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14 May 2008 : Column 425WH—continued
“Emerging markets are not for the faint-hearted. CDC has a long history of putting capital to work in some of the world’s most challenging economies. We are a patient investor and remain committed to these markets. CDC’s long term commitment is vital in uncertain times and serves as a reminder of the development impact of our capital.”
Like many others, I agree with Sir Malcolm. The CDC’s link to DFID allows it to carry out that long-term economic investment and clearly demonstrates the commitment of successive UK Governments to economic growth as possibly the most powerful method of lifting people out of abject poverty.
The right hon. Member for Coatbridge, Chryston and Bellshill gave many examples, and I shall add just one to the list: the investment in the Fairtrade tea company Tatepa in Tanzania, which has led to the creation of 27,000 jobs for small growers. Such successful sustainable projects can be achieved only through long-term investment by organisations such as the CDC and should be commended.
However, the sole focus on economic growth, creating jobs and raising revenue as a means of development has led to criticism in some parts that the investment of the CDC’s capital in certain projects has not always acted, albeit perhaps inadvertently, entirely in line with DFID’s goals. Critics highlight the actions of Globeleq, previously entirely owned by the CDC until it was floated on the US stock market in 2006-07. Before it was floated, there were reports of companies in which Globeleq, and therefore the CDC, had invested whose policies were proving counter-productive to the aim of ultimately alleviating poverty in the developing world.
Let me give just a couple of examples. Since Globeleq took control of Uganda’s national grid in 2005, domestic electricity prices have risen by 70 per cent. Of course, there may be other underlying reasons for that, but the first impressions of the local population, which are all-important, were not good. In 2004, tribes from Papua New Guinea, backed by Friends of the Earth, sent the then Secretary of State for International Development a compensation claim for £25 million that related to the damage caused to their land by CDC-funded Higaturu Oil Palms.
Such work will always be controversial, but it is only fair to say that such occurrences are very rare. It is, however, worth noting the comments in the report by the Select Committee on International Development entitled “Private Sector Development”. Paragraph 119 in chapter 5 stated:
“CDC’s portfolio of investments must continue to be carefully scrutinised for their overall contribution to poverty reduction. CDC’s social and environmental record is patchy and we recommend close monitoring by DFID on where and how CDC invests. Acting as an investment catalyst is a necessary but not sufficient contribution to poverty reduction: CDC must ensure that its ‘development footprint’ is a wholly positive one.”
Mr. Thomas: The hon. Gentleman made a number of comments about Globeleq’s role in Uganda and elsewhere, albeit with the important caveat that other factors may have been at play in the problems that relate to electricity generation there. Is he aware that, in Uganda, Globeleq has helped to increase access for an additional 20,000 households a year—some 8,000 above the target that was initially set—and is he aware of the work done by Globeleq in Tanzania, which has led to the price of power to the distributor being reduced by almost 50 per cent.?
Mr. Lancaster: I am grateful to the Minister for intervening, but perhaps he is being slightly over-sensitive. As I hope I made clear, the occurrences referred to are very rare. The reason why I highlight them is that first impressions are the ones that count. I am trying to establish that it is vital that the CDC’s work is entirely in line with DFID’s stated objectives, because all too often it is easy for those who are quick to criticise to pick up on such examples and then the good work that he rightly highlighted can be lost.
The Select Committee report also highlighted the fact that the CDC’s work, however worthy, remained one private-sector development initiative that appeared to be inadequately linked to a broader strategy. The CDC’s role to demonstrate to the private sector that returns can be made in emerging markets despite the perceived risks is important if the economies of developing nations are to grow.
I believe that the CDC should look closely at the model being implemented by the African Development Bank, under the leadership of its president Donald Kaberuka. I spent a week at the bank at the end of last year, and it was clear that the bank had decided that it’s comparative advantage centred around infrastructure. It actively sought to encourage private sector involvement by helping to remove the political risk that so many private sector companies feared; at the same time, it ensured that projects were de-conflicted with each other and were directly in line with the bank’s stated aims. In light of that, will the Minister outline how the CDC’s development footprint can be improved, thus taking the Select Committee’s comments on board and ensuring that it remains a wholly positive one?
