Examination of Witnesses (Questinos 80-99)
MS NEMAT
(MINOUCHE) SHAFIK,
MR MARK
LOWCOCK AND
MS SUE
OWEN
15 JULY 2008
Q80 John Battle: Turning to the topic
of governance, a theme that DFID has increasingly strengthened
and developed in recent years. You have the Governance and Transparency
Fund and I want to ask you about the reasons for the delay in
allocation of the funds. The funds have been increased to £130
million. Is it getting enough? There is a list on your website
of all the projects approved for the funding but no indication
of the sums allocated or the timetable and I wonder whether that
kind of detail could be amplified—not necessarily now—to
make sure that there is some energy and drive behind this programme.
I would be interested to know how much the Fund Managers, including
KPMG, are paid for their work; and how the projects will be monitored
and the impact assessed because I think it is a key part of the
work of the department you referred to and I think good governance
has been an area we have neglected in development.
Ms Shafik: I should just note
that the Governance and Transparency Fund is a very important
part of our work but it is just a small part of what we do on
governance, which is now the kind of major theme for our work.
Our funding for governance has gone up from about £85 million
in 1997 to over now £322 million and we have 200 governance
professionals in DFID—it has become the largest professional
group in DFID because it permeates virtually everything we do
in the education sector and the health sector and in public financial
management. The Fund is up and running and has made the awards
to funding to civil society and Sue can say a bit more about how
it is actually running and being allocated.
Ms Owen: Of course, one issue
here was the success really in attracting applications. We had
272 individual proposals worth collectively £770 million
and not just from the UK—we had applications from Europe,
North America, Africa, Asia and Latin America. We decided to consider
proposals that were between three-quarters of a million and £5
million and lasting over a three to five year period. We have
accepted 38 of the proposals. It was not just KPMG—we circulated
the proposal around the department and relevant advisers, such
as governance advisors and country offices fed in views on the
applications. We have actually worked quite hard then with those
who are successful in organising how they will account for the
money and report back and that is one of the reasons why the funding
is only just now ready to go. But we think that about two-thirds
of the proposals are ready now and funding for them will come
on stream in the next month or so. On the final third we are still
working with them on their financial management capacity and how
we can help them so that the concerns you have are taken account
of.
Q81 John Battle: And the follow-up
for the monetary impact assessment that will emerge?
Ms Owen: That is what we are setting
in place with the civil society department here; so we will have
annual reports and follow-up there.
Q82 John Battle: What I am really
asking is it be made public so that others can work from it, because
I would be interested rather than just seeing a topic title of
the kind of action that is going on and how that can be applied
elsewhere. I think I am now looking at DFID as a possible development
agency in my own constituency as well as in Africa, if you get
my meaning. But some of the work that has been done elsewhere
can really replicate in tackling the challenges of poverty in
our own neighbourhoods because of the methodology.
Ms Shafik: Yes.
Q83 John Battle: So if we could get
that detail out as well as just paying the money across to others
to do.
Ms Owen: Of course.
Q84 John Battle: If I could raise
another theme and it is a theme that I think in politics we have
neglected particularly looking at the cruelty of the history of
the whole of Africa, perhaps we as governments here tend to relate
to governments elsewhere and not to politics. We talk to those
who are in power and not those who are struggling to get power
and we have been a bit mono-focal, if I can put it that way. We
have neglected oppositions, if we are deadly honest, and the multi-variety
of what politics might be, ie it is not just presidents and prime
ministers but could be a range of people, and I am keen to try
and assert that parliaments might be important and that the range
of those amorphous bodies should be taken more seriously. Last
year DFID's view was that there was not much to be gained from
stand-alone programmes with parliaments in developing countries.
What I mean by that—and if Hugh Bayley were here he would
certainly assert this—is that parliamentarians meeting parliamentarians
might be a good thing in its own right and not us as parliamentarians
just meeting presidents and prime ministers and governments, but
we compare notes at the local level of what MPs do, how we should
be accountable—and, yes, it includes rows on expenses and
all that stuff, they are an important part of the agenda of how
we are democratically available and accountable. I do not think
we are having those conversations. There is no reference in the
Annual Report of DFID to that work of parliamentary strengthening.
I think there is £14 million in the budget for it. Are you
(a) the appropriate person to just do it on your own or (b) should
other bodies in Parliament be involved or should the Cabinet Office
be beefing that up as an approach of inter-governance? How can
you have a G8 on the one hand if the parliamentarians do not know
what they are doing and it is all top-down? Can we really champion
good governance by bypassing parliamentarians?
