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14 May 2008 : Column 418WH—continued
CDC representatives visited me some three or four months ago and took me through their projects and plans across the world, particularly in Africa. I subsequently visited the great lakes region of Africa, as I do from time to time, as my hon. Friend the Minister knows because he responded recently to a debate on that
subject. The important thing about the CDC—I was not aware of it beforehand—is that it applies business assumptions to potentially emerging economies.
Rwanda is a great case in point, because when considering central Africa and the great lakes region, one tends to focus on the poverty and the terrible conditions—the violence that still exists in the eastern Congo area, and so forth—and forget that in the small country of Rwanda there is a potentially emerging economy. Among all the investors going into the region, although there are not that many, the CDC is one of the most important. I was fortunate and privileged enough to have breakfast last week with President Paul Kagame during his visit to London. We spoke for five to 10 minutes specifically about the CDC and how important priming investment is. My right hon. Friend mentioned that. When the CDC invests, as it has done in a fund in Rwanda, through Actis, and through that into a bank that is developing new products, it encourages other companies worldwide to come in as well. The CDC has a good reputation and one hopes that private sector organisations follow it.
I understand that most of the investment going into countries such as Rwanda goes into the services industry. However, investments are by no means constrained in that area. It just happens that in Rwanda, which I know a bit about, investment goes to telecoms, banking and to the emerging capital to buy such service products.
I wanted to make not so much a speech as an extended comment to congratulate my right hon. Friend on initiating the debate. It caught my eye, and I had not realised that it was due to take place. I listened to him, but I am not aware of the internal and organisational issues, and the question marks about the CDC’s future.
Mr. Tom Clarke: I am grateful to my hon. Friend for his timely speech. He mentioned Rwanda, and I put it to him that the importance of the CDC in an almost unique situation—many of us have been there and have seen the results of the genocide—is that people are now focusing on what can be positively achieved in commerce and jobs. That is bringing people together in a way that many of us in 1994 would have thought was beyond reach.
Mr. Joyce: My right hon. Friend is absolutely correct, of course. The occurrence in Rwanda in 1994 was terrible, but development since then has been remarkable, supported not least by the UK Government, which I think is the largest bilateral donor to Rwanda, despite it being a Francophone country. He is right that when one thinks about these countries we tend to focus on the negative—the terrible things that are continuing to happen in some countries, the social conditions and so on. However, in Rwanda and countries where the CDC can help and for which similar funds are available from abroad, the accent is on the positive and what can be achieved.
People have their own views and comments about the leadership in such countries, and it is not for me to comment on that, but I believe from my contact with the leadership of Rwanda that it greatly appreciates the CDC’s investment and that the accent is on the positive.
The Government and their investment arm, the CDC, place that accent on the upside, which from the perspective of contemporary developments in central Africa is not always the case—far from it.
I congratulate my right hon. Friend again on initiating the debate, and I hope that the organisational issues—I was not aware of them—in the CDC and the Department for International Development are sorted out to everyone’s benefit in the near future.
10.2 am
Mr. Michael Moore (Berwickshire, Roxburgh and Selkirk) (LD): It is a pleasure to follow on from the hon. Member for Falkirk (Mr. Joyce), and I pay tribute to him for the significant work that he and his colleagues do on the all-party groups on Africa. He referred to his close interest in Rwanda, but I know that his interest extends to the whole region. I am delighted that he could contribute to the debate.
The hon. Gentleman is not the first hon. Member to be drawn into the Chamber by the oratory and approach of the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke). I congratulate the right hon. Gentleman on securing the debate, and pay tribute to his sterling work over many years. He was able to draw attention to some of that in his speech. His legacy for all of us in the House is being able to monitor how Britain moves towards achieving its share of the millennium development goals and the like. He gave a comprehensive overview of some of the challenges still facing much of the developing world, and the importance of private capital and other organisations, particularly the CDC, in helping to achieve those aims. We owe him our gratitude for that.
