Session 2010-12
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General Committee Debates
Delegated Legislation Committee Debates

Draft African Development Bank (Further Payments to Capital Stock) Order 2011

The Committee consisted of the following Members:

Chair: Philip Davies 

Bruce, Malcolm (Gordon) (LD) 

Campbell, Mr Gregory (East Londonderry) (DUP) 

Crouch, Tracey (Chatham and Aylesford) (Con) 

Glindon, Mrs Mary (North Tyneside) (Lab) 

Hemming, John (Birmingham, Yardley) (LD) 

Henderson, Gordon (Sittingbourne and Sheppey) (Con) 

Hendrick, Mark (Preston) (Lab/Co-op) 

Kaufman, Sir Gerald (Manchester, Gorton) (Lab) 

Lazarowicz, Mark (Edinburgh North and Leith) (Lab/Co-op) 

McGovern, Alison (Wirral South) (Lab) 

McPartland, Stephen (Stevenage) (Con) 

Mitchell, Austin (Great Grimsby) (Lab) 

Murray, Sheryll (South East Cornwall) (Con) 

O'Brien, Mr Stephen (Parliamentary Under-Secretary of State for Inter n ational Development)  

Rudd, Amber (Hastings and Rye) (Con) 

Skinner, Mr Dennis (Bolsover) (Lab) 

Smith, Miss Chloe (Norwich North) (Con) 

Smith, Julian (Skipton and Ripon) (Con) 

Glenn McKee, Committee Clerk

† attended the Committee

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Sixth Delegated Legislation Committee 

Monday 9 May 2011  

[Philip Davies in the Chair] 

Draft African Development Bank (Further Payments to Capital Stock) Order 2011 

4.30 pm 

The Parliamentary Under-Secretary of State for International Development (Mr Stephen O’Brien):  I beg to move, 

That the Committee has considered the draft African Development Bank (Further Payments to Capital Stock) Order 2011. 

The Chair:  With this it will be convenient to consider the draft African Development Bank (Twelfth Replenishment of the African Development Fund) Order 2011 and the draft African Development Fund (Multilateral Debt Relief Initiative) (Amendment) Order 2011. 

Mr O’Brien:  It is very good to debate this series of related orders under your chairmanship, Mr Davies. This is the first opportunity that I have had to serve under your chairmanship, so I am delighted to put that on the record. 

The Committee is considering three draft orders. The first covers the United Kingdom’s proposed contribution to the most recent replenishment of the African development fund, more commonly known as the AFDF. The second order covers the proposed contribution to the sixth general capital increase of the African Development Bank, and the third is the proposed amendment to the UK’s contribution under the multilateral debt relief initiative order of 2006. 

The African development fund was set up in 1972 to promote the economic and social development of the poorest countries in Africa. It is the concessional lending arm of the African Development Bank, providing grants or concessional loans to its 38 poorest members. The fund is replenished every three years. Over the next three years, the total resources available will be about £5.7 billion, of which donors will contribute about £3.75 billion; the remainder will come from the bank’s own resources. The UK’s contribution will be £567 million—a sterling increase of 36% on the previous replenishment, and 14% of total donor pledges. The UK continues to be the largest donor to the African development fund. 

I come now to the sixth general capital increase of the African Development Bank. The African Development Bank lends on near market terms, using its ordinary capital resources, to Governments in middle-income countries and to private sector organisations across the continent. Shareholders have agreed a general capital increase that will increase the bank’s authorised capital stock from the equivalent of some £23 billion to some £66 billion. The UK has been allotted 1.679% of the newly issued shares, which is commensurate with the UK’s current percentage shareholding in the bank. The UK will pay in 6% of the shares allocated at a value of £43.9 million, and the remainder will be callable—a

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contingent liability to the UK. The contingent liability for this share issue is £689 million and was laid before Parliament in a separate departmental minute in March 2011. 