The CDC’s investment strategy, in line with the investment policy outlined by DFID, has demonstrated to the private sector what can be achieved in emerging markets. Although the CDC has been leading the way by investing in less developed countries for the past 60 years, it has also had a major impact on improving people’s quality of life. Infrastructure has been improved, jobs have been created and standards of living have gone up, although more needs to be done.
The CDC’s work may be the tip of the iceberg; but in the main, its efforts have been supported by DFID and many NGOs, as well as by the wider international community. If only the Minister had waited, he would have seen how balanced my comments are. By looking past the risk to the potential, unlike the private sector, the CDC has invested where others have not dared to tread. In turn, that has ensured the success of many projects that would have failed if they had been left entirely in the hands of the private sector.
Although the CDC and its subsidiary companies have invested in emerging economies that have often been described by private sector economists as being
too risky, the CDC has experienced a 79 per cent. increase in total returns after tax—up to £672 million in 2007. At the same time, net assets rose 33 per cent. to £2.7 billion. With the profits being reinvested in emerging markets and less developed countries, the CDC’s power to lift people out of poverty through economic empowerment continues to grow. However, there have been limited criticisms of the Government’s target of a 5 per cent. market return on investments; the feeling is that returns should be balanced at directing finance where it is most needed to reduce poverty. Will the Minister say whether he considers a 5 per cent. market return to be reasonable given the changing economic circumstances and what the reinvestment priorities should be?
Sticking with capital, rumblings also continue over what the CDC’s future direction should be. Should it be doing more, and if so, should there be an injection of capital into the organisation and how best should that be done? As the right hon. Member for Coatbridge, Chryston and Bellshill said, the last injection of capital was made in 1996, under a Conservative Government. It has been argued that an extra £500 million should be injected into the organisation. That, of course, is not a dissimilar amount to that given by the Government in the latest replenishment of funds for the African Development Bank shortly before Christmas. Is that view shared by the Minister? If so, how exactly do the Government intend to raise the money?
I hope that the Minister will outline his vision of the CDC’s future, not only for its funding but in establishing or reinforcing its comparative advantage, as other multilateral organisations have been forced to do recently.
Mr. Tom Clarke: I am grateful to the hon. Gentleman for making a carefully considered and well-researched speech. He will be aware that a number of hon. Members have spoken about privatisation, and we look forward to the Minister’s reply on those speculations. Will the hon. Gentleman take this opportunity to tell the House the Conservative party’s view? I am sure that it will be an important consideration.
Mr. Lancaster: I am grateful to the right hon. Gentleman. Many people seek my party’s view on many issues, as they sense a potential change in the wind. I hope that he will forgive me for not taking that opportunity today. He is absolutely right that the subject needs careful consideration, and he does not really expect me to make policy on the hoof, so I shall resist the urge. All will become clear in due course.
Will the Minister outline his view of the future of Actis and Aureos—the companies established in 2004—not least because I believe that Actis’s contract to negotiate and manage the investment of the CDC’s capital in developing countries is due to expire at the end of this year?
There is much to celebrate on the 60th anniversary of the Commonwealth Development Corporation. I believe that there is broad agreement across the House that, although the CDC still has room to improve its development footprint and the further integration of its goals with DFID and other players in the international community,
the important role that it has played and continues to play in promoting and facilitating economic growth in countries where private sector foreign investors sometimes fear to tread is vital if we are serious about building sustainable economies and institutions in developing countries. It is right that we should celebrate those achievements today.
10.36 am
The Parliamentary Under-Secretary of State for International Development (Mr. Gareth Thomas): I join others, Mr. Weir, in welcoming this opportunity to serve under your chairmanship. I congratulate my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) on securing this debate. I join him and others who have spoken today in congratulating the leadership and staff of the Commonwealth Development Corporation on its 60th anniversary.
My right hon. Friend invoked the names of Clement Attlee, Aneurin Bevan and Creech Jones, giants of our party’s and the nation’s history. As he mentioned those names, I realised that a potential minefield was opening up before me. The fact that he was able to secure the presence of my hon. Friends the Members for Paisley and Renfrewshire, North (Jim Sheridan) and for Falkirk (Mr. Joyce) and of my right hon. Friend the Member for West Dunbartonshire (John McFall), the Chairman of the Treasury Committee, served to underline recognition and awareness of the CDC across our party. I also note the continuing interest in the subject of the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore); I shall deal later with some of the specific points that he raised.
