Examination of Witnesses (Question Numbers
Tom Cairnes, Dr Sarah Bracking and Dr Michiel Timmerman
7 December 2010
Chair: Good morning and
welcome. You're all here in your own individual right, but, for
the record, will you just introduce yourselves and say who you
represent, things like that?
Dr Timmerman: My
name is Michiel Timmerman. I'm the Chairman of Equity for Africa,
which is a charity that invests on a commercial basis in small
businesses, focused in Tanzania. I have some other background
that may be relevant to this, which is that for the last 12 years
I have been running a fund of funds for RBS Coutts, and, most
recently, Aberdeen Asset Management, investing in private equity
and hedge funds.
Dr Bracking: My
name is Dr Bracking. I'm a Senior Lecturer at the University
of Manchester. I research development finance and international
Tom Cairnes: My
name is Tom Cairnes. I've spent the last six years living in
Sierra Leone, where I do a couple of things. I helped to set
up an investment business called ManoCap, which is part-funded
by CDC. We also run the Business Development Initiative, which
is a technical assistance facility that was founded by support
from DFID. I also run a charity that provides direct support
to the Children's Hospital in Freetown.
Thank you. We have two sessions, with three witnesses in this
panel and two in the other. I don't want you to feel that you
can't say what you want to say, but at the same time, not everybody
has to answer every question. If we have short questions and
short answers, we'll get through a lot more information.
If I can kick off, you will be aware that the Secretary
of State is reviewing the whole of the CDC operation, and certainly
wants it to undertake more direct investment. Perhaps we can
take CDC as it is at the moment, and say how you would assess
its recent performance against the objectives, specifically in
contributing to economic growth and propoor growth. One
of the criticisms is that it has tended to take the easier options.
Do you believe that that's a fair comment, or do you think it
has been effective in delivering propoor growth in poor
Tom Cairnes: Maybe
I can start.
Chair: From the sharp
Tom Cairnes: We've
had support from CDC to invest in Sierra Leone. I don't really
have the expertise to talk about CDC outside Sierra Leone. I
can only talk specifically about the work that they've done with
us. I definitely think that the model of investing in small and
mediumsized enterprises, through funds like ManoCap, is
propoor. There's obviously a range of different ways that
an organisation like DFID can engage, and there are lots of different
potential ingredients to deliver propoor growth. My personal
view is that there has definitely been a lack of focus in the
development community at large on investment and private sector
development. Therefore, investing in a fund like ManoCap, and
the work that we do in Sierra Leone, is, in my view, the kind
of thing that an organisation like CDC should be doing. In terms
of the impact that we've had over the last three years, we've
invested about $8 million in four businesses. I think the jury's
still out on whether that's been a success or not. We have definitely
not declared victory. It's very hard to make investments work
in the space in which we've invested. In that short space of
time, however, we've created around 800 additional jobs. There
has been about $750,000 of increased tax revenue for the local
government, and there is a real opportunity for this model to
deliver results in very challenging environments.
What kind of businesses or projects are they?
Tom Cairnes: We've
invested in an industrial fishing business, an ice manufacturing
company, and a mobile payments business, a bit like MPESA,
which I'm sure you've heard of. We've also invested in a transportation
and distribution business focused on the agricultural sector,
linking smallscale farmers in rural areas with the main
market hub in Freetown.
I'm asking about CDC's performance, but since a shift is going
to take place, can you perhaps say where you think it might usefully
go in terms of direct investment, unlocking other private investment
and propoor delivery? The argument is that propoor
is difficult. Tom Cairnes has just said it's difficult. The
other argument is that CDC doesn't always go where nobody else
goes. Should the test be that it goes there because private sector
funding is otherwise not available, or is there a temptation simply
to do what the private sector might do anyway?
Dr Bracking: Obviously
there will be examples of where CDC is doing its job well, but
if we go back to the total portfolio for a moment, the financial
indicators used by CDC on internal rates of return have been as
high as 18%. Compared with other Europeanlike organisations,
this is quite high. Relatively speaking, if you had a table,
the rates of return on financial investments in other European
institutions tend to be quite a lot lower, in single figures at
least. If you look at the economic criteria for how well CDC
is doing, it normally uses employment creation and tax paid at
a local level. Those two measures are actually quite thin, and
the methodology that's used to calculate them is not particularly
sophisticated. EDFI, which compiles those figures, tends not
to use pro rata data. It attributes to the DFIs the whole employed
workforce, or the whole tax paid. What the DFIs are not generally
doing is paying a lot of capital gains tax and incomebased
tax for the investor, because of their domicile pattern. In terms
of other development criteria, such as being propoor, obviously
SMEs are generally used as an example of that. However, to get
to a SME they're using a financial chain, a fund of funds, where
a lot of money is being leaked into management fees, licensing
fees, offshore, before you get to those communities. I would
propose a much more direct model, rather than the intermediated
model, if you want to get value for money in the developmental
sense for these types of investments.
Dr Timmerman: My
experience of dealing directly with CDC is limited. We've had
some past conversations with them about possible investments in
Equity for Africa funds. My understanding, from reading around
CDC, is that there is much more of a focus on larger investments,
and there is, as Sarah said, quite a heavy focus on financial
returns. If I compare that to other development finance institutions,
such as Cordaid, who are an investor with Equity for Africa, they
are interested in commercial return. However, they are looking
for 10-12% returns in local currency terms, rather than 17 to
18% returns. My view is that it is a myth that there is a scarcity
of capital and interest in investing in Africa. I've been to
the last two FT private equity conferences on Africa, and they
have been completely oversubscribed. In addition, in my fund
of funds job, talking to funds in which we invest, a number of
them have significant interest and some have significant exposure
to Africa, in areas such as infrastructure and resources, including
telecommunications. Consequently, I think there is a dearth of
capital going into certain sectors of Africa, but it is very much
at the smaller end of the spectrum. However, if you hamstring
yourself by having high return IRR targets for your investments,
you're not going to be able to access those smaller investments.
That implies that CDC, in its present form, is not adding a heck
of a lot of value in that context. It's adding value in the sense
that it is making a return on the investment, but not doing anything
significantly different from what the private sector could or
Dr Bracking: Yes.
Dr Timmerman: I'd
say, broadly speaking, that's my understanding. However, there
are some exceptions, such as the ManoCap investment, or the investment
in Grofin, which is another SME fund. I'd say in general the
focus tends to be on the larger, more commercial investments,
but CDC may be hamstrung in the sense of having been imposed,
or setting itself, high IRR targets.
Chair: This obviously
is the moment to review all of that.