The multilateral debt relief initiative meets the payments due to certain multilateral organisations by countries that have completed the HIPC—heavily indebted poor countries—initiative. The amendment being considered today relates to payments due to the African development fund. Payments are made annually as loan repayments become due. In 2006, the G8 members, including the UK, committed to funding the multilateral debt relief initiative. The UK currently has parliamentary approval for payments to 2020 and is now seeking an extension to 2024. These changes will increase the indicative total cost to the UK from £122.7 million for 2006 to 2020 to £196.3 million for 2006 to 2024. 

The multilateral debt relief initiative has been a great success since it was first proposed at Gleneagles in 2005. It is essential that we all keep the promises that we made to poor countries to increase the amounts of aid that we provided. Financing the MDRI is part of that. Otherwise, this debt cancellation is being provided at the expense of future assistance from the African Development Bank. 

The African Development Bank plays a key role in reducing poverty in Africa and is considered throughout the continent as a driver of African development. We strongly support its emphasis on economic growth, which is essential for sustained poverty reduction. The African Development Bank continues to commit to strategies that assist African countries to tackle poverty by funding infrastructure projects, supporting private sector development and promoting regional integration. 

The recent UK multilateral aid review found that the African Development Bank has a close strategic fit with the UK’s strategies in Africa and represents good value for money. The UK supports its efforts to improve its effectiveness. In all our discussions with the bank, we have emphasised that results matter. The bank has responded with the implementation of many reforms to improve the quality of its assistance and to achieve better results. 

4.36 pm 

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op):  It is a pleasure to serve under your chairmanship, Mr Davies. As you suggest, it is best to debate the orders together and my comments relate to all three. 

As the Minister pointed out, the African Development Bank plays a key role in supporting poverty alleviation in many African countries. It has always had the strong support of the Labour Government. As the Minister also pointed out, one of the orders seeks to replenish the fund precisely because of the expenditure that arose from the debt-cancellation initiative taken at Gleneagles in 2005. That was one of the highlights of the international development programme under the Labour Government. For that reason, we will certainly support the statutory instruments, but I have a few questions for the Minister and I hope that he can answer them today, or at a later stage. 

With regard to draft African Development Bank (Twelfth Replenishment of the African Development Fund) Order 2011, the Minister will know that infrastructure development, such as power supply, water, sanitation, transport and communication has traditionally

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received a larger share of African Development Bank lending and that the bank has developed expertise in that area. Transport and supply of power projects are vital to increase regional integration. Infrastructure is important for economic development and there may be a trickle-down effect, but it is not clear whether such projects always necessarily benefit the poor, and the bank’s overall remit is, of course, poverty reduction. 

There is also the environmental impact of large infrastructure projects. The African development fund states that one of its priorities is to integrate climate change adaptation and mitigation measures better, but large-scale infrastructure projects often have possible major social and environmental impacts, such as displacement of people, loss of access to natural resources, water pollution, biodiversity losses and so on. The Minister will know that the World Bank has been criticised for the environmental impact of some of the projects that it finances, and, of course, the African Development Bank often co-finances projects with the World Bank. Does he accept that while transport or power supply projects are vital for the rapid development of African economies, they should be linked closely with poverty reduction, and climate change adaptation and mitigation, so that different priorities do not conflict? If he agrees, what steps will he take to ensure that the activities of the African development fund are compatible with those priorities? He will know that, in the recent assessment, under the multilateral aid review, the Department’s own assessors concluded that on climate change and environmental sustainability, the African Development Bank had a new climate change action plan that set a good direction, but so far it had little evidence for implementation, and that that was a weakness in that plan. 

Another stated priority of the bank is governance, which I presume includes anti-corruption programmes. Of course, there is a wide concern about that in the UK and internationally in Africa. The bank stated, I think in November 2010, that it seeks to: 

“better co-ordinate…initiatives with initiatives of other development institutions and civil society” 

aimed at tackling corruption. So far, however, there does not appear to have been a great deal of engagement with civil society organisations in Africa on that. Are the Government taking any steps to encourage engagement with civil society in Africa on tackling corruption in relation to the bank’s programmes? 

