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
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
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
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
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
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.
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
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.
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.
Resolved,
That
the Committee has considered the African Development Bank (Further
Payments to Capital Stock) Order
2011.
Resolved,
That
the Committee has considered the draft African Development Bank
(Twelfth Replenishment of the African Development Fund) Order
2011.—(Mr
O’Brien.)
Resolved,
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.