Q5 Richard Burden:
I have to go to a debate in Westminster Hall for 11, so if you're
in the middle of an answer and I walk out, it's nothing you've
said. Well, it might be, but I don't think it will be. Do you
get the sense that there is a kind of model of DFIs that CDC would
do well to emulate? You've talked about rates of return being
lower with other DFIs. You have some criticisms of the way that
CDC operates, but are there areas of best practice, and methodologies,
they positively should be following?
Dr Bracking: I've
just been working for Norad on a study of Norfund. The first
thing to say is that across Europe these questions tend to be
on the table, so this isn't happening in a vacuum. The Swedish
and Norwegian Governments already have better restrictions on
the use of tax havens or secrecy jurisdictions than we do. This
was the specific area of my research. CDC has a widespread use
of secrecy jurisdictions that requires regulation. Its development
impact criteria, or the way that it monitors developmental impact,
are also not very sophisticated compared with some of the others.
I would say Norfund are better, DEG are better, FMO are better,
maybe not the EIB. CDC has been following a model of synergy
with the way the private sector behaves too much, so its developmental
impact has been assumed by the commensurability of any type of
growth with any type of development. They think, "We could
basically invest anywhere and it will induce growth, and then
growth means development for us." They haven't looked specifically
at different types of economic growth and different types of ways
that economies are growing. This, in Africa, is a problem, because
if you use funds and financial intermediation, you tend to invest
only at the top of chains. You are getting to the elites, not
the commercial banking sector, not the domestic manufacturing
and industrial sectors, and certainly not the missing middle of
investors who are desperate for capital. We're supporting the
big end of the economy, not further down where more propoor
growth could be expected to occur.
Dr Timmerman: In
terms of CDC's investment model, certainly there is targeting
at the top end. I would question the sense of CDC making direct
investments, in the sense that it is an entirely different business
model. You need a much larger number of people to monitor your
investments. If you look at leading private equity companies,
they will raise, say, $2 billion to $3 billion for a fund, they
will make 15 to 20 investments with that fund over five years,
and they will have several hundred staff to do so. Although you
pay away fees on the fund of funds business, at the same time
it is a much leaner way of operating, and your spread is much
wider than it would be if you were making direct investments.
There is a compromise, which is doing coinvestments, where
effectively the funds you are working with do a lot of the donkey
work in terms of research and monitoring of the businesses in
which you invest.
Q6 Richard Burden:
Are there any examples of good practice on that that you'd like
to draw our attention to?
Dr Timmerman: Before
answering that, I'd just like to talk about the two development
institutions we work with, which are Cordaid and Norfund, who
I'd say have a very different business model from CDC. I'd characterise
them as a bit more of a venture capital model, in the sense that
they look for good quality people. They look for people who have
clear commercial objectives and experience, and have a good idea,
and hopefully somewhat of a track record of having put the idea
into practice. They will then give a smallish amount of money
to those firms, and that gets you access to new and innovative
ways of accessing particularly the missing middle and the slightly
smaller investments. You are not, as Sarah was saying, taking
just a conventional commercial private equity model, which I believe
CDC is very much following.
Q7 Chris White:
What are the benefits and limitations of the fund of funds model?
Dr Timmerman: Clearly,
a limitation is that you have to pay people money, fees, to manage
a fund for you. That introduces an extra layer of fees. The
other disadvantage is that you have a more limited control over
the investments that that fund makes than if you are making your
own investments yourself. The advantages are, as I was saying
earlier, that the impact of your organisation can be far greater
if you're investing in funds, because you have effectively a much
larger number of people who are working for you. If you weren't
investing in funds, you would have to hire quite a few of those
people yourself, and consequently you would be paying out the
money for salaries for those individuals. Equally, if you're
a very large investor such as CDC, you have very substantial negotiating
power. Particularly in an area where there may be new or smaller
funds seeking to be established, you can negotiate some pretty
advantageous terms with the individual funds, both in terms of
the fees that they charge, and the amount of influence you have
over the investments that the underlying fund makes. I would
say overall, if you were looking to invest globally across a wide
range of sectors, and build up a diversified portfolio, the fund
of funds model is an attractive one. I would just like to say
I don't have an axe to grind here: Equity for Africa makes direct
Q8 Chris White:
Just to continue on the development benefits, do you think this
model is compatible with targeting in terms of sectors or geography?
Dr Timmerman: I
think the challenge at the moment for investing in funds or companies
specifically targeting social benefits as well as financial returns
is that there's a limited supply of funds that specifically target
poverty and small businesses. Consequently, you would struggle
to put £1.9 billion,
i.e. CDC's entire portfolio, to work in that particular sector
today. However, there is a conundrum, which is that because there
is a limited amount of capital investing in firms such as Growfin
and ManoCap, there is limited supply, because people are struggling
to raise money to launch the funds. Again, if you were to invest
part of your portfolio in funds such as ManoCap or Growfin, you
would be promoting the development of the funds industry, which
would be of huge benefit. The chances of an organisation like
CDC investing $2 million to $3 million in a dairy business in
Sierra Leone, or an engineering business in Tanzania, is pretty
limited, because you need a lot of people on the ground to do
Q9 Chris White:
Seeing as you're about to speak, I was going to ask you a question,
just to get the feel of the scale and scope of some of the work
you're doing. You mentioned, for example, an icemaking
business. How many people would be employed in one of the three
examples that you've put up?
Tom Cairnes: Our
investments have ranged from the smallest at $1 million to the
largest at $6 million. Our smallest company, which is the ice
manufacturing business, employs about 50 people. We supply ice
to around 400 artisanal fishermen, which doubles the amount of
time they can go fishing, allows them to store fish for much longer,
and provides them with the possibility to access export markets.
To be able to get fish from an artisanal fisherman through the
value chain to the port or the airport requires them to be able
to demonstrate that they've kept that product cool over the lifetime
of the cycle. Our largest business, the fishing company, employs
150 people directly and then we have probably 250 casual workers
in addition to that. The business we have that employs the most
people is our mobile payments business, and we have about 800
salesforce people who go out to sell that product directly to
people in the marketplace.
May I just make one more comment on the fund of funds
model? I think there's a challenge in that there's no "one
size fits all" solution to this. In certain markets it makes
a lot of sense to make direct investments, particularly where
there is a lot of expertise in place. In markets that are difficult
to access, like Sierra Leone, there is a benefit to having funds
like us, or people like us, based on the ground in the country,
being able to manage the portfolio. When I think about aid in
general, DFID doesn't have a direct aid model. It gives money
through NGOs, it gives money directly through Governments, and
probably at much greater costs than it would do giving through
funds of funds. Therefore personally I don't have a problem with
not doing direct aid work, or providing money directly to beneficiaries.