Ms Shafik: I think it a fair criticism
that in the past we have been too focused on governments in our
governance work. We heard that message very clearly in the evaluation
that was done of budget support where the criticism was "you
are so focused on getting the government to allocate its budget
in a more pro-poor way that you have failed to look at the other
accountability mechanisms". I think we have gotten better
on that. DFID has now funded 30 parliamentary strengthening projects
over the last 10 years in countries like Ethiopia, Kenya, South
Africa, DRC, Malawi and Pakistan, where we focused particularly
on getting women candidates into parliament. It is delicate for
us of course because we cannot be seen to be working with a particular
party. Under the Governance and Transparency Fund now we have
given a grant of £5 million to the Westminster Foundation
for Democracy to build the capacity of parliaments in a cross-party
way in Africa, Eastern Europe and the Middle East, and I hope
that work will teach us a lot more about how we can effectively
look at capacity in parliaments.
Ms Owen: Certainly when I went
to Zambia in January, I met parliamentarians from the opposition
to talk about fraud and financial management kinds of issues.
The other area where we are starting to do a bit of work—it
is a bit ad hoc at the moment but we would like to do more—is
in helping senior civil servants. The Permanent Secretary of the
Department for Children, Schools and Families has a personal exchange
with his opposite number in Rwanda and they spend a week in each
other's offices each year and have a kind of mentoring programme
like that, and we are looking to see if we could do more of that
in Africa, but these are not costless in administration time.
Mr Lowcock: As Minouche says,
we accept your point that we should have maybe got on to this
faster and do more of it. We are trying to address that. I think
the Chairman had an exchange recently with the Secretary of State
on support to parliamentary committees in Nigeria. I know the
Speaker visited you and came to see us and we have a programme
that we are working up with them, not just with the Speaker but
also with the Budget Committee and the equivalent of the Public
Accounts Committee.
Q85 Chairman: His bold claim, I recall,
was that if you just funded him effectively you could scrap the
aid budget to Nigeria altogether!
Mr Lowcock: He said that to us
too. It is a bit more complicated than that but they certainly
do have a very important role which we need to recognise. We are
starting to see the impact—this is the important point for
us—of strengthened institutions. I think it was a very important
set of decisions that President Kikwete took early in his tenure
in Tanzania of firing people who had been identified through a
process led by the Public Accounts Committee in the National Assembly
in Tanzania and that sent a big signal, so we have watched that
and we will invest more in those sorts of institutions.
Q86 John Battle: I think it is a
new area and in a sense the exchanges at civil service level are
excellent and strengthening capacity in somewhere like Malawi
is important. There were 12 people around a table and four said
to me that many people in their department would die of AIDS,
top highly trained people and they were begging us to send trained,
skilled bureaucrats to help, but I think there is another level
of operation that is more difficult and that is perhaps how to
say to civil servants they do not always understand the details
and the pressures of politicians at the local level and nor do
we; it is kind of an emerging science. I do not think we have
got a perfect democracy in Britain. I think we are at the growing
end of it basically. We are in a new phase of trying to emerge
into democratic structures. I am not sure who does it and who
should lead it and I am glad that DFID is in there pressing it.
If I may just on a discursive note say that I was invited by the
Foreign Office after I left to take Muslim councillors from different
parties involved in local government to Indonesia because they
were discussing how to set up local democracy and they wanted
to know how a Muslim could reconcile being a good Muslim and going
to the mosque on Friday with being a councillor and doing the
best for value for money at the local level. It was a fantastic
experience for the people from Britain that went and the good
news was that the two or three that went really became great councillors
in Britain as well, so it strengthens democracy, accountability
and governance at both ends. The Foreign Office had hardly any
budget for it so do we go to DFID for it? Should it come out of
the Cabinet Office to back it up from a general budget of supporting
international best practice in strengthening institutions? I think
we are at the very new end of doing this. Otherwise we are going
to be caught between brilliant people meeting in the bush, participatory
democracy around a tree in Ghana that I can bring back to my constituency
to work on community development, but at the same time we have
missed out the whole of the institutional structures of local
government, regional government, national government and parliament.
I just think that it is a new area to move into and I hope that
you will promote it throughout Whitehall not just in your Department.
That is what I am saying.
Ms Shafik: I hope what we learn
from this funding that we are doing with the Westminster Foundation
for Democracy will teach us a lot about how to do this well. I
suspect what you are saying is exactly right which is that peer-to-peer
learning is quite unique and I suspect that we civil servants
are pretty bad at understanding the pressures on politicians.
