International Development Committee - Minutes of EvidenceHC 334

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Oral Evidence

Taken before the International Development Committee

on Wednesday 9 October 2013

Members present:

Sir Malcolm Bruce (Chair)

Hugh Bayley

Fiona Bruce

Richard Burden

Fabian Hamilton

Pauline Latham

Mr Michael McCann

Fiona O’Donnell

Chris White


Examination of Witnesses

Witnesses: Rt Hon Justine Greening MP, Secretary of State for International Development, Susanna Moorehead, Director, West and Southern Africa, Department for International Development, and Professor Stefan Dercon, Chief Economist, DFID, gave evidence.

Q199 Chair: Good morning, Secretary of State, and welcome once again to a session of the International Development Committee. Thank you also for agreeing to do this in two parts: a relatively short focus on the South African decision; and then obviously the main consideration of the future of development finance, in particular.

We have obviously seen some of the ebb and flow of the comments about that decision, and indeed the South African Minister of Finance made some reference to the timing being relevant to local elections in England. I think I can anticipate your response, but how do you respond and, perhaps more to the point, why did you make the announcement at that particular time? Sorry, perhaps you should introduce your colleague.

Justine Greening: Thank you. Let me start by introducing Susanna Moorehead, one of our lead officials in DFID, who will be here for the South African element of this evidence session. We will later be joined by Stefan Dercon, Chief Economist, for the future of development session.

In relation to your first question, as you will be aware, following the Bilateral Aid Review shortly after the election, we began to look at whether we should transition out of South Africa. That process took place over a number of months, and we ultimately made the final announcement of our intention on the date that we had planned to.

Q200 Chair: There was no significance, and the fact that there were local elections, you would say, was not even in your mind.

Justine Greening: We felt it was sensible to make the announcement as part of a speech, at The Times CEO Africa conference, which was all about development within Africa and the growing economic power of Africa as a continent. It seemed quite a good match between the decision we were announcing and the audience we could announce it in front of.

Q201 Chair: That may well be the case, but there was a reaction. The South African statement said that you had agreed, at the Minister of Finance’s request, to leave out the reference to their agreement to end bilateral aid. He then complained he was astonished that was in the announcement they had agreed. He said they had not agreed, and that you had agreed not to say that they had.

Justine Greening: This was a decision for the UK Government, and I cannot speak on behalf of any Government other than my own, suffice it to say that we had had discussions over a period of months, within Whitehall of course, but within the South African Government, the Ministry of Finance, Foreign Affairs, at ministerial level, and my predecessor and I at official level. We finally announced the decision on 30 April.

The other point I would make is that we have just had our biannual bilateral forum with South Africa, and the communiqué that emerged from those discussions showed that we continue to have a very strong relationship with South Africa, and indeed I had a very constructive meeting with Minister Gordhan, the Finance Minister, around how we can now put into place the detail of this transitioning relationship from an aid perspective.

Q202 Chair: Do you feel that relations are back on a positive footing. Clearly there was a period where there was public disagreement, but you have had that meeting; you say that was constructive. Do you feel now that the relationship between you and the South African Government is back on a positive footing?

Justine Greening: Both South Africa and the UK have been clear that we have a strong, dependable and robust relationship. It is born out of very close links between the two countries, not least the fact that the UK is the largest source of foreign direct investment in South Africa, and indeed South Africa is the 24thlargest trading partner that we have as a country, so it has a significance to us and to them. The bilateral forum was a very good opportunity for us to take stock of that relationship and start to plan how we want to develop it going forward.

As part of that, we had a constructive meeting with Minister Gordhan of the Finance Ministry, and our teams can now work together to transition that relationship post-2015 into a relationship based on technical assistance, programmes that we can work together on regionally and, of course, trying to cooperate on the global development agenda too, within which South Africa plays an increasingly important part.

Chair: We might explore that a little bit later. I am going to bring in a couple of supplementaries.

Q203 Mr McCann: Good morning, Secretary of State. You explained that the decision had been mulled over for some time before being made. Was there any political discussion or discussion with officials that the timing of the decision could be misconstrued?

