The Parliamentary Under-Secretary of State for International Development (Gillian Merron): I beg to move,

The Chairman: With this it will be convenient to consider the draft African Development Fund (Multilateral Debt Relief Initiative) (Amendment) Order 2008.

Gillian Merron: It is a pleasure to serve under your chairmanship, Miss Begg. For the convenience of the Committee, it might be helpful if I clarify the orders.

The first order covers the UK’s proposed contribution to the most recent replenishment of the African Development Fund, which provides support to the poorest African countries. The second order is an amendment to the African Development Fund (Multilateral Debt Relief Initiative) Order 2006, which enables the UK to finance irrevocable debt cancellation by the African Development Fund. Both orders are crucial to the Government’s efforts to help developing countries to lift themselves out of poverty.

In 2005, the Commission for Africa called for the African Development Bank to become the pre-eminent financing institution in Africa within 10 years. In May this year, I was pleased to welcome the approval of the Select Committee on International Development and its support for the improvements made by the bank and the Government's influence in bringing them about. The Committee stated:

At Gleneagles in 2005, the Government promised to double their aid to Africa by 2010 and to support the strengthening of African institutions. The order will help us to deliver on that promise by providing additional funding to the African Development Fund, which is the arm of the African Development Bank that offers highly concessionary loans to its poorest members.

Why is that important? Tackling global poverty is not only our moral duty, it is in the UK's strategic interest. We are closer to people in developing countries than ever before through increased trade, easier travel and faster communications, and the global problems caused by poverty and lack of opportunity in developing countries, such as conflict, international crime, refugees, the illegal traffic of people and drugs, and the spread of disease, are increasingly affecting us on our doorstep.

Today, in a world facing higher energy and food prices, it is more crucial than ever that we fight against global poverty. As the Prime Minister said this week, the present economic crisis means that instead of relaxing our efforts, we must accelerate them because, in this increasingly interdependent world, supporting development is not just about reducing poverty, but is the key to our own economic future as well.

At the African Development Fund's 11th replenishment, donors pledged a record £4.5 billion over the next three years.

Gillian Merron: To recap, at the ADF’s 11th replenishment, donors pledged a record £4.5 billion over the next three years—more than 50 per cent. more than the previous replenishment. Several donors significantly increased their contributions, reflecting more confidence in the bank. The UK pledged £417 million, which is a doubling of the contribution that we provided at the previous replenishment.

With the additional funding, the African Development Bank can help developing countries to lift themselves out of poverty, and in turn reduce the global risks that poverty, instability and inequality generate, which affect all of us in the UK and throughout the world. The fund is already making an impact—for example, in tackling the food price crisis. In Eritrea, its livestock development project is providing infrastructure and helping farmers to learn improved farming techniques, which has led to their incomes rising by 65 per cent.

About one quarter of the 11th replenishment resources will be used for regional projects crucial to Africa’s many small and landlocked countries. A fragile states facility has been established with a budget of £330 million, providing countries emerging from conflict, such as Liberia and Sierra Leone, with additional resources to help to rebuild infrastructure and re-establish essential services. Most importantly, by helping countries to get back on the path to stability and economic growth, the fund will help them to become less dependent on aid in the future.

So far, the multilateral debt relief initiative has delivered £21 billion of debt cancellation for 23 countries, 19 of which are African. By reducing the burden of debt that poor countries have suffered under in the past, debt relief enables essential services such as health and education to be funded, and crucial investments in infrastructure to be made, thereby delivering real benefits to poor people.

In Uganda, for example, debt relief has enabled the Government to immunise more than twice as many children and to stop charging people for basic health services. I saw on my recent visit to Malawi the provision of funding for subsidised fertiliser and seeds which have helped produce bumper harvests for the past three years and contributed to growth rates of 7 per cent.

The MDRI irrevocably cancels the debts that heavily indebted poor countries owe to the African Development Fund. A central principle is that debt cancellation should lead to additional resources for poor countries, so donors agreed to meet the full cost, dollar for dollar, of the MDRI debt relief. During the recent replenishment negotiations, donors reaffirmed the importance of delivering on that promise.