Like the right hon. Gentleman, I congratulate the CDC on its significant achievement of reaching the age of 60. That is a significant milestone in anyone’s life—I have not quite reached it—not least for a public body. As he said, the CDC has been reorganised six or seven times over the years, and the question is what might happen next. I shall return to that.
I recognise that the public sector and the Government can play an important role in conjunction with the private sector in an area where capital may be in short supply. The challenge for the CDC and its ilk is surely to demonstrate how they are different—what they add to the overall process—by showing that without them, the investment would not have happened, or perhaps not in that form, without the tough ethical business arrangements that it seeks to put in place, or that the investment acts as a magnet to draw in other investors to help the economies of particular parts of the developing world to grow, as the hon. Gentleman highlighted. One of the challenges for the CDC is to demonstrate that in each of those areas it is a champion and market leader, without which much of the investment would not take place. Perhaps it must also demonstrate thought leadership to challenge the rest of the investment community to invest in particular ways. It should consider its infrastructure investments to ensure that they are sustainable, by investing as much in railways as it does in road systems and transport hubs.
There is a lot potential, and with due respect to the CDC’s management team, it is not always obvious in its annual review and broader detail of the annual
accounts that that is what it is doing. None the less, the chairman, Sir Malcolm Williamson, highlights in the latest review that the CDC’s
“central purpose remains unchanged: sustainable economic development in the poorer countries of the developing world through responsible investment in the private sector.”
We all support that. The report also says:
“CDC has a long history of putting capital to work in some of the world’s most challenging economies.”
That perhaps encapsulates its unique role.
The figures are impressive and the right hon. Gentleman referred to a few of them. For example, £1.4 billion has been committed to 42 fund managers who are investing in 100 funds, and the asset base has increased two and a half times since 2004 to £2.7 billion. The report properly highlights that at the end of 2008, the investment policy and arrangements that were put in place at demerger will come to an end. That must introduce some uncertainty, and, like the right hon. Gentleman, I hope that at the conclusion of this short debate, the Minister will be in a position to address that uncertainty.
The hon. Member for Paisley and Renfrewshire, North (Jim Sheridan) and others highlighted the issue of whether the CDC is ripe for privatisation. We should bear in mind that the Treasury has just forked out an unscheduled £2.7 billion for the great Crewe tax giveaway—every little helps, perhaps. The CDC’s chief executive raised the issue of privatisation and put it in the public domain when he was interviewed on the “Today” programme in April, and he certainly did not rule it out. He indicated that it had been considered, that it had advantages, that it would be good for the public, that it would provide an opportunity for the Government to raise money, and that it would leave the CDC intact to continue investing in the poorest countries. It would be interesting to know what lies behind the choice of some of that vocabulary, and perhaps the Minister will tell us. We must be mindful that privatisation is a serious option, but the House is not at this stage in a position to judge whether it is a good move.
In an attempt to understand more about the companies that the CDC deals with, at the start of the process I tabled a series of parliamentary questions on it. I sought to get copies of the accounts of the many different subsidiaries of the CDC placed in the Library of the House. The Secretary of State responded to my question by stating:
“CDC had 79 subsidiary companies at 31 December 2007...Where they are required to do so by their relevant regulatory authorities, these subsidiary companies file their accounts in those countries and with those authorities. Accounts are therefore not available from CDC, but from the regulatory authorities in the countries in question.”—[Official Report, 20 March 2008; Vol. 473, c. 1273W.]
I was completely taken aback by that answer because it struck me as strange that the CDC does not itself have any copies of those subsidiary accounts here in London. From time to time, I am forced to disclose that in anther life I was a chartered accountant. I paid my dues and spent more hours than is reasonable auditing companies across the United Kingdom. I cannot remember an occasion when the parent company in a group of companies did not have the formal statutory accounts of each of its subsidiaries, even if they were just filed away and gathering dust in the corner.
