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Session 2005 - 06
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Standing Committee Debates

Draft African Development Bank (Tenth Replenishment of the African Development Fund) Order 2006

The Committee consisted of the following Members:

Chairman: Hugh Bayley
Barrett, John (Edinburgh, West) (LD)
Blackman, Liz (Erewash) (Lab)
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Corbyn, Jeremy (Islington, North) (Lab)
Donohoe, Mr. Brian H. (Central Ayrshire) (Lab)
Kramer, Susan (Richmond Park) (LD)
Levitt, Tom (High Peak) (Lab)
Prosser, Gwyn (Dover) (Lab)
Randall, Mr. John (Uxbridge) (Con)
Simmonds, Mark (Boston and Skegness) (Con)
Smith, Mr. Andrew (Oxford, East) (Lab)
Streeter, Mr. Gary (South-West Devon) (Con)
Stuart, Mr. Graham (Beverley and Holderness) (Con)
Thomas, Mr. Gareth (Parliamentary Under-Secretary of State for International Development)
Wallace, Mr. Ben (Lancaster and Wyre) (Con)
Wareing, Mr. Robert N. (Liverpool, West Derby) (Lab)
Winnick, Mr. David (Walsall, North) (Lab)
Mark Egan, Committee Clerk
† attended the Committee

Third Standing Committee on Delegated Legislation

Wednesday 24 May 2006

[Hugh Bayley in the Chair]

Draft African Development Bank (Tenth Replenishment of the African Development Fund) Order 2006