The challenge is to choose the right vessels through which that
money should flow. Per se I don't think there is a problem with
the fund of funds model. It can have a huge advantage where you
have the right people on the ground to be able to go and see those
investments and add value to the businesses that the money is
going into on a daytoday basis. At the same time,
at the larger scale, I can see that it would be easier for an
organisation like CDC to make direct investments. That was my
thought on the fund of funds model itself.
Chris White: That's very
Do you accept that there is some validity in the argument that
the fund of funds model has encouraged CDC to go after the easy
targets? Whilst you're all saying the difficult targets are going
to be much more expensiveI'm looking at Sarah Bracking
herethe implication is that some of the other comparable
institutions have clearly taken more risks and got a poorer return,
but delivered better on development and poverty reduction. Is
Dr Bracking: Yes.
The point about the fund of funds model is that CDC doesn't actually
have the power to target anything. It's putting its equity with
a fund manager, who then makes those decisions. This problematises
risk management and due diligence, because it's a subcontracting
arrangement. The fund manager promises to meet the investment
stipulations as DFID has handed them to CDC, and then they hand
them on again. The act of faith here is the idea that you put
a small amount of equity in a much larger fund, and that buys
you influence and impact. There's not actually much empirical
data to prove that assertion, because CDC is only in control of
1% of all the foreign direct investment that goes to the least
developed countries. There's an argument that, because they are
sitting on the Board, they can influence the way the funds behave,
but they only ask that the fund produces a best practice document
for, say, environmental impact or social impact. They can't mandate
them to do anything, not even keep international standards on
I just want to clarify this point. The slight implication of
what you're saying is that if you targeted more specific funds,
or put more specific objectives on those funds, even the fund
of funds model could deliver a much better result on development
and poverty reduction.
Dr Bracking: I'm
not opposed to private equity per se. It's just that at the moment,
about 86% of the private equity funds in which CDC invests are
also domiciled in secrecy jurisdictions. There's no countrybycountry
accounting. There's no way of verifying that the geographic targets
are being met, and there's no way of checking who the underlying
investee companies are.
Chair: We'll come back
to that specific point in a minute.
Q12 Jeremy Lefroy:
Following up on that, it seems to me, from what you're all saying,
that the fund of funds model isn't necessarily in itself a problem.
The rate of return is a problem because, by its very nature,
it restricts the areas in which investment can be made. There
is no real objection, for instance, to CDC promoting the setting
up of funds that target more developmental outcomes at a lower
rate of return, where they wouldn't necessarily have to have large
numbers of people on the ground. They could perhaps help set
upas indeed Actis was originally part of CDCsuch
a fund manager in which they could invest. Would that be a possibility?
Tom Cairnes: In
terms of the way that our business developed, we started as a
technical assistance facility, directly funded by DFID, providing
business planning and business advice and support to small businesses
in Sierra Leone. From that we realised that there was a lack
of capital to invest in mediumsized businesses that wasn't
at interest rates of 25 to 30%, which the entrepreneurs that we
were working with really weren't interested in taking. If you
sit down and work with business people in Sierra Leone, anyone
who's had their business destroyed in the war, had it rebuilt,
had it destroyed again, had it rebuilt and makes reasonable profits
is a good person to back. There are not a lot of people looking
to find those opportunities. Translating between good entrepreneurs,
who are very rough around the edges, and private commercial capital
that needs transparency and the ability to be able to monitor
those investments, there is a gap there for funds of funds in
our space. There are some lessons to be learned from our experience.
CDC, along with DFID, have the opportunity to push the forefront
of investing in places like Sierra Leone. However, I would say
it's incredibly risky. I don't think investing in Sierra Leone
is purely commercial. Considering the riskadjusted returns
on our fund, I would not tell my grandmother to put her pension
in our fund. That is a bad investment decision. I do think,
in the long term, there are real benefits to be had from providing
capital to entrepreneurs and businesses who deserve that opportunity.
At the same time, that doesn't mean you should reduce the investment
rigour. Sometimes, mixed in with this, "We need to reduce
IRR targets", is the idea that you need to reduce the quality
of the investment decisionmaking, and the principles of
investment decisionmaking that you apply. It's inevitable
that the golden rule of investing, which is to go where the IRR
is highest, needs to be relaxed in this space, but all other investment
rules should hold. You should invest in good businesses, in good
people, where there is transparency, where taxes are paid properly.
If you relax every other investment principle along with the
IRR, you have a problem. That is one of the risks. There is
too much of a broad conversation about IRRs. There's no tradeoff
between investment principles and development returns, if what
you're saying is you have to apply highquality investment
decisionmaking. You shouldn't feel sorry for people in
poor countries, you should treat them as hard as you would do
in this country; however, in doing that, you respect them and
provide them with an opportunity to deliver jobs.
Chair: Thank you. That's
Q13 Mr McCann:
I have a question on financial instruments, and perhaps I can
direct it in the first instance to Dr Timmerman. The Secretary
of State suggested that in the future, CDC should use a wider
range of financial instruments to support a more diversified portfolio.
In your experience, what financial instruments are most needed
by recipients in poor countries?
Dr Timmerman: The
equity model is very difficult to implement in smaller companies
in developing countries, because the legal structure doesn't really
exist. The concept of equity doesn't exist particularly well
either. Consequently, you need to look at other ways of sharing
risk as well as having a stake in the business. Models such as
providing debt but with revenue sharing arrangements, where you
may participate in a percentage of the revenues from the business,
would be an equitylike option, but you are sharing some
of the risk of the business. I'd say, broadly speaking, that
there shouldn't be a constraint on the instruments that CDC or
other investors are willing to consider, in that it's really all
about understanding what risk and return objective you have, and
therefore which instruments allow you to access that risk and
return. Consequently, if you don't want to take a large amount
of risk, and you want fairly steady returns, you should be looking
at debtlike investments. If you want to participate in
more of the upside, you should be looking at equitylike
investments. There is not a lot of sense in being dogmatic: "We
only invest in equity," or "We only invest in debt,"
or "We only invest in something in between." What you
should be looking at is what the financial outcome is that you
are looking for. What's the risk return profile? How much risk
are you prepared to take, compared with how much risk the business
is taking? What type of investment does the business need in
order also to have the nonfinancial outcomes, i.e. the employment
creation or whatever it is you're trying to achieve by investing
in the business?