I wrote to the Secretary of State and asked whether he would address that point. He has not yet answered—perhaps it will come following this debate. However, I also asked for further information on the details of the subsidiaries and what regulatory authorities they were registered with. He responded by stating:
“CDC has confirmed that there is no requirement for the company to hold the information on the regulatory authorities with which their accounts are filed. However, they do require subsidiary companies themselves to comply with their respective local country requirements on regulatory norms for filing and submission of accounting information.”—[Official Report, 3 April 2008; Vol. 474, c.1226W.]
A list of the subsidiaries was appended to that response. If one looks patiently at the subsidiaries, about eight or nine of them are registered in the United Kingdom. Even if we accept what has been said about the other companies, I still find it a little strange that the subsidiary accounts for the UK companies are not available for the CDC.
Mr. Tom Clarke: I have followed the questions that the hon. Gentleman tabled and the responses he received. It is perfectly reasonable for him to pursue those lines of inquiry. Does he agree that essentially two points emerge from it? First, there is a case for the CDC to work much more closely with parliamentarians. Secondly, given our endorsement of transparency and accountability, the CDC itself would be moving forward if it took the lead in introducing the kind of transparency that he advocates. That would send a message to the developing countries that the CDC seeks to serve.
Mr. Moore: I agree. I would like to put on the record that I have held a meeting with the CDC and, in due course, I hope to meet the chief executive. The CDC has been unfailingly courteous and helpful in the discussions I have had with it so far. I want to make it clear that I am not casting aspersions on the company, the Secretary of State or anyone else. I am simply saying that when there is some doubt—although that will perhaps soon be extinguished—about the future of the CDC, greater transparency is the way forward, as the right hon. Gentleman has said. Having greater transparency would address any fears or doubts on the matter.
The subsidiaries matter because they are part of understanding the nature of the beast—particularly in terms of its taxation structures. The new business model means that most of the investments are made through fund managers into particular companies and are no longer held directly. The regulatory requirements in many of the countries concerned require a subsidiary of the CDC to hold the investment and the fund, not the CDC itself. However, how those subsidiaries are structured and how they hold that investment matters, not least for taxation purposes. An issue that is surely at the heart of the debate is ensuring that people pay the right amount of tax and that they fulfil the right criteria in doing so. If we wish to set an example, we should do so in our investments through the CDC.
Again, I am not making allegations or suggesting there is anything untoward. However, it is noticeable that on different occasions, investments are being made through what we might call tax havens. That was acknowledged by the chief executive on the radio and elsewhere and is evident in the accounts. Part of the
justification for that is that the CDC would not otherwise attract other investors. If that is the sole criterion, I would like to know more detail about it. That policy must be better understood so that we can get to the heart of the taxation treatment of this organisation and how it might be being prepared for either a long life in the public sector or for some form of privatisation in the near future.
If one is truly diligent—I do not claim any great diligence—and reads the relevant note in the accounts from the past year, there is, in modern accounting parlance, an interesting footnote that illustrates all the taxation treatments and how they reconcile for what looks like a small tax charge back to the fairly impressive profits that have been made. Much of that is to do with the fact that the CDC is not liable to pay tax in the UK, whereas its subsidiaries overseas are.
Mr. Thomas: Perhaps it would be useful if I brought the hon. Gentleman’s attention to a question. Is he aware that the CDC is not required to pay tax to central Government? We have deliberately exempted it from having to pay tax so that it can invest all of its moneys into businesses in poor countries.
Mr. Moore: I am happy that the Minister has emphasised that point. I hope that he did not infer from what I was saying that I was suggesting that there was something wrong with the CDC not paying tax. It is an entirely legitimate policy decision to free up more capital for those investments. Without overstating it, my interest is in the taxation treatment of the subsidiaries, how they are structured and how that is relevant to the future of the company.