I hope that the hon. Member for North-East Milton Keynes (Mr. Lancaster) will forgive me, but although his speech was balanced and although he raised one or two perfectly legitimate points, his opening comment about perceptions being important was an obvious truism given the arena in which we all have to work. Surely it is incumbent on us, as Front-Bench spokespeople, to deal with the substance and to correct erroneous impressions. Some erroneous impressions have indeed built up about the work of the CDC, but I shall come to them in a moment.
The hon. Member for Berwickshire, Roxburgh and Selkirk spoke about the need for the CDC to be a thought leader. That point was also made by my hon. Friend the Member for Falkirk and more generally by my right hon. Friend the Member for Coatbridge, Chryston and Bellshill. The Government need to do more to help to develop the private sector in developing countries. We need to consider what more we can do to catalyse more investment and interest in African and other developing countries not only by British businesses but by the international business community.
What interested me about the contribution of my hon. Friend the Member for Falkirk is that President Kagame, whom he met last week, is in London to attend a meeting convened by the Prime Minister. Seventy chief executives and a number of figures from the international donor community, including from the United Nations Development Programme, are in the UK to consider what more can be done—given that this year we are halfway to achieving the millennium development goals—to galvanise investment and interest from the
private sector internationally in our efforts to tackle poverty. The CDC can continue to play an important role as we look at how to develop effective private sectors in the most challenging circumstances in the poorest developing countries.
I give an example that demonstrates the importance of that role. I do not know whether the CDC is considering investments in Afghanistan—that is not my point—but Afghan farmers invest time and effort in continuing to grow opium poppy partly because of the absence of alternative livelihoods that would generate sufficient income for them to be able to send their families to school, receive hospital treatment and so on. On occasion, they continue to grow opium because they lack the ability to access finance in a way that we would recognise. The effort to develop an alternative private sector and financial institutions that we would recognise in Afghanistan, which could loan money to Afghan farmers, help them to save and so on, must be a priority for the international community. Anything we can do to galvanise interest, not only in Afghanistan, which may be in a particular situation, but more generally in the developing world, from financial institutions and the private sector can only help.
An issue for the future of the CDC is how we can work with it and continue to refocus the effort, talent and imagination within the organisation on the most challenging markets in the poorest countries. The corporation has had many successes in the emerging, now middle-income, economies of the world, and in the poorest countries, but if we are to continue to get the best from the talent of its staff, we need to continue to work with it to ensure that it is focusing on the most challenging countries.
Jim Sheridan: In recognising the good work of CDC staff, will the Minister give consideration to recognising formally the work of the CDC and in particular its 60 years of good work on its anniversary, perhaps not today, but later? Perhaps the Department has already done so.
Mr. Thomas: One reason why I welcome the debate is that it has given us the opportunity to acknowledge the considerable contribution that has been made by existing staff at the CDC, to whom I again pay tribute. However, we should also recognise that we need those talented individuals to continue to work in the most challenging circumstances if we are to maximise the opportunities that the corporation provides as our development efforts go forward. I shall reflect more generally on my hon. Friend’s point—although we should celebrate the 60th anniversary and 60 years of progress, we also need to look at how we can use the occasion to concentrate on what else the CDC should do.
As my right hon. Friend the Member for Coatbridge, Chryston and Bellshill said, the organisation has a distinguished history. It has taken several forms since it was founded in 1948 as Britain’s first development institution through to its present incarnation. Rightly, my right hon. Friend said that throughout its 60 years, it has had the same mission—to reduce poverty by promoting economic growth in poor countries. However, as he acknowledged, ideas on how best to tackle poverty in developing countries have evolved in those 60 years. From a belief that the developing world should produce
the commodities and raw materials that industrialised countries need, we are now convinced that the way to defeat poverty is to produce more sustainable, broader-based economic growth in poor countries, and to bring poorer countries into the global economy by increasing trade and investment. Such sustainable growth can be achieved only by building a sound private sector, which provides the type of jobs that we would recognise and generates commerce and trade. Our approach to poverty, and therefore the way in which the CDC mission is implemented, has changed to reflect that. From being an occasional source of credit, often to agricultural enterprises such as tea plantations, the corporation now provides investment capital to help businesses in poorer countries to grow and develop.