Q14 Mr McCann:
I think you've just answered this question, but I'll put it to
you anyway. Would increasing the number of different instruments
have an impact on overall cost?
Dr Timmerman: Cost
Q15 Mr McCann:
Yes. Investment costs.
Dr Timmerman: I
wouldn't expect so. It may require some additional financial
expertise to be hired by CDC. However, most of the investments
you'll be making in developing countries are going to be pretty
basic compared with today's financial engineering standards in
developed markets. None of these instruments are going to be
very complicated. There may be some extra legal costs to get
the right documentation in place.
Q16 Mr McCann:
Mr Cairnes mentioned, in answer to an earlier question, technical
assistance. Do you think that technical assistance should be
an integral part of DFIs?
Tom Cairnes: It's
incredibly helpful to be able to provide businesses with technical
assistance preinvestment. It definitely gets into a grey
area of subsidising returns. One of the debates that people have
had with us about the use of what's called the Business Development
Initiative is that essentially what we are doing is preparing
businesses to get investment. In some cases we manage the investment
as well. In all of this debate, there is this grey zone between
private returns and development returns. It requires judgment
calls as you go on. I don't think there is necessarily a right
answer. Technical assistance is incredibly helpful. When we
look at businesses, there are lots of reasons why they aren't
ready for investment. Why is bank capital so expensive? In part
because it's almost impossible to get good information out of
businesses in somewhere like Sierra Leone, mostly because they
are, quite rightly, trying to hide how much tax they should be
paying. The tax discussion is basically a negotiation with the
tax collector, who walks in and says, "Well, if you give
me this much, you'll pay that much tax." That's the system
within which they work. When we invest, we say that there will
have to be proper accounting systems, which means that the amount
of tax paid will go up by 20 to 30%. So there needs to be a real
benefit to the companies themselves. The technical assistance
helps them see the benefit of good accounting practice in advance
of capital being put in place. For an investor, it allows you
to look the guy in the eye, before you do any work with him.
On structures, I like equity, not necessarily because of the increased
returns, but because it allows you to sit down with someone and
say, "I am your partner. We are going to live this. I make
money when you make money. We will be here through the trenches
of the disasters that will inevitably happen in the next six years."
Doing technical assistance in advance helps you build that relationship.
If you spend six months working with someone, you sit down and
talk to them about how they're going to handle their employment
decisions or manage customers, how difficult it is working with
junior minister x in the Ministry of Fisheries, you build
a relationship that is essential to make investments work. If
you don't have that trust, if you have to go to court, it's over.
You've lost. All the money is gone. You're proving a point
because you need to demonstrate that you can go to court, but
that's not where you want to get to. Technical assistance is
helpful because it allows you to get transparency into the business
and help businesses understand what it means to get outside investment.
It's a nice pilot and it builds a strong relationship. Then
I like equity combined with other types of product that help to
mitigate risk, because of that primary gut response you have with
the guy that you're working with: "I am your partner through
all of the crap that's going to happen in the next four or five
years, until we get money out of this." When you talk to
people, they know that it's going to be hard to make money. I
think that's the reality of the work that we do.
Q17 Jeremy Lefroy:
I'd just like to declare my interest, in that I'm a director,
with Michiel, of Equity for Africa. I'd just like to concentrate
a bit more on the question of direct investment. We've spoken
a little bit about whether it would be worth CDC making direct
investments in the same way as, for instance, IFC do, or other
funds do. I would like to hear your views on that.
Tom Cairnes: Again,
there's nothing wrong with CDC doing direct investments. The
most important thing is not to have cookiecutter solutions
for making investments in different spaces. The solution to doing
agricultural investment in Kenya might be to do a direct investment.
The solution to doing it in Liberia might be to do it through
a fund. I don't think you can make generalisations about the
best impact that could be had apart from making a judgment of
the people who will be involved in that investment. I think CDC
should consider doing direct investments, where it can demonstrate
that it has the capacity to do so. Working with funds allows
it to potentially coinvest as well. One of the ways that
CDC could get greater advantage out of its portfolio of investments
in funds would be to coinvest alongside those funds and
take greater control in those investments. In principle, I don't
think there's anything wrong with direct investments.
Dr Bracking: There
has been a pattern in the past of using private equity to try
to avoid institutional problems in underdeveloped markets.
If you move the unit of analysis from just the firm and the success
of the firm in which you're invested to the whole soft infrastructure
of the country, then the benefit of direct investments can be
more fully seen. Institutions don't improve unless you use them.
When a DFI makes a direct investment, you have a sense of their
frustration about the transactional costs, and the bureaucracy,
and the arbitrary nature of such laws. However, that's part of
their developmental remit, in my opinion, and they should be doing
that, however frustrating, because the multipliers for other businesses
are very large. You're changing the whole market environment
for a much wider group of people than just the firm that you're
Q18 Jeremy Lefroy:
Thank you. That's a very important point. If I might just put
that back to Mr Cairnes. Given that you've just mentioned, which
I fully understand, the problem with dealing with local tax authorities,
do you think the fact that CDC is one step removed from that means
that they can say, "That's your responsibility. We're not
going to get involved with the problems of local tax authorities?"
I have to say I have had similar experiences.
Tom Cairnes: Again,
I can only speak of our experiences. I don't think CDC wipes
its hands of that responsibility by investing through us. We
have a lot of conversation with DFID, with the British High Commission,
and with CDC about the challenges of dealing with corruption,
and ensuring that our businesses pay tax. We had a problem with
one of our companies, where when we went in we discovered there
was tax avoidance, and we had to have a conversation with the
AntiCorruption Commission, with DFID, and with CDC about
how to deal with that. From that, DFID itself started having
a conversation with the Government about the way the NRA, which
is the tax collection unit, works. That does enable CDC, perhaps
indirectly through us, but also working with DFID and the British
High Commission, to have conversations with Government. It's
incumbent on people who accept funds from the British Government,
through institutions like CDC, to engage with the other British
Government arms on the ground in a country like Sierra Leone.
I don't think that that is very hard to do.
Q19 Jeremy Lefroy:
Was CDC supportive when you raised the question of the tax problems?
Tom Cairnes: It
was. One of the helpful things they did was to put us in contact
with one of their other funds, to have a conversation about how
they dealt with it. That was the most helpful network effect
that we got from the fund of funds space. DFID has people on
the ground in Sierra Leone whom we have spent a lot of time talking
to. Just as some of the NGOs, and some of the other partners
that DFID has, provide information to the British Government's
effort in Sierra Leone, we feel very much part of that. I think
that's important. Yes, CDC could be wiping its hands of the tax
problem, but that doesn't necessarily need to be the case. At
least the people we deal with are quite sophisticated on the matter.