Justine Greening: We had essentially, as with any Government decision, had a process to look at what the substance of that decision should be. As I said, that began after the Bilateral Aid Review that took place when we came into Government, and culminated with the decision that we needed to transition our relationship on to a basis that reflected South Africa’s emergence as a major player within the African economy overall, but also more broadly as one of the G20 nations and a member of the BRICS, obviously. We announced the decision when we had always planned to, and it is like I say: formally since then, we had the chance to have our bilateral forum a couple of months ago, and the communiqué is pretty exhaustive in setting out what I think both countries feel is a very productive and constructive relationship.

Q204 Fiona O’Donnell: Good morning, Secretary of State. I am pleased to see you still here this morning in your chair. Can I just clarify, following on from the Chair’s first question, did the Minister of Finance ask you not to include, in the statement, that he had agreed to ending bilateral aid? If he did, what was your understanding of why he made that request?

Justine Greening: You would have to ask him about any public statements that he made. I can only reiterate that this was a decision that we took following months of discussions, at ministerial and official level, across different elements of the South African Government and of course within our own. We announced it when we planned to. The important thing really is to focus on the fact that we had our very constructive bilateral forum relatively recently, and that sets out in quite some detail what we are planning as two countries in terms of developing our relationship.

Q205 Fiona O’Donnell: I am still not clear. Are you saying that he did not make the request to you? I do not expect you to answer for any statements that he made around that time, but, in terms of the conversations that you and your officials had with him, did he make that request?

Justine Greening: I do not think I am going to go into what were essentially private discussions at ministerial level but, as I have said before, ultimately, this was a decision for the UK Government to take in relation to how we wanted to target taxpayer money on this aim of reducing extreme poverty. It was the culmination of a relatively long process over a period of months that had operated at a number of different levels-official level and ministerial level-and resulted in us, as we had planned at a conference, which was one that was pertinent to the issue that we were discussing, announcing this decision that we would end financial aid to South Africa and, indeed, transition to a development relationship that we felt was much more appropriate for where South Africa is as a country. If you look at the bilateral forum communiqué, it is very clear that we now have a good agenda ahead of us. It is one that, as I said to the Chair before, reflects where South Africa is as a country today.

Q206 Hugh Bayley: When you issued your press statement to announce this decision, Secretary of State, you said in words attributed to you, "I have agreed with my South African counterparts that South Africa is now in a position to fund its own development." Do you believe that was an accurate statement and do you stand by that now?

Justine Greening: Yes, I do.

Hugh Bayley: You agreed with the South Africans and they agreed with you.

Justine Greening: If you look at the bilateral forum communiqué, it is very clear that we are moving on to a relationship that is based on technical expertise and cooperating at a regional level. That is something that we are planning to do.

Q207 Hugh Bayley: That is a separate issue. Do you stand by this statement that you had agreed with your South African counterparts? The reason I ask the question is the South African Government has given us evidence and they say this: "When our Minister of Finance … saw Ms Greening’s statement prior to her announcement, it was pointed out to the Secretary of State that any reference to an agreement with the new strategy would be incorrect. She agreed to leave out the reference to such an agreement. It was, therefore, shocking to hear the announcement." Why did you put in your announcement that there was an agreement when the South African Government believes that there was no agreement?

Justine Greening: As I said, this was something we had discussed with the Government of South Africa at a number of levels.

Hugh Bayley: Discussed-but had it been agreed? This is the question.

Justine Greening: I am just finishing the answer. We had discussed it for a number of months at different levels of the Government and, as far as we were concerned-and again I can only speak on behalf of our Government-

Hugh Bayley: Here you are speaking on behalf of the South African Government, with the greatest respect. You say that you have agreed a certain course of action with them.

Justine Greening: It would help me to understand the premise of your question and the relevance of it in relation to the decision I took.

Hugh Bayley: The premise of the question is this: the South African Government expressed shock and surprise at your announcement, because you said that they had agreed to something to which they had not agreed. I am trying to get to the bottom of how it was that you made a statement about having agreed something, with a very important bilateral partner of Britain, which they had to repudiate.