2.30 pm
The Parliamentary Under-Secretary of State for International Development (Mr. Gareth Thomas): I beg to move,
That the Committee has considered the draft African Development Bank (Tenth Replenishment of the African Development Fund) Order 2006.
The Chairman: With this it will be convenient to consider the draft Asian Development Bank (Eighth Replenishment of the Asian Development Fund) Order 2006 and the draft Caribbean Development Bank (Sixth Replenishment of the United Special Development Fund) Order 2006.
Mr. Thomas: It is a pleasure to serve under your chairmanship, Mr. Bayley, not least because of your interest in many of the issues that the Committee will no doubt discuss this afternoon.
The African development fund, the Asian development fund and the Caribbean Development Bank’s special development fund are the concessional lending arms of the three regional banks with which we work. The funds were established in the 1970s to contribute to the economic and social development of the banks’ low-income and least developed members. The replenishments willinject $12.5 billion of highly concessional development assistance into the three regions where the banks operate. Our total contribution to those replenishments is£343.79 million.
In 2005, the three banks between them provided a total of $9.2 billion of support to their borrowing member countries, of which $3.4 billion was on concessional or grant terms. The banks address key regional issues, such as infrastructure and, especially, water and sanitation. They often develop cross-border programmes of investment, improving access to energy and tackling the spread of diseases.
There are many examples of the differences that the three banks make. The Asian Development Bank, for example, was able to respond swiftly, following last October’s disastrous earthquake in Pakistan. It immediately established a Pakistan earthquake fund to channel grant funding, and it put together a package of $1 billion for the reconstruction and recovery work in Pakistan. In December 2005, the fund’s first allocation of $300 million was approved, and that money is helping to finance the import of materials that are urgently needed for the recovery process, the rehabilitation of major roads and key bridges, the repair of hydropower generating stations and the reconstruction of health clinics and schools.
The African Development Bank is supporting the Niger Government with an $11 million loan towards a successful water-harnessing project in one district of the country. For the population of that area, health coverage drinking-water facilities have improved significantly. Farmers’ income has risen significantly, feeder roads in the area have opened up production areas, and the rehabilitation of 5,000 hectares of deteriorated land will have a significant beneficial impact on the environment there.
The third example that I shall bring to the Committee’s attention is from the Caribbean Development Bank, which committed about $46.5 million to support the Government of Belize to develop an environmentally friendly power project. The project will reduce CO2 emissions by about 65,000 tonnes a year, and eliminate annually about 13,000 tonnes to 15,000 tonnes of fly ash.
The African development fund provides $2 billion of development assistance to 39 of the very poorest African countries. Its 10th replenishment was set at $5.4 billion to cover the period from 2005 to 2007. It represents an increase of more than 42 per cent. on the previous replenishment. We have pledged a total of £206 million, which increases our share of the fund from 5.5 per cent. to 7.5 per cent. However, we have agreed that part of the increase should be provided as a £27.5 million additional incentive contribution. Provision will be contingent on the bank making progress on improving the effectiveness of its aid programmes, and a decision about whether to grant the full amount or part of the incentive contribution will be made at the mid-term review that is due by the end of this year.
Our intention is that no resources from the fund will have to be diverted to meet debt cancellation payments. As some members of the Committee will know, the House last week agreed to the UK’s participation in the International Development Association component of the multilateral debt relief initiative, and African Development Bank governors are currently undertaking the approval process for the African development fund component. Next month, we hope to seek the approval of the House for the additional contributions that will be required for the fund.
The Asian development fund provides about$1.37 billion a year in development assistance to the least developed Asian and Pacific countries. The replenishment was set at $7 billion and covers the period from 2005 to 2008. That represents about a 25 per cent. increase over the previous replenishment. The UK has pledged a total of £114.1 million, increasing our share from 4.8 per cent. to 6 per cent. The Asian Development Bank, too, has undertaken to improve its development effectiveness and impact and will report on progress at the mid-term review, which will take place by the end of 2006.
Lastly, let me give more detail about the Caribbean Development Bank’s special development fund, which is the smallest of the regional banks’ funds. Replenishment negotiations set a sum of $184 million, of which our share is $44 million, or £23.49 million. That represents just under 24 per cent. of the total replenishment. The CDB is planning and beginning to implement an expansion of its membership to cover Haiti and Suriname. The implementation of the replenishment will be reviewedat the mid-term review in 2007, which will give us an opportunity to look further at the development effectiveness of the Caribbean Development Bank.
Jeremy Corbyn (Islington, North) (Lab): Can my hon. Friend give us an indication of the conditions that will be applied to submissions of funds for Haiti?
Mr. Thomas: My hon. Friend has often been concerned about the conditionality that we, and indeed the multilateral development banks, attach to loans. Let me reassure him that no special conditions will be attached to the loans that might be given to Haiti, although we will, of course, look for safeguards to ensure that the money is spent properly on poverty reduction. We will also want to be confident that the Government are making progress on their human rights record and that there is progress on good public financial management.
In conclusion, we are pleased to continue the support that successive British Governments have given these important institutions, which work to eliminate poverty and promote sustainable development in their regions. On that basis, I commend the orders to the Committee.
2.38 pm
Mark Simmonds (Boston and Skegness) (Con): I, too, am pleased to serve under your guidance and chairmanship this afternoon, Mr. Bayley, particularly given your interest in and knowledge of these issues.
As the Minister rightly said, the Opposition support the regional development banks’ work—we did so when we were in government and we will do so when we are in government again. We welcome the opportunity to debate these orders on replenishing the three development banks’ funds. The banks do valuable work in some of the poorest countries in Africa, Asia and the Caribbean, and their focus on health, education, agriculture, sanitation and infrastructure is necessary for poverty reduction and poverty alleviation.
As the Minister said, we are discussing significant sums. We are providing approximately £206 million for the African development fund, £114 million for the Asian development fund and £23 million for the Caribbean development fund. That leads me to my first question for the Minister. The UK’s contribution to the three banks is clearly significantly in excess of its shareholdings in them. We have a 1.68 per cent. shareholding in the African Development Bank, but we make a 7.5 per cent. contribution to it. We also have a 1.97 per cent. shareholding in the Asian Development Bank, but make a 6 per cent. contribution to it. Finally, we have a 9.63 per cent. shareholding in the Caribbean Development Bank, but make a 23.9 per cent. contribution to it. It would be helpful if he explained why the disparity is so large, particularly as the small shareholdings give the Department for International Development and the UK Government limited influence and control over how that money is spent. That is important if the UK’s contribution in those areas is significant.
The replenishment consultation periods are not just about sums of money and the contributions that are to be made. They are also important opportunities for forging policy alterations, setting the regional development banks’ boundaries for further activities and establishing the guidelines for the banks’ work in the poorest nations.
In our view, the banks’ roles need to be enhanced, particularly in debt relief, specific project planning—there have been some problems with this in the past—and cross-border activities and structures. A critical factor for success is decentralisation, particularly of the African Development Bank. Can the Minister outline the plans, particularly of the African Development Bank, to decentralise decision-making processes and monitor the effectiveness of bank programmes and funds put into specific countries? What role does the UK Government intend to take in ensuring that improvement is recognised as necessary by the African Development Bank in its joint strategic framework, so that improvement of project planning and implementation are delivered on the ground?
The Minister rightly mentioned the importance of debt. All Members of the House would accept that responsible lending and borrowing are vital if developing nations are to improve their economic well-being and alleviate poverty. Concerns have been raised about the fact that many developing nations take short-sighted policy decisions. There are several examples: controlling interest rates below the rate of inflation, keeping exchange rates artificially low and granting subsidised credits to favoured supporters. Such nations need to be monitored carefully by their respective banks to ensure that they meet millennium development goals and the banks’ original purpose.
As the Minister said—I think that I heard him correctly, but I would be grateful if he clarified it in his winding-up speech—none of those moneys is going to replenish debt relief. As the replenishment moneys are going to the banks’ funds rather than to the banks themselves, which provide concessional loans, will he say whether any of those moneys will be used to give concessional loans to countries that have benefited from HIPC—heavily indebted poor countries—debt write-offs? Will they be used purely for those who have not yet done so?
What mechanisms are the UK Government ensuring that the banks put in place for loans and debt write-offs to be given responsibly, so that recipient countries’ international credit standing is not compromised? How will the loans be monitored to prevent a cycle of borrowing and debt cancellation? What are the regional development banks doing to find new, innovative financing mechanisms to provide the resources that developing countries need without incurring additional debt? What are they doing to enhance developing nations’ trade capacity and build their supply-side capacity, so as to facilitate greater trade internationally as well as in the countries and regions? An enormous amount of additional pan-African trade, for example, could be taking place.
The African Development Bank has specific criteria for determining whether a country is already deeply indebted. Will the Minister inform the Committee whether the other regional development banks that we are discussing have similar policies? Specifically, will the African Development Bank use that information to ensure that countries with large debts receive grants rather than further loans? At what point is a country regarded as too deeply indebted to receive further loans? What is the correlation between receiving further loans and re-gearing the existing loans and the qualifications for future HIPC initiatives?
The Minister and I constantly debate in Committee and elsewhere the issue of accountability and transparency. Opposition Members acknowledge that it is difficult to monitor the transparency and effectiveness of aid that goes into multilateral institutions. To date, however, in some circumstances there is limited knowledge of whether DFID knows exactly where the money is going. Are there any thoughts in the Department about transparency? Does the Minister have any proposals about how to follow the money from when it leaves the British taxpayer to its being received on the ground? We must ensure the maximum possible alleviation of poverty.
2.46 pm
Sitting suspended for Divisions in the House.
3.11 pm
On resuming—
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