Q20 Anas Sarwar:
I've got a few questions, again, to you, Tom, with regard to the
relationship of ManoCap with CDC. It would be helpful to explore
just what the relationship is like, so we can get a better understanding
of how CDC operates. How much oversight and influence does CDC
insist upon from you when it comes to, for example, investment
decisions and operations?
Tom Cairnes: I
would split our relationship with CDC into two parts: the preinvestment
part, before they made a commitment to us, and the postinvestment
part, once they'd made that commitment. Preinvestment,
they spent a huge amount of time helping us improve our own internal
processes, particularly around ESG and governance and reporting.
It took us, I would say, just over 18 months from the beginning
of our conversation with CDC to closing the investment decision.
During that period, they visited us four times incountry.
We made probably the same amount of trips here to talk to them.
We found that incredibly helpful in improving our own standards,
and our own private investors felt that as well. Preinvestment,
CDC were incredibly helpful, and we had significant amounts of
engagement. Postinvestment, the relationship with CDC changes.
The way the investment model works is that we, as limited partners,
provide you with the authority to make investment decisions.
Those investment decisions need to meet our ESG standards, and
you need to report to us on a quarterly basis. Since the investment
that they've made in us has been provided, we probably talk to
them monthly. There's someone within the Africa team who sits
above us and monitors our investmenttheir investment in
us. We talk on a monthly basis. They don't engage directly in
investment decisions. The investment decisions are made by ManoCap's
investment committee, which is made up of three of our investors
and the two partners in ManoCap. They do sit on our advisory
board, who meet on a sixmonthly basis and make broad decisions
about where the fund should be investing and the performance of
the businesses. That's how we relate to them now.
Q21 Anas Sarwar:
How rigorously do they monitor their own investment code with,
for example, ManoCap and other companies? Is there a rigorous
monitoring process that CDC does to ensure that ManoCap, or any
other business, is going along with CDC's investment code?
Tom Cairnes: We
provide them with quarterly reports on the performance of the
businesses. Normally, after sending a quarterly report, we have
a phone conversation to discuss current results. That's the level
of engagement we have with them now.
Q22 Anas Sarwar:
Thirdly, how much investment does CDC have with ManoCap? Do CDC
reward fund managers for being more developmentfriendly?
Tom Cairnes: They
have $5 million invested with us, and they reward us on financial
return. Our compensation is a percentage of the returns of the
fund, and a management fee on the total capital that we have managed.
There are no direct development aspects to my compensation.
Q23 Anas Sarwar:
In terms of private sector investment in ManoCap, have you mobilised
further thirdparty capital on the back of CDC's involvement?
Has the CDC involvement helped you attract other thirdparty
investment into the company?
Tom Cairnes: Absolutely.
The evolution of our fund is that we started only with private
sector investors, which was a small group of high net worth individuals,
who seeded us. We then had a second round of investment where
CDC came in, and I think that the stamp of approval that CDC provided
allowed us to scale up the amount of capital that we had. We
went from $6 million to $22.5 million. We definitely started
off with a small group of private investors, and CDC came in,
which allowed us to scale up. We brought in another semidevelopment
institution, as well, the Soros Economic Development Fund, who
are also one of our investors.
Q24 Pauline Latham:
Can you tell us what sectors are most in need of CDC support,
in order for CDC to have significant development impact? Where
do you see the gap in funding? Where is it most severe?
Dr Timmerman: The
biggest gap in funding is the gap in which we operate, which is
called the "missing middle", between $5,000 to $100,000
investments. Equity for Africa operates right at the bottom of
that. Specifically, in Tanzania, the small businesses in which
we invest have no other source of capital. We screen for businesses
that are unable to get bank financing. Certainly, in our area,
there's a real dearth of capital. Such capital is important for
two reasons. One is that small businesses that are above microfinance
level are important to create a vibrant economy, and it is a benefit
to the entrepreneurs, but even more importantly it creates employment
among the population. In a country like Tanzania, but also other
subSaharan countries, employment is predominantly agriculturalbased,
and agricultural incomes are pretty much below the poverty line.
Providing people with salaried and paid employment so that they
can access bank accounts, pay for school fees and health care,
has a huge collateral benefit to those individuals. It also has
a secondary benefit to their children and their families. I'd
say at that missing middle, there is
Pauline Latham: A real
Dr Timmerman: a
real dearth of capital. The impact of every dollar you put into
that missing middle is substantially greater, in terms of poverty
alleviation, than if you're investing a dollar in, say, a telco
in a country like Tanzania. On average we create about one job
for every $1,500 we invest.
Q25 Pauline Latham:
And they're permanent jobs?
Dr Timmerman: Yes.
Provided we're making good investment decisions, they're permanent
jobs, because the businesses will continue once they've paid us
back our capital, yes.
Q26 Pauline Latham:
Andrew Mitchell says that he envisages climate change initiatives
should be featuring in CDC's portfolio. Do you see that there's
a future role for CDC in the development of green energy and technologyparticularly
affordable green energy and technologyfor developing countries?
Dr Bracking: Yes.
If you look at the underlying investments from the fund investments
in the total portfolio, CDC have got a lot of investments in power
and ICT, but they tend to be traditional power infrastructure
rather than renewables. Norfund have made a big effort with renewables.
CDC also invest very little in water and sanitation infrastructure.
To go back to your original question about developmental impact,
if it's not measured by the units of employment or tax paid, which
are quite thin, but developed more widely on the multiplier effects
on the economy as a whole, CDC could afford to move more into
those basic infrastructures. Clean water is one of the most important
povertyreducing effects for the poorest in the population
at large. Otherwise, I endorse what's just been said about the
Q27 Pauline Latham:
Do you see any evidence to prove that if CDC invested heavily
in agriculture, infrastructure and/or green energy this would
stimulate further private sector involvement in the whole scene?
Dr Bracking: Yes.
The legacy portfolio that was sold when CDC was reorganised had
a quite low value that year, but it bounced quite quickly afterwards.
Agricultural pricing, in Africa in particular, tends to have
quite a high variance. Overall, what CDC did best, in its older
incarnation in the 1970s and 1980s, even though half of those
investments didn't end up being that profitable, was a very good
job in agriculture. It invested in crops with a very long temporality,
like woodland and forests and plantation crops and outgrower schemes.
