got an opportunity to get it right because I think we have been through the myopic approaches that public is best and private is best and now we have a more nuanced understanding of bringing together the relative strengths of the different sectors. Also I think companies and civil society have got the management tools for making those partnerships work more effectively than they have done in the past. You hear this term sometimes "multi-sector partnerships" bringing together business, state and civil society. I have been involved in trying to set up those partnerships and it is time-consuming and difficult and often has costs attached in the early stages of establishing them. However, a lot of progress has been made and I think the conditions are right now where we can get the infrastructure right if we can get the investments right, and if we can do that I think the interest will be sustained. Q202 Ann McKechin: Mr Cameron, you made a very good point about the roads being built without any ability to maintain them. I think there is some shocking figure of 40% of water pumps in a developing country at any one time are not operational due to lack of maintenance. Have we got the right infrastructure in place to make sure that when we do carry out these new infrastructure projects they are going to be sustainable and they are going to be able to have the income to maintain them in the future and not, as Mr Matthews said, repeat the mistakes of the past? Mr Cameron: I think we are beginning to realise what the mistakes in the past were, and therefore taking a broader view and taking a more realistic view and ensuring that we direct our resources not to make those mistakes again. Two or three years ago we co-hosted a workshop on behalf of DFID looking at their research programme and we made great efforts to emphasise the importance of developing infrastructure, be it infrastructure on the bigger scale or on the micro scale. Certainly moves have been made to absorb that and you can see clearly through our contact with DFID that all areas of infrastructure are being looked at and promoted in a more sustainable way. Q203 Chairman: Mr Matthews, you mentioned the Africa Infrastructure Consortium. I was interested, this Committee having visited Africa, that everywhere we went we saw energy problems and electricity problems. Uganda seemed to be under a Ted Heath regime and South Africa was heading for the same situation. I am talking about rotational power cuts such as we had in the three-day week. Malawi was having similar problems. The Africa Infrastructure Consortium is obviously involved in trying to solve Mozambique's and Malawi's problems and other ones, as I understand it, in West Africa, but what is it about the Africa Infrastructure Consortium that makes you feel this is innovative and beneficial compared with other similar kinds of agencies? Mr Matthews: There are other initiatives like NEPAD that are also important and to some extent bring together a similar group of partners, so it is not the only one. I think they have got the right organisations involved, the Africa Development Bank being based in Africa, the regional organisations, the big multilateral and bilateral donors. If you are going to achieve policy coherence it is essential that you have those right players on board. Many of the problems that are facing sub-Saharan Africa are regional continental problems. I was in South Africa as were our previous witnesses as well. One of our institutional supporters is the South African Institution of Civil Engineering and they have just conducted a major study of capacity in engineering in South Africa. After three years of work, they have produced an interesting report called Numbers and Needs. South Africa is in serious problems in terms of its engineering capacity. One of the problems is that if more money goes into infrastructure, as has been recommended by the Africa Commission and the Sachs Report that money fuels growth and leads to projects that does not meet the needs of the poorest. If South Africa has the scale of problems that it has got in terms of engineering capacity to apply those kinds of resources, we can only begin to imagine what some of the poorer countries in sub-Saharan Africa have in terms of their problems around meeting capacity. Even if you live in a country like South Africa, which is relatively well endowed, they often go to work outside of South Africa. There are lots of South African engineers in Britain and parts of Europe, for example. That is the kind of problem that needs a regional approach and a continental approach. So I think in summary it is the membership of the Consortium and it is the fact that that membership allows it to have a continental reach and a regional reach to solve the problems that has not been possible in the past through a more national based approach. Mr Cameron: An interesting comment is that much of the inherited transportation infrastructure within Africa is concerned with links from extraction areas to the ports from the colonial days and very little in terms of infrastructure between the main communities, and that needs to be addressed. Q204 Chairman: I understand when it was set up there was a challenge to identify five projects. We have been advised of two, which is the hydroelectric plant for Senegal, Mauritania and Malawi, and the one I have already mentioned in Mozambique and Malawi. What about the other ones? Are others identified and what progress has been made on that? Mr Matthews: I actually have very little information. I did not even know of those two. I knew that they were identifying those key projects. My search of the Internet yesterday did not reveal even those projects to me, so I am interested to hear that. Q205 Chairman: That is interesting that you do not know what stage they are at. They are plans. Certainly there is €60 million from the European Commission and €260 million from the European Investment Bank for funding projects of that scale. One of the things that occurred to me when I was reading and looking at the problem, particularly of electricity in Uganda or South Africa or wherever it was, was that all the talk was about new hydroelectric projects and