I do not want to be rolled up and put in with the other conspiracy theorists whom I am sure the Minister and others have to spend half their lives dealing with when responding to questions—although I am sure that is a delightful job. However, in recent years, following the sell-off of Actis, questions were asked after the event that have not yet been adequately answered. It is entirely fair and proper that Members of the House ask at least some of the relevant questions in advance of what may or may not happen. The CDC has a strong ongoing relationship with Actis, which was sold off in 2004. Actis is one of the most important, but not the only, fund manager that handles the CDC’s investments. Questions about that sell-off relate to the valuation method used and the role of former CDC employees in the sell-off, particularly regarding the potential conflicts of interests that might have arisen. Again, we need to have the relevant information to make a judgment on that. I hope that we will be able to do so.
On 21 February, I wrote to the Comptroller and Auditor General and asked for the sell-off of Actis to be investigated. I was pleased that on 27 March, Mr. Burr confirmed that he has asked his staff to
“examine the reasonableness of the sale price and the profit sharing arrangements agreed in 2004.”
It would be a great service to the House if we knew the answers to those questions so that we can either put the issue to bed or raise further issues.
I do not want any of the questions to take away from the point of the debate, which is to congratulate the CDC on 60 years of impressive and important investments in difficult parts of the world. I hope that, as a result of the debate, we will begin to tease out answers about the CDC’s future and its role in leading-edge sustainable, responsible investment and in challenging other businesses, as the Minister said, to sign up to the ethical trading initiative. Sixty years of progress and achievement are being marked today. We hope that there will be another 60. At the very least, we are at the start of a lively debate, rather than at the end of one.
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Mr. Mark Lancaster (North-East Milton Keynes) (Con): It is a pleasure to serve under your chairmanship for the first time, Mr. Weir. I start, of course, by congratulating the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) on securing this timely and very important debate. If he will forgive my saying so, it also serves as a celebration of his commitment to the issue, which was demonstrated not least by his private Member’s Bill, which is now the International Development (Reporting and Transparency) Act 2006. He made great reference to the transparency and accountability of the CDC to parliamentarians and to the Government—an issue to which I shall return. He also outlined very well the organisation’s development over the past 60 years—how it has evolved and successfully changed with the times. Like other hon. Members, I congratulate the CDC on its achievements over the past 60 years. That is worthy of celebration in today’s debate, and I look forward to the organisation operating successfully around the world for many more years.
As I said, the right hon. Gentleman made a key point on the CDC’s accountability to Parliament. I should like to explore that in a moment. We also had a brief but informed contribution from the hon. Member for Falkirk (Mr. Joyce), who once again demonstrated his first-hand knowledge of various such organisations in the field and the value of their work. The other day, I met a fascinating chap called Seb Bishop, whose efforts can be seen on a Channel 4 programme called “Millionaires’ Mission”. He went to Rwanda and, by using his own private investment in a village, ended up building a school and a hotel. The hotel has now been set up, connected to the school, and people pay to stay in the hotel and teach at the school. The funds generated by that project have created a self-sustaining educational establishment that is now servicing the areas for many miles around. That was a very good example of the type of work that we should be encouraging and of the areas in which the CDC, on a small scale and on a large scale, can make a major contribution.
We then had a very knowledgeable contribution from the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore). One of the most interesting points that he made to start with, before he went into detail on the CDC’s accountability and transparency—I will probably not add anything to that, because he gave all the required detail—was that the CDC needs to establish some comparative advantage. It needs to establish what specific value it can add and how that value complements other organisations around the world. It must also ensure that it continues to act in the interests of the UK Government and DFID.
I shall touch on some of the CDC’s aspects that I feel are important for us to understand and to praise, and perhaps even a few that we should question. It is clear that the CDC plays a leading role in international development-based economic investment. The broad remit outlined by the investment policy drawn up by DFID has allowed the CDC to demonstrate to the private sector that returns can be made from emerging markets in less developed countries.
Sir Malcolm Williamson, the CDC’s chairman, said:
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