In 2006, Parliament agreed that the UK should provide its share of MDRI financing and give the African Development Bank a binding commitment that it would make each annual payment until 2015. The order needs to be amended to cover payments to 2020. That involves an additional £43.5 million, increasing our total commitment to £122.7 million.

It is essential that we meet our part of the bargain and help to lift the burden of debt from the poorest countries, thereby allowing them to get back on track to meeting the millennium development goals. That will improve the health, education, employment and economic opportunities for millions of men, women and children around the globe. I commend the order to the Committee.

Mr. Mark Lancaster (North-East Milton Keynes) (Con): It is a pleasure to serve under your chairmanship, Miss Begg, and to be able to debate the two orders, not least because, as the Minister is aware, I had an informative week at the African Development Bank as an intern last December, shortly before the replenishment talks took place in London. I should like to put on the record again my thanks to President Kaberuka, and to Richard Dewdney and Graham Stegman, both of the Department for International Development, for helping to facilitate the visit.

Before I go further, perhaps the Minister might be able to help me on a point of clarification. I am not sure who the alternate governor of the African Development Bank is at present.

Gillian Merron: I can confirm that it is the Under-Secretary of State for International Development, the hon. Member for Lincoln—me.

Mr. Lancaster: I am grateful for that clarification, because. if I were a cynic, I would say that all too often the Government seem keen to distance themselves from organisations. However, as DFID’s website states:

that is all four regional banks—

If the hon. Lady is the alternate governor for the African Development Bank, she plays a role very much at the heart of policy making in the bank, so I am sure that will be able to answer some of my questions.

On 9 January, shortly after my return from the African Development Bank, we had a debate on it in Westminster Hall. I do not intend to go over old ground, but I have a series of questions that the Minister—or governor—may be able to answer.

Gillian Merron: Alternate governor.

Mr. Lancaster: Indeed. The operational priorities for ADF 11 have been condensed in many ways under three headings: infrastructure, governance and regional integration. It was clear that the president and members of the bank had decided that infrastructure would be the bank’s comparative advantage. I was not entirely sure why they selected that as their comparative advantage. It seemed that they had identified it as a possible comparative advantage but then had run full flow into implementing it without necessarily doing the ground work, but that was covered in the earlier debate. Indeed, under ADF 10, 52 per cent. of resources were allocated to infrastructure, but that went up to 62 per cent. under ADF 11. It will focus mainly on energy, transport, water and sanitation.

During the debate in January, the Under-Secretary of State for International Development, the hon. Member for Dewsbury (Mr. Malik), gave an example of an energy project in Mozambique. Perhaps the Minister, when she winds up, can expand on some of the projects that have been considered, simply because all too often we can become cynical. Indeed, before the debate one of my hon. Friends asked how we could guarantee that the money is being used on the ground. The Minister has the opportunity to give us some examples of the infrastructure projects that have been considered.

From a governance point of view, having identified corruption as a major impediment to economic growth, the bank was in the process of adopting new strategic directions, which were due to be submitted to the board of directors for approval in early 2008. Will the Minister confirm that that has now been done—and if not, why not?

Regional integration, the third key objective, is rightly recognised as being essential to increasing competitiveness and productivity and expanding trade, but it has traditionally been a low priority for bilateral donors. Given the importance of regional infrastructure projects in helping to connect countries and building trade, and the identification of infrastructure as the bank’s comparative advantage, as I said earlier, will the Minister explain why allocations to the regional integration projects have been capped at 17.5 per cent. of the fund’s resources?

In her opening speech, the Minister said that it was nearly a quarter, but I understand that the lower figure is correct, with 7.5 per cent. going to fragile states and 75 per cent. to in-country projects. Will she clarify that? For me, the question is whether it should be more, as it seems to be the comparative advantage of the bank, yet only 17.5 per cent. of the fund’s resources are going directly to that sector.

Is the Minister confident that the ADB has the required capacity to use effectively the increased budget from the 11th replenishment round? She is doubtless aware that, prior to that round, there was already a severe limit on administrative capacity. That was demonstrated by the fact that at the end of ADF 10 there was an excess in demand of some £700 million, with projects not being delivered because the bank did not have the capacity. I support the increased replenishment, but if the bank did not have the capacity to deliver those projects before the increase in budget, with an excess of £700 million, and given the 0 per cent. increase in the bank’s administrative budget, is the Minister confident that we will be able to deliver those projects with an increased budget?