new thermal stations. This is part of the solution and I accept they have to have a proper infrastructure, but particularly in Africa where we have got sun, we have got wind, and we have got rivers, we have got tidal round the coasts, do you think that the Africa Infrastructure Consortium is or should be a route for more sustainable projects? I accept that hydroelectric is sustainable in one sense, but it does depend a bit on the scale of the project. Clearly thermal stations are not the definitive answer. Do you think it would be the right way for that kind of priority? Mr Matthews: I suspect that it would be better to have a mixed approach. Sometimes when we are talking about infrastructure, we think in terms of the social and economic infrastructure so investment in large energy projects is going to attract the foreign investment, for example ports, airports and road networks might be seen initially as investment in financial infrastructure, and that is absolutely vital, but if that kind of investment occurred at the expense of social infrastructure which goes directly to help poor people with investments in water and sanitation and associated services, then that would be a mistake. So I think that it has to be a mixed approach. I think that you have to look at individual countries and identify what are the unique opportunities there. If you look at the way that telecommunications infrastructure has developed throughout sub-Saharan Africa, you sometimes hear this phrase "technological leapfrogging". If you are developing a telephone or telecommunications system now you would not do it in the way it was done in Britain 50 or 100 years ago because there are new technologies that are much cheaper and much more accessible. I am not aware if a study is being conducted but the impact of the mobile phone on the economic development in many parts of sub-Saharan Africa, from anecdotal experience, is enormous. In summary, I think it needs to be a mixture of those approaches for the financial and social infrastructure, and that there is an opportunity to be innovative in terms of the choice of infrastructure that you put in place. The key to that is something that Peter said earlier of ensuring that there are mechanisms for consultation so that certainly poor people and other sections of society can express their views as to what is appropriate. While we can pat DFID on the back and the Infrastructure Consortium to some extent, it is not clear to me how the Infrastrucutre Consortium is going to be engaging with civil society and business. I know that Business Action for Africa, one of the initiatives that came out of the Commission for Africa, is looking at engaging with the Infrastructure Consortium. It is absolutely vital that that occurs. It may be occurring but I am not aware of it. Chairman: I think that is helpful. I think you have identified some communication gaps here that perhaps the Committee can shine a light on. I am going to bring Ann back in just with the observation before introducing her that those of us who went to Uganda were struck by the fact that we watched young girls and women queuing for water. They were not walking because they dared not leave the camps but they were queuing for five or six hours simply to fill up their water carriers to take them into the camps. I have to say that the men were sitting around watching them do it! I think, Ann, we had better have the question. Q206 Ann McKechin: It is one which my other colleague, Joan Ruddock, has raised with other witnesses and it is the question about a national gender strategy when we are looking at the issues involved in eradicating poverty and how you feel donors can invest and support gender responsive services looking at girls and women. The issue of decision making and the issue of collecting water is a very relevant one. Very often they are the poorest people but they are often the most frequently ignored. Mr Cameron: Again, it comes back to the point we keep making about consultation with the end user. There have certainly been studies where local women have been involved in the design of shelters and made an enormous difference. Immediately they are empowered. They say, "Yes, we can understand now the problems of construction but you can understand what it is we actually need within our shelters." Access to water is another example of that, how they need not just closed access to their water supply, but that also gives them more time to then devote to small-scale crop production close to where they are living. So it is the consultation. It is a very big, difficult problem for us from the developed countries to be able to get into their mind-set and understand what it is that they really do need. That is the big challenge. Q207 Chairman: I think the point that depresses the consultation effect is if somebody comes along and says, "I am going to build a big power station," but then we ask how much does that investment deliver compared to what a comparable amount of money could do to improve the opportunities and life chances for women, bearing in mind in many cases that will have an economic benefit for a whole community? Mr Matthews: Quite often the kind of projects that Engineers Against Poverty is involved in are trying to make those connections. We work in infrastructure in the extractive sector so it is often large-scale projects. I was in West Papua recently with BP on a Tannguh project, a $5 billion investment in liquid gas for export to Asia. Looking at the internal mechanisms that BP uses, it is extremely well-intentioned and in the way it set up the project and what it wants to achieve socially and environmentally there are enormous developmental opportunities, but its procurement system, for example, is dispersed amongst a number of different parts of the company and it is not aligned with their social investment strategy. There are opportunities there for marginalised sections of the communities in enterprise development, girls and women being a key part in many instances of the marginalised sections of communities. That was an opportunity for a company to do much more. We were giving them support around enterprise development, trying to maximise the amount