There hasn't been much concentration on that in the last decade
across the EDFI portfolio, and it would be of great benefit and
developmental impact if they could return to that as part of their
Q28 Pauline Latham:
Particularly if they were looking at something like crops that
can survive in drought conditions. Obviously the climate is changing,
and it's important that the investment is in something that's
going to work in the long term, not what used to work, because
Dr Bracking: Food
Pauline Latham: Yes, in
terms of food crops. Obviously the other things are still very
The point you made about sanitation and water is of some interest,
because when we did a report on that, we had a slightly diversionary
discussion about the role of privatisation of water. What we
did find was that an awful lot of the projects we did look at
were commercially financed. Certainly on maintenance and operating
costs, people were prepared to pay for water, and paying for running
water is cheaper than paying for water being delivered in cartons
or tankers and so on. Are you suggesting the reason CDC doesn't
do it is to do with rates of return, or the complexity of making
those types of investments?
Dr Bracking: At
the moment the public sector in Africa pays about half of the
cost of infrastructure investments in water and sanitation, and
private capital has the minor part, mostly through these PPIs
or risksharing arrangements. About half of those have had
some procedural problem, and ended in court. That was the first
generation, however, and there's been a lot of learning by doing
those types of projects. The overall point is that CDC hasn't
tended to engage much with the public sector at all. It prefers
a fund model, which is a bit more ephemeral. If CDC were to
reengage more with the wholesale and retail banking sector
within the country, the national structures and the Government,
through parastatals or through budget support, and link back together
with the public and private sectors institutionally, that would
really assist the development of water and sanitation infrastructure.
But that would require a bit more management supervision?
Dr Bracking: Yes.
The idea that CDC would have to have more core staff in London
would be accepted, because they would have to have more oversight.
I don't see a problem with expanding the CDC's staff.
Chair: We need to know
whether the Government have any political problem with that, given
the admin charges.
Tom Cairnes: I
would echo the comments that Michiel made, but would add one extra
thing. I think, concerning the sectors where you might want CDC
to invest, there is a very compelling argument to be made about
scale, but in sectors and types of economies where capital isn't
around. In Sierra Leone, for example, there's a gap at $10,000,
a gap at $100,000, and a gap at $1 million. If you are looking
at, let's say, largescale agricultural investments, which
might be $20 million, there is definitely a gap there. Scale
to the missing middle shouldn't necessarily be an overfocus.
There is an opportunity to make investment in postconflict
countries, where people don't necessarily allocate capital, and
CDC has real expertise in looking at scale investments as well
as those types of missing middle investments. I wouldn't do it
in Nigeria. I wouldn't make large investments in South Africa,
or perhaps in Kenya, the more developed economies. However, I
can definitely see a case for largerscale investments in
economies like Sierra Leone and Liberia, potentially even in places
like Afghanistan, where there are strong political as well as
developmental links. I think there's a postconflict sectoral
focus that would be important. I would urge that there is a breadth
of approach, so not just smallscale investments, but a sensible
approach to deciding which largescale investments to make.
Pauline Latham: It sounds
as if they've lost their way a bit.
Tom Cairnes: I
can only speak of what CDC do for us, and I think the kind of
investment they've made in us is the kind of investment that an
organisation like CDC should be doing. We've had a very positive
experience of them.
Dr Timmerman: Can
I make one comment on agriculture? As I'm sure you are aware,
there's a huge amount of commercial interest in investing in largescale
agriculture, which started off in Latin America and is now making
its way to Africa. There are issues around largescale commercial
investment in agriculture, particularly in Africa, where there's
very little attention paid to the historical ownership of the
land and the development opportunities through agriculture. There
is certainly an opportunity for CDC to go back to some of those
roots in agriculture, and invest in responsible agricultural practices
in Africa, rather than leaving the field open to largescale
hedge fund investments in agriculture that will simply seek to
replicate the Latin American model of almost zero employment and
largescale investment in machinery.
Chair: That's a very important
point for us to take up. Thank you.
Pauline Latham: It is.
Q31 Anas Sarwar:
I'd like to get your thoughts on which parts of the world you
think CDC should be focusing its work on. Do you think the geographic
focus of the CDC should change going forward from what it is now?
What do you think the priorities should be? Or do you think
that being prescriptive on what sectors we invest in, or the geography
of where the CDC invests, could have a harmful effect? Do you
think it could have a positive effect in focusing the mind on
where the investments should be going? I'd just like to get your
thoughts on the geography of it.
Dr Timmerman: I'd
say that geography is a very crude measure. The focus, under
the current guidelines, sounds about right. However, there are
substantial opportunities for poverty alleviation in middleincome
countries, and there are equally substantial commercial opportunities
in lowincome countries. The investment policy should be
driven by outcomes, both financial and developmental, rather than
being very focused on exactly which country one should be investing
in. Every country presents a range of opportunities.
Q32 Anas Sarwar:
Would you both agree with that?
Tom Cairnes: I
would add one thing, which is that it makes sense for CDC to look
to invest where the British Government itself has the greatest
political influence. Investment in development does not happen
in a political vacuum. One of the criticisms I would make of
development in general is that there is an assumption that it
does so. A lot of problems that are faced by various actors within
the development field come from the fact that the political interaction
between the local government and local business community is not
considered. Our experience with the British High Commission and
DFID in Sierra Leone has been incredibly beneficial. CDC could
look to have a greater impact by trying to focus on areas where
the UK has influence and interest. However, the geographic measure
is very crude. There should be a focus on development impact
Just on the point you made before, I don't think we have time
now, but do you think you might be able to give us a note?
You talked about responsible agricultural investment, avoiding
the mistakes of Latin America. If you had a slightly more detailed
thought of how that might be, and the others could certainly contribute
to that, it might be helpful, because I think we need to explore
that in a bit more detail.
Q34 Anas Sarwar:
A followon question: are there any circumstances where you
think CDC should invest in highincome countries?
Dr Bracking: I
think the geographical focus is about right. But, at the moment,
you can't prove the money is going to those geographies. We've
been using it as a proxy that the investments are going to the
poorest people, but that isn't well proved. You can say most
of it goes to Africa; they need to prove that most of it stays
in Africa, or goes there in the first place, and then that it
is reaching the poorest people.
Q35 Anas Sarwar:
What about the point on the highincome countries? Any thoughts
Tom Cairnes: Where
would you put a country like India? There are obviously opportunities
for investment in agriculture and infrastructure and water in
a country like India in which the private sector is not investing.
The country measure, because of its crudeness as an average across
a billion people, makes that very difficult. I would say in somewhere
like India, there probably are opportunities for CDC to invest.
I wouldn't go to the United States though.