Justine Greening: Again, I think that is a question for them. As I said, we had a long and exhaustive discussion with the South African Government around what we were proposing to do and, indeed, we announced it on the date that we had proposed to announce it on. In relation to the immediate response that you have just set out, you would probably need to direct your question to them, rather than me. All I can say is that I think the more exhaustive and full assessment of the two countries’ relationships, which is probably what you are driving at ultimately, is clearly set out in the bilateral forum communiqué. My sense is that, if the question really is what the state of the relationship is, the communiqué gives a very good and rounded status of the relationship.

Q208 Hugh Bayley: That is an important question, but it was not the question I was asking you. You say the question, or at least part of the question, that I am asking you- whether this statement of policy was jointly agreed-is a matter that needs to be put to the South Africa Government. It is a matter that this Committee has put to the South African Government, and they say this, "During The Times CEO Africa summit, a possibility of a joint statement was raised by Secretary Greening’s office, but officials of the two countries/departments could not agree on the joint statement." Since you had tried to make a joint statement, they had said they could not agree with what you wanted to put in a joint statement. Why did you then put out a statement of your own saying there had been a joint agreement?

Justine Greening: My recollection of the time was that we had reached a common position as to what our future development relationship would be.

Hugh Bayley: They say they directly said to you that they could not agree to a joint statement.

Justine Greening: That is reiterated in the bilateral forum agreement. As I said, the constructive meeting I had recently with the Finance Minister, Pravin Gordhan, reiterated that perspective that I have just given you.

Q209 Hugh Bayley: I am pleased that the relationship is getting back together. That is very important for both of our countries, and I am glad to hear that. Given that you were seeking a joint agreement and it was clear, from a South African point of view, that there was no agreement and, therefore, a joint statement could not be made, we come back to the question of why you decided to put out a statement then, just before the election, which The Times of the UK interpreted as being an election ploy. Why did you do it then rather than continuing to talk, until such time as you did have a joint agreement, say in September, when you had had this meeting?

Justine Greening: I cannot add anything further than the fact that we had had discussions with the South African Government as to our intentions and the need to move to a more technicalassistancebased relationship, from a development perspective. Many people feel that is a sensible move to make. Indeed, it is one that is set out in the bilateral forum communiqué. We made the announcement when we had planned to. As I said, there was some sense in making it at this Africaeconomicdevelopmentfocussed conference. Really, I cannot add anything more to that. You are asking me why maybe a press release statement was made by somebody who is not me.

The question ultimately has to be to them. All I can do is give you the perspective and the facts as I see them, which was a decision around how we spend taxpayers’ money and target it on countries to help them tackle extreme poverty, a process that had begun after the Bilateral Aid Review and was discussed, at ministerial and official level, by both my predecessor and me. It was ultimately announced when we planned to announce it, at a conference that was very much related to the development of Africa economically, which absolutely underpinned part of the rationale as to why we felt it was a good time to transition our relationship with South Africa. That all seemed a sensible approach to what was, I think, a sensible decision.

Indeed, the bilateral forum communiqué, which we issued just a few months ago, very clearly sets out a full, constructive and developing relationship between the UK and South Africa. That will continue, not just in relation to development but, far more broadly, on issues of trade and investment. That is in both countries’ interest. That is what you can see from those discussions that we had just a few weeks ago. They were very positive, and I am sure that we can continue to develop our relationship.

Q210 Hugh Bayley: One final question, if I may: I remember from my time as a minister, we were under very strict instructions not to make major policy announcements close to elections, because to do so is in contravention of the Ministerial Code. Since this was a matter that one national newspaper at least decided was an attempt to swing opinion in the local elections, why on earth did you decide to put this statement out before the elections, in breach of the Ministerial Code, rather than a few days later?