One way to increase the bank’s capacity is the desired aim of implementing regional offices. However, despite it being a priority for the bank, progress has been slow. As a result, nations are beginning to look elsewhere for support, because the bank simply cannot deliver. It is also causing some tension among central bank staff, who view such regional offices as a threat. In December, 23 regional offices were in place. I understand that some six months later we still have only 23. Will the Minister explain what is being done to increase the important devolution of power to regional offices?

It is interesting to note that the bank has a strict arrears policy of not lending to countries that are indebted to the ADF. However, despite Sudan being in debt, the bank recently opened a country office in Khartoum. Does the Minister support that move? Will any of the funds pledged for the ADF be used in assisting the decentralisation process and creating regional offices?

We have touched upon administration, but will the Minister confirm whether any of the new funding being spent on maintaining the temporary location of the African Development Bank in Tunis—it has been there since 2003, and there continues to be a running commentary in the bank on whether it should move elsewhere—will be used to allow its continued placement there? I hope not.

Criticism has been made of the board for focusing too much on the micromanagement of many projects. Given that 10 per cent. of the bank’s administration budget is taken up looking after 18 members of the board, and given that there is no increase in the administration budget elsewhere, does the Minister feel that the time has come to reconsider having a non-executive board, so that the administration budget could be better used in regional offices?

I have a couple of questions about the synergy between the fund the private sector. One of the fund’s priorities is to promote public-private partnerships, particularly in the infrastructure sector, and some success has been achieved. One of the principal limitations is that only 20 per cent. of the bank’s capital may be used in that manner. There have been calls from within the bank to increase that percentage, but is that view shared by the Minister?

Although the bank has made progress on meeting the objectives of the Paris declaration, it has recently announced that it has met challenges that mean it may well fail to reach the following targets beyond 2010: the use of country financial management, procurement systems, avoiding parallel project implementation units and joint missions. Perhaps most concerning is the potential failure to make aid more predictable. Will the Minister outline how she would like the bank to address those issues?

After the bank’s difficulties in the 1990s, the president has committed to a greater focus on operational evaluement. He has made is clear that success should be rated on outputs rather than inputs, which is certainly something I support. There was little elaboration in the deputies report produced after ADF 11 on how that will be done. Perhaps the Minister could outline some of the mechanisms that the ADB is putting in place to evaluate the spending of UK taxpayers’ money.

Finally, Zimbabwe is just one of two countries—the other being Nigeria—that is eligible for resources from both the bank and the fund. In other words, it is eligible for hard and soft loans. Will the Minister explain why that is and whether in light of recent events in Zimbabwe, she believes that arrangement should be reviewed?

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): I should just like to add a couple of queries to that long list. I look forward to hearing the Minister’s response.

I wish to reinforce the point about regional offices. It is not just a question of having a regional office, the office needs to have a meaningful delegation of responsibilities to respond to the region in which it is set. Is the Minister confident that the bank is moving fast enough to delegate meaningful power to those regional offices?

As a growing and major donor to the bank, I am also concerned about whether the structure of the bank fully represents British interests in its governance structures. I am concerned that the executive director will rotate to Germany for six years and that there will be no direct British presence. Are any negotiations taking place with the Germans to get a more equitable arrangement? Similarly, considering one third of ADF funds come from the UK and we are one of the major donors, should we not have a stronger voice compared with other donors?

Mr. Marsha Singh (Bradford, West) (Lab): The Minister, the Department, and the Government should be commended on keeping to the commitments that we have made to Africa via the African Development Bank and other means. The fact that we are doubling our replenishment from £206 million to more than £417 million makes DFID and Britain leaders in Africa in terms of the campaign to end poverty in Africa, and we should not complete this debate without recognising that fact.

With the International Development Committee, I was fortunate enough to be to be in Tunis at the African Development Bank at Easter. The Committee was impressed with the reforms that the bank had made and was making. We fully support the increased aid that we are giving.