Q87 Chairman: There are a number
of different routes by which parliamentarians are being involved
and when we met Bob Zoellick, he said he wanted the World Bank
to do more on the constitutional problem with the Parliamentary
Network for the World Bank. They are trying to resolve, but it
would be good if these things were at least aware of each other
and co-ordinating with each other otherwise they will be cutting
across each other.
Ms Shafik: We have just launched
an accountability fund jointly between DFID and the World Bank
to look at governance and to do country-level diagnostic work
on what the governance issues are in different countries and so
we will be working hand-in-glove with them on this agenda.
Q88 Chairman: Can I turn to a different
issue altogether which is the role of the CDC and the relationship
between the Department and the CDC. If I am honest—and I
may be wrong and you will challenge me—the impression I
get is it feels as though the Department has parked it over there
and said this is our private sector job and although it is owned
by the Department and accountable to the Department, one does
not get the impression that there is awful lot of day-to-day interaction.
There is a good story in one sense—increased profits from
£375 million to £672 million and net assets increased
by 33%, there is a lot going on. But there are also questions
being asked about what its role really is, what its development
effect is or whether it is just another national institution that
happens to be owned by the Secretary of State operating in the
market with some pretty loose development objectives. They are
not very tightly constrained. What is the relationship between
you as officials and the CDC on a day-to-day basis?
Ms Shafik: I should say that one
of the things that surprised me when I took this job is how much
time I spend on CDC because it had not been on my radar screen!
However, Mark has been the primary interlocutor. I should just
say that part of the philosophy of the restructuring of the CDC
was to get government out of the day-to-day investment decision-making
because, to be honest, there was a lot of official and political
intervention in their investment decisions which resulted in very
bad investments and huge losses, so what we wanted was to get
to a situation where we had a clear policy direction of the CDC
embedded in what we call their investment policy and then we would
get out of the day-to-day decision-making but we would hold them
very tightly to their investment policy, which currently holds
them at 70% of their investments having to be in low and middle-income
countries and 50% of that having to be in Africa and South Asia.
We have just had a whole series of discussions with them over
the last few weeks because we want to tighten the investment policy
even further to press them to go into even more frontier and difficult
markets because we think they have done a pretty good job. As
you have said, their results have been outstanding. They have
gone from being worth £1 billion to £2.6 billion in
just a few years which is quite remarkable, but the level of interaction
on that investment policy has been—what is the polite term—we
have had a vigorous and frank exchange, would be a fair way of
describing the conversations that we have been having with both
the Chairman and the Chief Executive. Mark, do you want to add
anything?
Mr Lowcock: I guess there are
just two more things in response to your question, Chairman. The
first is about the way we structure the on-going discussion with
CDC. The core structure is that we have a quarterly meeting with
them where they report to us on progress against a set of objectives
that the Government has set and which Minouche has outlined and
issues that have arisen for them over that period. That is a meeting
that I take with the Chairman and he has the Chief Executive there.
I have a team from DFID and also DFID is supported in our relations
with CDC by the Shareholder Executive which is Government body
sitting in the Department for Business Environment and Regulatory
Reform these days, which advises Government on its shareholdings
in companies, and they have expertise in doing that. That is the
structure of the dialogue. The Secretary of State obviously also
sees the Chairman from time to time and when we have got issues
to resolve then others are involved in resolving those as well.
The other thing you asked about was the development impact and
obviously we could assess that in a number of different ways.
One is if we try and look at some take on the overall economic
impact that CDC through its investment can make on poorer countries,
we can look at things like Celltel which is the biggest provider
of mobile telephony services in Africa. CDC was the cornerstone
investor is Celltel some years ago. One of the reasons why Africa
in recent years has had the fastest rate of growth of penetration
of mobile telephony is because of that initial investment and
CDC in fact sold out its stake with its other owners and brought
in another $2 billion when the overall company was sold from Middle
Eastern money which ended up being invested in Africa. Another
example on the economic side would be some of the things they
have done in the power sector. The price of power going into the
grid in Tanzania as a result largely of the investment that CDC
has contributed has come down from 11 cents to 6 cents a unit.
This is a country where one of the biggest banes of the business
community is load-shedding. Anyone who has been to Tanzania will
know that even if you are sitting in a comfortable hotel you are
woken up all night because the generator clicks in because the
grid is load-shedding, and CDC is contributing a lot on those
things. You can then take it a layer down if you want to look
at employment generation. CDC for example recently were the pioneer
investor in building a big shopping mall in Lagos, the construction
of which created thousands of jobs—
Q89 Chairman: And for which they
were criticised of course by NGOs because they did not think it
was appropriate.