Justine Greening: I have explained the nature of why it made sense to make the announcement when we did. In terms of the size of the announcement, it was actually part of a general transitioning of our development portfolio, which we no doubt will come on to talk about more broadly. It followed, similarly, an announcement of transitioning our development approach with India. Interestingly, on average over recent years, our development assistance to South Africa has been £19 million. We can contrast that with the level of investment not only in other countries in Africa but with countries like Pakistan, for example.

Hugh Bayley: Surely you are not saying it was small, so it does not matter.

Justine Greening: No, I am not.

Chair: That is part of our next evidence session.

Justine Greening: If I can just finish, what I am saying is that level of £19 million was one that had reduced over recent years, so that transition, in many respects, had already begun. It was the end of a long process of discussion, at ministerial and official level, and an announcement that took place at a sensible moment, exactly when we had planned.

Q211 Richard Burden: We will ask you a few more questions in relation to the future of the development relationship between the two countries-how you see that and some of the issues around that. Just staying for a moment, though, on the process that led up to the statement being made and the statement itself being made, you have heard our questions here. Are there any lessons that you draw from what happened, the way it happened, the way the statements came out, the timing of the statements, and would you do exactly the same again or would you do it at all differently in the future?

Justine Greening: It is right to take proactive decisions about how we target our development spend to get the most impact, in terms of reducing extreme poverty, on behalf of the taxpayer. We have to get on with that process. I do not think we should rush it and reach preemptive decisions but, when we have reached a conclusion about what the way forward will be, then we need to implement that, and that is precisely what we are doing now.

As I said, it was something that ultimately began as a process following the Bilateral Aid Review. It is very important for the taxpayer that they see ministers actively deciding to change our portfolio of where we invest money when the facts on the ground are changing, and when we feel we need to continue to change our spend, in order to target it effectively. That is what we were doing. That is what people rightly expect us to do. I have to get on with my job of making sure we get the most impact out of every single pound.

Q212 Richard Burden: This is not on the substance of the decision but, if you had the time again, you are saying that you would not do anything any differently from the way it was done, how it was announced and who was involved in that announcement.

Justine Greening: From a UK Government process perspective, we absolutely went through due process. We had the relevant discussions at the relevant levels in Government across the relevant different departments in the South African Government. We took a sensible decision at what event might be a good one to announce it at, mainly because, from our perspective, we saw it as a very positive transition that reflected the great progress that South Africa has made in its development. Therefore, there was an absolute logic as to how we finished off this process and then announced it.

Chair: Perhaps we can move to a more forwardlooking dimension.

Q213 Fiona Bruce: Good morning, Secretary of State. I have some questions about the impact on civil society in South Africa of cutting our bilateral aid. There have been concerns expressed that this is going to inhibit civil society from holding the South African Government to account. We would be interested in your response to that. Also, how do you see that those civil society organisations are going to replace their funding, now that it will no longer come from DFID?

Justine Greening: It is fair to say that our transition towards a relationship based on more technical assistance than financial aid does not preclude us from continuing our work with civil society. Clearly, it has had a huge role to play in many of the issues that DFID has worked with the South African Government on over the years, including the health agenda, so I do not think the transitioned relationship precludes us at all from working with civil society.

Q214 Fiona Bruce: That is very interesting to hear. Can we also ask about working with women and girls? Obviously, that is at the heart of DFID’s work. We are interested to know why we are leaving a country with one of the world’s highest rates of sexual violence and HIV. What can be done about that?

Justine Greening: There are probably two points to make. In relation to the transitioning relationship, we look very closely at not only what the levels of extreme poverty are, for example, but also the prospects of growth and then a country’s ability to continue to lift people out of poverty. In relation to the subject that you have raised, I think the UK Government will continue to play what I have seen to be a leading role, particularly in relation to the broad women and girls agenda, but especially in relation to violence. Indeed, I work hand in hand with the Foreign Secretary, who has led what I think has been an extremely successful international initiative combating violence against women in conflict.

As the Committee will be aware, I am myself holding a Call To Action conference in relation to violence against women in emergency situations. That is part of a broader push by this Government to do what we can to raise this agenda of the totally unacceptable and often routine violence that takes place against girls and women, in all sorts of situations, not just conflicts or emergencies. I can assure the Committee that I will continue to work on that across the international scene, irrespective of whether those are countries that we have a bilateral aid programme with.