My next question relates to the African Development Bank (Further Payments to Capital Stock) Order 2011. The importance of supporting agricultural development in Africa cannot be underestimated. In 2003, African Union countries committed themselves to setting aside 10% of national budgets for agricultural development. Nine years on, however, and only eight countries have fulfilled that promise. In the list of priorities announced by the bank in 2010, agricultural development was not specifically mentioned. Does the Minister agree that it is important for investment in agriculture to be given a high priority by the bank and the fund, and if so what steps will he take to encourage those organisations to do so? 

I turn next to the African Development Fund (Multilateral Debt Relief Initiative) (Amendment) Order 2011. The Minister will be aware that this initiative allows 100% reduction of debts once a country has

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passed through the HIPC process. However, that applies to debts only to a certain date—to the end of 2004 in the case of the IMF and the African Development Bank, and to the end of 2003 for debts to the World Bank. However, a number of countries have found that remaining or more recent debt has increased dramatically as a result of the world’s financial crisis. For example, 80% of Sierra Leone’s internal debts were cancelled in 2007, but its external debt has doubled; indeed, 10% of its revenue will be spent on debt repayments, more than is spent on health care. Is the Minister prepared to discuss with multilateral agencies and his counterparts in other countries what action can be taken for countries whose debts have grown since the financial crisis, including those such as Sierra Leone that have completed the HIPC process? 

The list of those countries eligible for HIPC multilateral debt relief initiative is closed, but the UK has its own initiative under which we undertook to pay 10% of the debt service payments owed to the World Bank and the African Development Bank. The list includes Cape Verde and Lesotho. Is the Minister prepared to press for countries included in UK’s multilateral debt relief initiative to receive full debt relief from multilateral creditors, including the African Development Bank? Will he consider including other low income non-HIPC countries, such as Kenya, thereby potentially allowing them to obtain debt relief from the African Development Bank? 

4.42 pm 

John Hemming (Birmingham, Yardley) (LD):  I am pleased to serve under your chairmanship, Mr Davies, I think for the first time. We obviously support the Government on this, but I wish to put two points to the Minister. 

In a sense, the first echoes a point made by the hon. Member for Edinburgh North and Leith. One concern that has always been expressed to me is about peak oil, and oil supply in the long term. Development projects tend to be business-as-usual, making the assumption that fossil fuels will remain cheap. Yes, prices are going down at the moment, and shale gas may rescue us to a certain extent, but such projects have a built-in dependency on fossil fuels rather than finding sustainable solutions. 

Secondly, one would hope that somewhere in the Treasury these contingent liabilities are being monitored and tracked, so that we know their total. I wonder whether the Minister has any answers to these questions. 

4.43 pm 

Mr O'Brien:  I thank the hon. Member for Edinburgh North and Leith for his general comments and his indication of support for the orders. He was right to emphasise that the African Development Bank takes a key position and performs an important role in the poverty reduction strategies. In particular, it must ensure a real sense of ownership of the process within Africa, with affected nations being represented on the board along with those who are looking for good investment opportunities and, not least, for building the infrastructure to which he referred. 

I am grateful to the hon. Gentleman for highlighting the question of the infrastructure—power, transport and communications—and developing the expertise. He is entirely correct. To a degree, the African Development

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Bank has to look for good prospects, and it clearly has to ensure a good return on its loans; however, it has concession opportunities through the fund, not least to perform as a patient capital bank, which is what we are encouraging CDC to do. 

As I understand it, the hon. Gentleman was seeking some assurances on funding. He said that although some of the projects that the African Development Bank is funding are rightly focused on infrastructure, they do not necessarily always focus on the poor. What he was trying to say, I think, is that such projects are not exclusively for the poor. To be fair, the building of a road and a power or telecommunications system is important. Indeed, it is hard to imagine an economy developing without access to power and infrastructure. Although such projects will, we hope, enable the poor to be lifted out of poverty—evidence shows that in the process of wealth creation, there is the greatest chance of lifting record numbers of people out of poverty—they will also provide the collateral benefit of helping those who are not necessarily classified as poor in the first place. Therefore, it is fair to say that there is some overlap. 