of goods and services that were sourced locally, and we were trying to encourage them to bring together their requirements in terms of meeting quality standards and technical specifications in the goods and services they required but also marrying them with social objectives. If they can meet those quality standards, can we get those delivered by sections of the community who have been marginalised, including girls and women? Can we create specific opportunities? There are things that companies and governments can do? When poverty reduction strategy papers are being put together, there needs to be encouragement from multilateral and bilateral donors to include a gender perspective when you are designing the safety net and identifying what those priorities are. Quite often, even if there is a desire there on the part of the government who is putting together the poverty reduction strategy paper, the mechanisms to reach marginalised sections of the community often do not exist, so sometimes donors can bring that perspective if it is making the resources available through grants or expertise or participatory data gathering which can enable decisions based on the needs of girls and women, for example. Mr Cameron: Linked to that capacity building within the communities often encourages girls and women to be much more involved, and much more readily involved in learning and understanding even simple technical issues. Q208 John Barrett: As was mentioned earlier on, water has a key role to play in both health, education and many other aspects in the developing world. Could you touch on what you think the donors could do to achieve the desire to get at least minimum standards of water delivery to a maximum number of people and where you feel the privatisation of water can fit into this? We are often lobbied by a number of groups that privatisation means bad news. I think we have seen both the good and the bad aspects on our trips to a number of countries where it can work towards the delivery of a water supply to those who do not have it. Mr Cameron: There are two clear almost divided parts of that. On the one hand, it is the rural problem of water supply whereby many millions of people are living remote from a water supply. There are programmes that have been going on of hand pumps and of (?) pumps and so on which have made an enormous difference, and through the private sector there should be the opportunity of expanding those programmes of providing simple, sustainable pump systems that provide water where it is needed and also provide water and irrigation for crop production, which then immediately starts to lift income. In the urban areas it is very difficult because the urban areas, as we know, are growing very very fast and you set up a private contract, say, for supplying an area of water supply, and often that is linked to fees for the amount of water taken and, as I said earlier, that can marginalise the rim of poor people on the periphery. We need to find mechanisms. Often it is a partnership between privatisation and the public local authority to take on that social aspect which cannot generate the income that a purely private contract would expect, so that the marginalised people do obtain water or at least shared water taps within reasonable distance from where they are living. There is an example of where people have been given land rights to where they are living. It may be that it started from a squat basis, but where they have got some rights on to the land where they are living, they will more readily pay money for the water because they have got a direct right which they are making use of. Q209 John Barrett: And are there opportunities for donors to move forward and is DFID missing a trick anywhere that you are aware of? Mr Matthews: In the more recent projects around water privatisation, I think a lot of the blame has been delivered at the door of the companies; in some cases probably unfairly. I think the trick that was missed was often in the way that the project was packaged and the kind of information that it was based on for planning. Often public opposition may have been ignored and there was not sufficient consultation. This was one of the interesting things that came out of Turning off the Taps, the ActionAid research. That report was published a year or so before the virtual collapse of that project, but if you look at the recommendations and the problems that they were raising, they came to fruition a year later, so that they spotted them, they were evident. I think a lot of that was a result of product packaging. By the time the company arrives on the scene some of the key decisions have already been made about the finances, about the consultation, about the form of risk management that is going to be used. To some extent, the companies have been set up to fail. It was of concern to me reading recently about the meeting there has been in Mexico on the release of the UN's World Water report because that report says that a lot of private companies are pulling out of the projects they have been involved in and are unlikely to get involved in projects in the future and I do not think we can afford to lose that expertise. I do not think the private sector have all the solutions but I think that they are part of the solution. If they disappear from the scene then that is going to set back progress. Q210 Chairman: There is some responsibility on the NGOs in their campaigns if they are identifying real and substantive issues that they do not promote them in a way that effectively drives away the very people who are needed to solve the problem. Mr Matthews: I understand that. Chairman: Thank you very much. I apologise that you have been kept waiting. As you have seen, the Committee are under some pressure of time because clearly we would have finished a few minutes earlier. Nevertheless, I think you have highlighted a few quite helpful points which we very much appreciate, and indeed your written briefings, certainly for me, were quite informative and enlightening and will obviously help us in writing our report, so thank you both very much indeed. [1] Support for Economic Growth Analysis [2] Development Bank of Southern Africa |