Q215 Fiona O’Donnell: Moving on, Secretary of State, to talk about the future of development co-operation between the UK and South Africa, of course DFID will continue to have expenditure in South Africa. You have referred a number of times to technical assistance. How do you see DFID providing technical assistance to South Africa?

Justine Greening: Those are the discussions we have now kicked off with the South African Government. Obviously, this is a transition that will take place following the 201415 year, so we have some time. We have now set out our intentions as to a changing basis of cooperation, and we are flexible, as it were, in terms of what we think that agenda on technical assistance could look like. It may well focus on continued work together on health, for example, or education or, indeed, violence against women. You will know that we are already also planning work, for example with the South African Revenue Service, to help other neighbouring countries within Southern Africa improve their revenue collection basis. We can have a broad relationship that continues with the South African Government. In terms of what we will do, we will very much aim to match their needs with what skills we feel we can offer, and that is a discussion that we will go through over the coming months.

Q216 Fiona O’Donnell: We will continue to have a DFID office in South Africa. I wonder if you could tell us a bit about your thinking around keeping an office there and if it is something you think might be appropriate in other middleincome countries.

Justine Greening: As you know, we have colocated our office now at the British High Commission, and that has saved £350,000 a year, so it makes sense from a taxpayer perspective. We also run our Southern Africa regional programmes from that Pretoria office, which is a reflection of the fact that South Africa is a leading country on that continent. Its economy accounts for around 30% of the SubSaharan African economy and, therefore, it makes sense to us to locate a regional office in South Africa.

I have to say it also means, from a travelling perspective, because of the way in which South Africa acts as a hub for aviation networks, it is much more effective for us to be able to travel out from there to some of those other parts of the Southern Africa region that we work in, rather than being based somewhere else and having to hub out of a South African airport to be able to get around Africa. I am sure the Committee has all experienced elongated travel as a result of having to hub out of various African airports. It is logistically sensible but also, in terms of our ongoing relationship with South Africa, it makes a lot of sense to have our regional office run from Pretoria.

Q217 Fiona O’Donnell: Is that a model you might use for other middleincome countries?

Justine Greening: The Committee has been to Brazil. Clearly, we also continue a similarly transitioned development relationship with Brazil. It is something for us to consider as we see our development relationship with countries transition over time. Do I envisage us having a host of offices in middleincome countries where we do not have bilateral aid programmes? No. Where there is a pragmatic taxpayer valueformoney approach that we can take, which makes sense not just from a DFID perspective but can bolt neatly together with Foreign Office objectives, it can be a sensible approach. We take a pragmatic decision on where we are basing our staff.

Q218 Richard Burden: You have made decisions in respect of South Africa and India that throw into focus the whole question of how we should have a future development relationship with middleincome countries. Do you see your decisions in respect of those two countries reflecting the way, in principle, we have that development relationship? In other words, essentially they should finance their own development.

Justine Greening: It is symptomatic of the transition that many developing countries are now going through and it is a transition that is well under way. The decisions that we take are not purely in relation to the fact that these are middleincome countries. The per capita income level is one of the considerations we might take into account. Broadly, we will look at growth prospects for that country; we will look at the current levels of extreme poverty, but also the trajectory of those levels and then understand, similarly, finally, what the country’s own capability is, as you were saying, for itself being able to invest in tackling extreme poverty domestically. Those are basically the things that we would look at to help us decide where we need to target our development spend.

Indeed, if you look at the case of South Africa, per capita it is over $6,000 a year; it is obviously a G20 country and one of the BRICS nations. Our assessment was that, ultimately, if we are going to continue to have the biggest impact from development spending that we are making on behalf of the taxpayer, which is about reducing extreme poverty, we should target it on countries that have higher incidences, less capability and generally bleaker prospects for the poor.