Q36 Mr McCann:
A short question for each of you: is it acceptable for CDC to
invest in fund managers who are domiciled in offshore financial
Dr Bracking: No.
Q37 Mr McCann:
Is that a collective no?
Tom Cairnes: We're
domiciled in Mauritius, which makes us tax transparent in the
UK. All our investment companies pay tax within Sierra Leone,
so we pay a 30% corporate tax. Any capital that gets remitted
outside from those investments to Mauritius attracts a 10% withholding
tax. Depending on how that gets treated out, that depends how
our investors themselves pay tax, which is standard practice in
the investment community. There is a broader debate about tax
havens and how they should be used in investment, and that's something
that I'm probably not the right person to speak about. I don't
think that it impacts the amount of tax we pay in Sierra Leone.
We engage very heavily with the tax community. For example,
if we domiciled ourselves in the UK or in Ireland, we would be
paying the same amount of tax in Sierra Leone.
Dr Timmerman: It
depends: there are two answers. One answer is, is the implication
of your question that people who are resident in offshore centres
are dishonest or bad people?
Mr McCann: No: it's more
to do with the fact that they wouldn't be paying their proper
Dr Timmerman: I'd
say that CDC need to always engage with people of integrity, who
pay the right amount of tax. As you were saying, if you pay the
right amount of tax, I don't see why you should not invest with
people in an offshore jurisdiction. Presumably in the case of
ManoCap, none of you work in the UK and consequently it doesn't
matter where your jurisdiction is.
Dr Bracking: Could
I just point out that investee companies who pay tax because they're
domiciled in Sierra Leone is a different point from a fund paying
tax. What's happening here is that capital gains tax is being
avoided. I find it a slight conflation of logic that a fund can
say, or the DFIs generally say, "We pay tax," and then
quote figures on it. That's the tax paid by a domestic company
in which they are an investorthey have a part investment.
That's not tax they're paying, because they're a fund. They
should be paying capital gains tax, but because of the double
taxation agreement they're avoiding it, which is part of the attraction
to the international investor. The international investor, in
this model, is then privileged over the domestic investor, who's
still paying tax. I don't think that's a due process in paying
tax, myself, because some stakeholders are benefiting and others
Mr McCann: Right. That's
helpful. Thank you very much.
Q38 Pauline Latham:
CDC claim to pay what is needed to get the best people. Do you
believe this level of remuneration that they offer is the right
level that they should be recruiting at?
Tom Cairnes: I
don't know how much they get paid. I don't know their people.
The Chief Executive has earned nearly £1 million, and
is currently earning about half that.
Dr Timmerman: Our
experience, at Equity for Africa, is that we are getting a steady
supply of investment bankers and professionals at leading management
consultancies, who want to come and work for us at 30% of what
they used to be paid. I'd say there is a significant minority
of people out there who are considering their career options,
who have a very high degree of skill, and who want to become,
or want to be engaged in, social entrepreneurship.
Chair: Put something back.
Dr Timmerman: Put
something back, exactly. They may have been working for three,
four, or five years for these companies. Consequently we're not
finding a problem recruiting highly skilled people who, in the
commercial market, you'd have to pay £200,000 to over
£300,000 for, if you include their bonuses. It may be difficult
to find 100 people like that, but certainly finding tens of people
like that I wouldn't expect there to be a problem.
Tom Cairnes: Again,
I would echo that sentiment. In our own experience, our most
recent hire was a Ghanaian from Barclays Capital, just out of
Harvard Business School, who probably took a 70% cut on his last
salary job. I don't know how long we will be able to retain someone
of that calibre, and I don't know how many people there are who
are willing to make that commitment. Because of our own size,
we can't match London or New York in terms of paying people, but
there are people out there who will do that. I personally don't
have a problem with paying people for doing good in this space.
I think you can get people, but I don't have a principled problem
with paying people well.
Q40 Pauline Latham:
One option for reform is for CDC to continue its operations but
reinvest the profits in a more developmentfriendly fund,
which would undertake riskier investments, accept lower rates
of return, and fund sectors most in need of support. What are
your opinions on this suggested model? Do you think they could
do that, and that countries would be better for it?
Dr Bracking: I
think that that has to happen, but there also has to be a change
in the way that CDC is managed. You have people who own part
of it who are also making managerial decisions, who are also calculating
Q41 Pauline Latham:
Sorry, did you say "who own part of it"?
Dr Bracking: If
you see the companies that were spun out, the Actis fund is partowned
by its managers.
Pauline Latham: Right.
Chair: At 60%.
Dr Bracking: Yes.
I work in the public sector, so my benchmark coordinates are
much different, but it seems to me that there's a problem of conflict
of interest there. There should at least be a better form of
regulation. As in the financial crisis, if the people who are
calculating risk are in the pay of the people selling the product,
that seems to me to be a dysfunctional relationship.
Tom Cairnes: Specifically
on the question of should CDC take more risk, and should there
be a greater percentage of their portfolio allocated to riskier
investments, I think the inevitable result of that is that CDC
will lose money. I'm not necessarily sure that that's a policy
decision that should be made as to whether CDC should be trying
to maintain its capital or grow its capital over time. I think
that there are ways to make riskier investments in countries like
Sierra Leone, where you are taking IRR sacrifice, but not necessarily
losing investment principles. There is a delicate balance to be
made by the managers of CDC in whatever form it takes after this
kind of review. What I'm trying to say is there's no direct relationship
between risk and development returns, and the idea that if you're
taking more risks you're doing better for poor people is not true.
If you lose money, that's bad for everybody. You give people
a job and then they're fine, but two years later they'll be bad,
because what will have happened when they get a job is that their
dependants will have doubled. The children will be going to school
but will stop instantaneously. If these businesses shut down,
you're doing more harm than you would have done. I think that's
a really important principle to apply.
Dr Timmerman: As
we were saying earlier, I think there is a big case to be made
for sacrificing some return, but as Tom was saying absolutely
no case to be made for sacrificing quality of investment. I'd
say, going with the sacrificing of returns, there is a case to
be made for taking on a bit more risk. However, the investments
need to be made with the view of making moneymaybe not
18% but a bit less than that. That needs to go handinhand
with very clear development objectives and very clear monitoring
of the development outcomes of the investments that have been
made, to a greater degree than is probably the case currently.
It needs to be part of the contract with the fund manager that
they will report on livelihood improvements, employment creation,
whatever your measures are going to be.
Q42 Pauline Latham:
So it's not taking the risks, it's looking at lower rates of return
that's more important?
Dr Timmerman: Yes.