Mr Lowcock: And we disagree with
that. We think that development of the whole of the country's
infrastructure is an important thing for countries to do and we
want to do that and we think it is good that CDC can contribute
to that. We also ask CDC to be a model investor in terms of their
business principles, their ethics, their dealing with labour standards
issues and environmental standards. One of the things we flagged
up in the Annual Report was this investment they have in Tanzania
Tea Packers, Tatepa, which is a fair trade business, and CDC through
that investment have contributed to the financing of clinics and
text books in schools and the construction of schools and so on.
They have another investment in a rubber plantation in quite an
insecure area in northern Cote d'Ivoire where there is a lot of
employment generation but they have also on the social side constructed
500 houses for the workforce. We think that this is not just about
the financial success that Minouche has outlined; the financial
success reflects a substantial contribution to economic development.
Q90 Chairman: You have given us good
examples there and you have said to them go away and do it and
these are things they have done and you are happy to report back
that you think they are beneficial. Do you either here from the
UK or in country ever refer to possible development or investment
opportunities to CDC and, if you do, presumably it is entirely
on the basis of "will you have a look at this", but
it is their decision? Would that be a fair description?
Mr Lowcock: Yes, just to give
some examples, I had a discussion recently with the Minister for
Energy from Zambia who has asked the IFC[8]
to help them put together a proposition for a hydro-development
scheme and I mentioned the CDC and their fund managers to him.
As Minouche says, we think it is a good thing that Government
is setting a framework for CDC and then holding them to account
for the way they deliver against it. We do not want to get into
the position that at some points in the past we have been in where
we are doing more than that, more then passing on ideas that have
come to us.
Q91 Chairman: That is how its predecessor
got into trouble in the first place.
Mr Lowcock: That is exactly right
and the predecessor lost at various points hundreds of millions
of pounds. We believe the framework we have set is the right one
but of course yes we do pass on information when we get it.
Q92 Chairman: A final point on its
assets—it has a huge amount of cash. We have asked you about
that and you have given us your view on it, but given the starting
conversation we had about where the resources are going to come
from for development, would either selling off CDC or getting
a return to the Department to fund mainstream development be a
potentially valuable option? For one thing you could sell it off
and get a one-off take or alternatively you could require it to
pay a dividend to the Department, which you do not do at the moment.
Mr Lowcock: Perhaps I can say
a couple of things about that. Firstly, the Minister, Gareth Thomas,
in the Westminster Hall debate on this made clear that the Government
does not have plans to divest CDC but that the Government does
have plans, as Minouche said, to very substantially refocus on
the poorest countries. We think the mission is not complete there.
We do as part of the regime that applies to capital charging of
assets that every government department holds in fact charge CDC
for the asset base they have and that is a charge that appears
through the annually managed expenditure in the Department's Budget
and Accounts and which we report. You are right to say that if
we wanted to we could also take a dividend. At the moment the
CDC are holding something like £1.4 billion in cash but they
also have forward commitments of investments that they are signed
up to do which largely absorb those resources so there is a balance
to be struck. What we do not want to do is provide them with an
incentive to run down their cash faster than they think would
be commercially sensible by picking dud projects. We are trying
to manage this set of things but the issue you raise on should
we take a dividend, as it happens, is quite a live issue, and
I have had a discussion within the last month with the Chief Executive
about that. That ultimately would be a matter for the Government
on which to take a view.
Q93 Chairman: It might demonstrate
a direct development benefit and clearly there is an ideological
exchange where some NGOs, and it would not be unfair to mention
specifically Christian Aid, disapprove fundamentally of the CDC,
but again if you were getting a dividend for development it might
just make a difference to the attitude.
Ms Shafik: Two quick points on
that. Of course technically speaking any revenues will accrue
to the Treasury rather than to DFID so there would be a bit of
an issue.
Q94 Chairman: I guess there would
not be much point unless you had a stake.
Ms Shafik: Exactly. To reinforce
your point, there was a similar issue at the World Bank and they
had very large profits one year and the President at the time
decided that those profits from its private sector arm would go
to pay for IDA,[9]
which funds soft funds to low-income countries. It is a good example
of doing exactly what you are saying.
Chairman: Thank you for that. I think
we have two more topics.
Q95 Sir Robert Smith: Just one more
thing on the CDC, presumably the whole world economic climate
is slightly changing and therefore the figures need to be looked
at quite cautiously. Secondly, presumably if they focus more at
your behest on poorer countries then there will be a higher risk
to their investment and therefore their economic return will change?
Mr Lowcock: I think we will see
at the end of the year what impact the market turbulence this
year has had, but I think there is some evidence to suggest that
in some markets at least your forecast might well turn out to
be right. They have had a spectacular four years and so it would
be very surprising if they could sustain that for ever. Sorry,
I have forgotten the second question.