The hon. Gentleman was concerned about the slight shortfall in the African Development Bank’s scoring on climate change adaptation and mitigation. In particular, he referred to the multilateral aid review that the Government have carried out within the Department for International Development. The hon. Gentleman was right in what he said. Although the African Development Bank scores very highly under the MAR, it has not scored so highly or commensurately on climate change. A good deal of work is being undertaken by a number of people. We are focusing on working with the bank and on monitoring the process carefully. Of course, along with a couple of other countries, we have our representational role with the bank. Above all, as we work with the reporting mechanisms and the management of the bank, the African Development Bank is becoming much more climate smart in its approach to the assessment of investment proposals to see whether they are concessionary or whether they fall under normal lending arrangements. Just the other day, I gave evidence on that to the Environmental Audit Committee. Such a process applies as much to climate change as it does to governance. 

As part of the process of increasing the relatively good performance of the African Development Bank in tackling fraud corruption, the hon. Gentleman wanted to know how much of civil society is being engaged. There is no question but that the bank has actively encouraged African Governments generally to improve standards of public financial management. It is reviewing its engagement with civil society as part of its policy to increase the transparency of its operations. We have had explicit discussions about the concerns in the somewhat distant past about the corruption, transparency and accountability of the African Development Bank and about the evaluation that will take place in the future, particularly as we look forward to the review that follows the multilateral aid review in the next 20 to 24 months, at the two-year anniversary. Work is being undertaken and closely monitored. Such matters are clearly important to the issue of confidence, especially in terms of continuing to lend. 

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As for the question of agriculture being given a high priority, the bank has recently agreed a new strategy of support to agriculture with a focus on agricultural infrastructure—irrigation and rural roads. It has also provided additional support to countries affected by rising fuel prices via the funding of fertilisers and other agricultural inputs. The hon. Gentleman will be well aware of the volatility of world prices that lies behind some of the imperatives on that. 

To return to policies to protect environmentally sensitive projects, in addition to the test of what is environmentally appropriate and sustainable—I should have mentioned that—we have pressed the bank and it has, I am happy to report, agreed to review its policies on energy and climate change. That will be undertaken before the end of this year. We will not only be monitoring and reviewing matters over the four-year spending review period, against which all the various assessments have been made recently, and looking at the two-year review; a more urgent process is in place. 

The hon. Member for Birmingham, Yardley asked about the development of fossil fuels and the sense that many projects assume that the same fuel sourcing will apply in future as in the past. All of us are focused on how to be more climate smart. We are even considering leapfrogging some current fossil fuel sources. The big issue is coal-fired power stations. They have been a particular focus, and are a good example to use in answering his question. The African Development Bank is reviewing its energy and climate change policy and will present a draft for discussion by shareholders later this year; it is very much in live time. 

We are engaged with the bank to ensure that the policy meets the twin goals of securing sustainable energy production and addressing the chronic shortfall in energy access in many countries. I assure the hon. Gentleman that the United Kingdom Government will push hard to ensure that the policy represents a shift away from fossil fuel lending and towards lending for clean energy where need for concessional lending is greater. We want the bank to help countries explore all reasonable alternative options before concluding that coal is appropriate. Where such options are not feasible, we will seek efforts to ensure that the cleanest possible technology is used. I am sure that he is even more of an expert on this than the rest of us, but I say that in the absence as yet of a proven clean coal technology, we do not have a ready alternative to accepting that that might be the decision of last resort. 