But having said that, investments such as Equity for Africa or
ManoCap or Growfin, as Tom said earlier, are probably riskier
than investing in a telecoms company in Zambia, for example.
Q43 Pauline Latham:
And do you think that has any implications for the type of staff
at CDC, or the numbers that they'd need to employ?
Dr Timmerman: I
think they would probably need to add people with nonfinancial
measurement expertise in order to monitor that in a more rigorous
way than they do today. But other than that, they would probably
need to add to their sector specialism in those particular slightly
lower return, higher risk areas of investment, although from what
Tom was saying there's already good expertise at CDC in that area.
Tom Cairnes: What
exists right now is a group of people who know how to run a fund
of funds. If the decision is to change that mandate you would
inevitably have to change the team. Once you make the policy
decision to change CDC's mandate the pace of that change should
be dictated by the pace with which you can bring in good people.
It is better to wait to find somebody good, which may take a
year or a year and a half, than just to hire the worst common
denominator to be able to execute, because development isn't a
twoyear project. My personal commitment is that I've been
in Sierra Leone for six years; I'll probably be there for another
10. At that point I may have made some small difference, and
I think that the speed with which these changes need to be delivered
should be considered within that timeframe. This is a generational
change that is required to happen in very poor countries in the
world, and so the requirements here should be driven by talent
once that policy decision is made. That will be a very delicate
balance for CDC to get right, because you will lose a lot of money
if you hire rubbish people.
Dr Bracking: Can
I make the point that in the research we've just been doing, we
actually saw the company accounts from funds in the Norfund and
Swedfund portfolios, and I was actually quite shocked at some
of the management fees and the technical fees that were being
paid, as a proportion of the overall fund to be invested. There
needs to be a systematic review of the subsumed costs in the fund
of funds model that should be reported to the Public Accounts
Committee, because if we ask "do you think these people are
too well paid or not too well paid", I have no benchmarks
personally to answer the question. But there should be appropriate
institutional benchmarks and at the moment it is entirely nontransparent.
Given that it is public money that's voted through and counted
as money we're spending on development, we might not be. We might
be spending up to 30%, 40% on management fees. If that cost is
brought back in house and we used not just an output measure like
IRRs but looked at the cost and output measure as a whole we might
find that bringing more staff inhouse in CDC would be cheaper
than using funds.
Q44 Mr Clappison:
I am sorry that I arrived slightly late. Can I just come in on
that because it's something I'm interested in? Are you saying
that the money that is being spent on the management fees, which
you've just described as being of a high proportion, is counted
as overseas aid?
Dr Bracking: Yes,
because the money is voted to the fund. The management fees are
deducted by the fund managers before the fund closes. The fund
closure generates the IRR that the CDC publish. But the fees and
costs have already been taken out. But when they say that they
have spent, say, £400 million in subSaharan Africa,
they're adding up everything they vote to and invest in the funds.
Q45 Mr Clappison:
So when you talk about management fees, can you give us some ideas
of the scale of the fees, and the nature of them?
Dr Bracking: The
actual numbers are subject to a nondisclosure agreement
for 10 years that my university signed with Norfund and Swedfund,
so I am not allowed to use any company names, but I will give
you a general idea.
Q46 Mr Clappison:
Who asked for the nondisclosure clause?
Dr Bracking: Norfund
and Swedfund. CDC wouldn't give us data at all, and CDC's data
isn't in the public domain, so Swedfund and Norfund are going
a step further. But we saw management fees and startup
fees and establishment fees of up to 40% of the investable fund.
But Norfund and Swedfund responded that the funds we were looking
at were in their first year and an establishment year is always
costly, and it approximates over five years and they go down.
We couldn't do a systematic review of that because of time, but
this Committee or the PAC need to do a systematic review of the
cost structure of equity funds.
Tom Cairnes: Can
I just make a brief comment?
Sorry, do you have any more published information on your work
Dr Bracking: The
Committee already has the report, but the actual data, no, because
I can't give it to you.
Are they worth talking to, for us?
Dr Bracking: Yes.
Tom Cairnes: Again,
I can't speak for anywhere else. Our management fee is 3% of
capital under management. The benchmark for fees should be something
along those lines, and I think it should be compared with other
development spending. So when I look at management fees, for
example, for NGOs that take funds from DFID, I think we compare
incredibly favourably. In fact, that is one of the reasons why
I personally do what I do. The management fee on the capital that
we use in the development space should be compared with that of
UNDP, who historically charge an 8% management fee on an annual
basis, and if you look at some of the NGOs that DFID support,
that rate could be between 12% and 12.5% on an annual basis.
I think that's the right benchmark for this capital.
Q49 Mr Clappison:
Sorry to just come back, but you're telling us there's a much
higher amount than that aren't you?
Dr Bracking: There
are different types of fees. The management fee is generally
3 to 5%.
Q50 Mr Clappison:
There usually are different types of fees in these things aren't
Dr Bracking: Yes,
but then some fund managers have other lines of money as well.
For instance, they also charge a technical assistance fee or a
leasing fee. These are the ones that tend to go out to the secrecy
jurisdiction. So they're not paying any capital gains on the
fees either. So the amount of income that can be earned by having
fairly fungible or multiple fee structures
Mr Clappison: Sounds like
nice work if you can get it.
Chair: We're running way
Q51 Pauline Latham:
Just very quickly, the Secretary of State is very keen that CDC
changes and we're looking at a new business plan next March.
Is there anything that you feel should be in it that you haven't
mentioned so far?
Dr Bracking: There
should be an official regulator. The forms of transparency and
accountability of CDC aren't appropriate for a modern democracy.
Chair: I think you've
made that clear.
Dr Bracking: Yes.
Pauline Latham: No, no,
that's fine. Maybe our new DFID watchdog might have a look at
Chair: I think we may
have to look at it first. Thanks all three of you very much.
It's been a useful and informative session. It's very opportune
that the Government are reviewing CDC. Obviously the Committee
was anxious to have some contribution to that review before it
was settled. Your evidence, both what you've put in writing and
what you've given to us this morning, has been very helpful.
It has set up a number of lines of thought. On the one or two
issues that we've asked for followups, if you're able to
give us a short followup note that would we much appreciated,
and it certainly will help us produce what I hope will be a useful
report. I know that the Secretary of State is quite interested
in what we may have to conclude. Thank you very much indeed for
1 Note by Witness: The figure should, in fact,
be £1.4 billion, not £1.9 billion. Back
Note by Witness: Investing in smaller funds, focused on
making smaller investments is likely to reach companies which
CDC may otherwise not reach. Back
Ev 59 Back