The value of the corporation’s investments stands at some £2.7 billion.
Mr. Tom Clarke: I am extremely grateful to my hon. Friend for his considered reply and for his truly remarkable commitment to everything that Creech Jones set out to achieve—he is a first-class Minister. Of the first Adjournment debate that I introduced in the House, one profile writer said that it was rather surprising, given my local government background, that I chose to speak about the Philippines. The CDC’s message even at that time was that some things were going wrong—in the Mindanao palm oil project, for example—in employee relations and other aspects of the commitment. Nevertheless, it emerged that the CDC accepted its responsibilities to ensure, in so far as it could influence matters, good employment practices, as the Minister will confirm. As was mentioned, the environment is crucial to the CDC’s objectives. Does the Minister agree that we regard such objectives as a priority?
Mr. Thomas: We do regard those objectives as a priority. My right hon. Friend underlines the phrase that the hon. Member for Berwickshire, Roxburgh and Selkirk used about the need for the CDC to be a thought leader on that work. My right hon. Friend rightly alluded to the fact that businesses operate within particular climates and legislative requirements in particular countries. We sometimes need to deconstruct the circumstances and environments in which businesses operate from the practices of organisations or their subsidiaries. However, that does not in any way negate the responsibility of businesses, hence our support for the ethical trading initiative, for example. It means that we must work through our aid programmes to help developing countries to put in place the appropriate standards and regulatory framework within which the business community operates.
I was detailing some types of CDC investment. A number of hon. Members referred to the continuing role of the corporation in agriculture, which of course remains hugely important for poor countries. The CDC has investments in fruit, flower production and a range of other commodities, but it also invests in many other perfectly legitimate economic sectors such as the financial sector. More than £100 million is mobilised for investment in microfinance. As the hon. Member for North-East Milton Keynes said, it also has considerable involvement in the power sector. Both those sectors are critical to the economic development of poor countries. A sound
financial sector helps economies to have the credit and financing that they need to develop and expand. The CDC’s investment in the Banque Commerciale du Rwanda, for example, led to the launch of new savings accounts and personal loans, which had not previously been available to customers.
As we have heard, the CDC has been a major player in developing-world power generation through Globeleq, and it has a series of investments in Asia, Africa and the Americas. I make no apology for the fact that it is investing in energy generation, because access to power will be one of the things that underlines our ability, or otherwise, to make progress on meeting the millennium development goals. We cannot make progress on providing access to schools and health care or on developing the private sector if people do not have reliable access to electricity. Many of the company’s electricity investments were sold to private buyers last year, and the cash raised—$1.2 billion—is largely being ploughed back into developing new power facilities for developing countries.
Today’s CDC looks very different from the original Colonial Development Corporation that Creech Jones set up. It now invests through 40 investment managers around the world, including Actis, the fund management company that we de-merged from the CDC. Many of those managers are based in the emerging economies themselves, so the CDC is developing the financial services sectors of those countries, too.
By requiring fund managers to apply business principles that demand proper environmental, financial, health and safety and labour standards in their investee companies, the CDC also promotes effective corporate social responsibility. That is a key point, and the CDC has a key role in that respect. By investing in poorer markets that private investors are reluctant to enter and showing that responsibly run companies can be good investments even in those markets, the CDC has been able to attract more private inward investment—£325 million last year alone—to countries that badly need it to drive economic growth.
As all hon. Members have made clear, the CDC needs to demonstrate developmental impact as well as financial success. Some of that impact will come from its responsible business principles and from showing that companies can look after their employees properly and be financially successful at the same time. Many of the companies in which the CDC invests also provide housing and social services for employees and their local communities.
Several hon. Members raised the example of Tanzania Tea Packers, in which the CDC invested $75 million. As my right hon. Friend made clear, the company has gained Fairtrade accreditation. However, it is important to reflect not only on the financial success of that investment, but on the fact that the Fairtrade price premium that Tanzania Tea Packers has been able to secure has allowed schools, health centres and an extensive HIV/AIDS education and training programme to be financed in local communities.
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