Q96 Sir Robert Smith: You are trying
to refocus them on—
Mr Lowcock: Higher returns, yes,
and I beg your pardon. We do not know if that is true or not actually.
Some of their best realisations have been in the poorer markets.
The Celltel realisation was spectacularly successful. We debate
that issue a lot and they worry that that might be a problem but
firstly the Government's rationale for holding CDC is to invest
in the poorer markets and secondly it will be up to them to make
those investments successful ones and their co-investors will
share those goals. The fact that Africa has done so well over
the last decade and more investment opportunities have been created
gives us some confidence that this is a model that has now had
some degree of proofing.
Ms Shafik: In terms of Africa's
performance the recent IMF projections of the effect of the economic
turmoil on Africa, particularly the oil price shock, show that
oil exporters in Africa will grow by 8%, so they are going to
do well, but even the non-oil exporters are expected to grow by
5%.
Q97 Chairman: But that is not having
a very good effect on the poverty figures in Africa.
Ms Shafik: I think the story varies
a lot by country.
Q98 Sir Robert Smith: On the efficient
use of resources, the issue we come back to quite often is our
concern about the staff targets and the impact on delivery. As
you are moving into more fragile states, surely in a way to get
effective outcomes you possibly need more staff rather than fewer
staff?
Ms Shafik: It is certainly something
that we are struggling with and it is part of the reason why we
are withdrawing staff from some of the middle-income countries
to put them in fragile states. By the end of the CSR period we
will have 60% of our aid in fragile states so it will become the
core business of DFID. You are quite right to say that we need
more staff in those situations because we are augmenting government
capacity and we are dealing with the governments that have weak
capacity. We are getting that additional staff both from good-performing
countries like the Tanzanias of the world, the Ghanas of the world,
who are doing pretty well, where governments have more capacity
now and we can run our aid programme with fewer DFID staff, and
also by shifting people out of middle-income countries and putting
them in fragile states. That is broadly how we are coping with
it.
Ms Owen: One of the things we
are doing for the CSR period which we have not done in the past
is to ask our directors to be more systematic about planning the
sort of workforce that they need. Looking forward we cannot afford
as many staff as we have at the moment. We do not have a headcount
target but we have a budget constraint, so in setting out their
frameworks for the next three years and the admin allocations
that we have given them, we have asked directors to look not only
at the number of staff they can afford but what are the kind of
people they need and what kind of skills they need, not just the
hard skills such as whether they are an agricultural expert or
governance expert, but skills such as whether they are good at
influencing people, whether they are prepared to work in difficult
places. When we were doing our allocation of administrative resources
we did not inflict equal pain everywhere. We tried to make deeper
cuts in the policy and corporate functions, with some exceptions,
and less deep cuts in fragile states, so we are looking to cut
proportionately more in somewhere like India than somewhere like
DRC or Sudan for example. This has proved quite an interesting
exercise because our directors have found it relatively straightforward
to work out how many staff they can afford but have found it more
difficult to think about the kind of skills that are needed, and
we are continuing to discuss that kind of thing so that we can
plan a bit more carefully and give people the right sort of training
that they need to go to fragile states in particular. I think
something else that is quite interesting is what we have learned
a little bit from the Foreign Office is that actually you want
to put sometimes your best people in the difficult places rather
than the cushier places, and they have certainly done that with
Afghanistan for example, and we are thinking quite hard about
how we can follow suit there.
Q99 Sir Robert Smith: On some of
the figures we have the technical notes state that there is a
target to reduce staff appointed in country by 124 from 1,162.
The Annual Report gives a target to reduce staff appointed in
country from a March baseline of 1,162 to 950 which will be a
reduction of 212 instead of 124. Earlier in the report the staff
appointed in country is given as actually being 918 in March 2004
and 834 in March 2008. If there are fewer people in country why
has the baseline been set higher than the actual?
Ms Shafik: We were not given a
target for staff appointed in country by the Treasury, to be honest,
that was a self-imposed target which we overshot and over-delivered
on, and that is why it looks a bit funny.
Ms Owen: However you are right
to spot that there was a mistake. The figures this year are the
correct ones and the figures last year were wrong, so it is good
that you keep us on our toes. One of the reasons we wanted to
put in a target was to help reassure the Treasury that what we
were not going to do was to cut home-based civil servants and
just increase the numbers appointed locally abroad. I think it
is worth saying again that the reason we have staff appointed
in country is not because they are cheaper; it is because they
are better than us at knowing what will work in their particular
countries.
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