The hon. Gentleman asked whether the Treasury is keeping an eye on the contingent liability. I am in no doubt and can happily assure him that Her Majesty’s Treasury will be and is keeping a close eye on the numerous contacts with the Department. The Treasury has approved the departmental minute setting out the arrangements increasing the contingent liability. It was laid before Parliament in March, and the Department for International Development report sets out the status of the contingent liability arising from the callable capital in all multilateral development banks. That will feed through to how the Treasury aggregates data to consider the total contingent liability facing the Exchequer’s accounts. 

The hon. Member for Edinburgh North and Leith asked about those countries that are ineligible under HIPC. We agreed to 10% of the interest costs on debt

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repayments for the World Bank and the African Development Bank. He asked whether we were able to stand ready. I do not have the detail, but I am happy to commission a reply, which I will ensure he gets in due course. I do not know the answer offhand. 

The hon. Gentleman asked whether we had discussed with international agencies the debts that had grown since the financial crisis. His example of Sierra Leone was interesting. I have visited and taken a close interest in the country, and we have a bilateral programme with it, as he knows. We are also concerned about the level of public debt now registered in Sierra Leone, particularly as we often consider post-2004 and 2003. One must also recognise not only the circumstances of the country but the fact that those debts were not necessarily incurred as a result of some lending practices that took place as far back as the 1970s and 1980s, let alone the 1990s. Some of our concern about Sierra Leone, for instance, is due to the very rapid rise that has arisen in public expenditure and therefore public debt. We have recently made strong representations on that matter to the Government of Sierra Leone, and as constructive partners who seek to assist them to get their economy into a launch position, we believe that it is in their best interests for that issue to be brought under control. Some of these matters concern more recent choices that have perhaps been made more locally than under the old financial system. 

Mark Lazarowicz:  The Minister’s comments are well made. Another country where the issue of debt relief will soon come to a head, and where the level of debt depends on decisions that were taken in the ‘70s and ‘80s, is Sudan, particularly south Sudan. Will the Minister say something about the Department’s views on how the debt should be apportioned between south Sudan and the rest of Sudan, in relation to the multilateral debt relief initiative and the support that we give through the development fund? 

Mr O'Brien:  Perhaps I should check this before I get to my feet, but I recall reading in a book—I cannot remember the name of the author, but he was private secretary to none other than Sir Winston Churchill in his retirement. After Churchill’s death he went on to be a banker, and he suggested that in the 1970s and 1980s there was a deliberate policy of lending to countries that it was known would not ever have the capacity to repay the capital. The interest earned was to be a good source of revenue. The level of return achieved on the debt, and the public financial management processes put in place to earn it, lie behind a lot of the HIPC process. 

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The situation mentioned by the hon. Gentleman is different, in that a country will suddenly come into being as a result of a referendum, and we look forward to that. The question about the allocation of debt between north and south Sudan is clearly a matter for the negotiations that are taking place in that country, and various international facilitators are in place to assist that process. It would be both wrong and presumptuous for me to forecast the outcome of those negotiations, but we clearly need a fair and appropriate resolution to the issue, and to a number of other issues such as how the oil resources will be dealt with—in terms of both extraction and supply—and the resolution of the demarcation of some the border lands. Like me, the hon. Gentleman will have to wait to see the outcome of that locally negotiated solution, but it must be part of a clear package to provide the best way of underpinning the peaceful development and evolution of the new country that will come into being as a result of the referendum. North Sudan should retain only its fair portion of debts and assets. 

I hope that that covers the points raised during this fairly short debate, and I am grateful to hon. Members from all sides for their support for these important and, we hope, constructive measures. 

Question put and agreed to.  


That the Committee has considered the African Development Bank (Further Payments to Capital Stock) Order 2011.  



That the Committee has considered the draft African Development Bank (Twelfth Replenishment of the African Development Fund) Order 2011.—(Mr O’Brien.)  



That the Committee has considered the draft African Development Fund (Multilateral Debt Relief Initiative) (Amendment) Order 2011.—(Mr O’Brien.)  

4.59 pm 

Committee rose.