Q219 Richard Burden: If you compared, say, India with Pakistan, in India the programme is finishing; in Pakistan, it has become the largest programme. What is it about Pakistan that it not only needs to continue but needs to continue at that level? What I am getting at here is to try to see if DFID’s approach to middleincome countries is essentially a horses for courses one-there is no overall view of what you should do; you just take it on a case-by-case basis, and there is something to be said for that-or whether it is a bit more systematic than that: "These are the things we look at. These are the indicators we use." If we are going to have a strategy for helping middleincome countries address extreme poverty and inequality in their own areas, this is how we do it and there is consistency across the piece.

Justine Greening: Going back to what I just said, within Pakistan, if you look at growth, it is far more challenging for that economy. There is not that track record of growth that you have seen in India. If you look at the current capacity of Pakistan to lift people out of extreme poverty, it is probably at a lower level than you would see in India, for example. I have been very clear with this budget: ultimately we want to use it to tackle extreme poverty.

Alongside that, we should also not lose sight of the clear national interest that we need to have. Part of that is stability in making sure that we stop countries from sliding into more instability. We should make sure we invest where we believe there is a need to see development, because it does not just drive economic growth-ultimately it is good for us to be able to trade with countries-but it keeps countries stable and helps minimise and reduce the terrorism threat.

One of the biggest programmes we have in Pakistan is on education. Why? Not only does that give people much better life prospects, particularly women and girls, but we also know that, from an instability perspective, it is a very sensible investment if you are going to help a country get that longterm stability that it does need to grow. When you look at where terrorism threats are coming from, we know that Pakistan has been one of those clear countries from which we have seen terrorism threats emanate. It is quite right that we work with the Pakistan Government to try to combat that collectively. It makes sense for us to help them tackle that at source, so that we have less of a risk to have to tackle it as it reaches our own shores.

Q220 Richard Burden: That is why you made the decision that you made in relation to Pakistan. If we look at the other side of it, around India, there are different challenges-still very large amounts of inequality, still very large numbers of people living in extreme poverty. What should the strategy be for somewhere like India, rather than what it should not be?

Justine Greening: The strategy for India, again, came out of lengthy discussions with them. We had a development programme of around £280 million a year. If you look at what they as a country are investing in their own health and education, it is around $40 billion to $50 billion. They were very clear with us that the thing they value most is our technical assistance on how to get the most out of the $40 billion to $50 billion that they are investing. I believe we should be responsive to countries that are transitioning and going through what is a long transition, in the same way the UK went through a very long transition, many centuries ago now, towards being a fully developed country. We have to evolve our relationship in the same way that they are evolving, and we have to be responsive to their needs.

It is quite right that we are starting to transition our relationship with the Indian Government on to one where we provide technical support. We move steadily from an aidbased relationship with them to tradebased. There is that period in between. We are navigating our way through that.

I guess what I would be very clearcut about in this role is that DFID has a role to play in that transition. We should play that in relation to India by steadily moving away from aid on to a more technical assistance, returnable capital basis, where it is not pure grants. We move to socalled returnable capital, and that is part of the transition plan that gets us from having a relationship with a country that is dominated by aid to one that ultimately ends up where many of our relationships are with many of our trading partners, which is ultimately one that is dominated by trade.

Q221 Mr McCann: Secretary of State, your narrative is that your department is progressing these issues in a sensible, methodical way. Let me give you an alternative narrative: DFID made the decision to remove its bilateral programme from Burundi. It redacted all the reasons for it and would not allow the Select Committee to see it. With the move from India, despite the fact that the IDC report suggested we had to change our relationship, you withdrew from India at a time when there was a lot of speculation about space programmes and various other things happening there. With the decision about South Africa, which you have advised us this morning was mulled over for many months, as a Member of the Select Committee, I did not know that was going on. In terms of Pakistan, we are being told about the security interests and our national interests being important there. Would you concede that it might not be as methodical and sensible as you suggest, when people like me in the Select Committee do not really have a handle on how decisions in bilateral programmes are being made, and there is a need for more transparency in this area?

Justine Greening: Evidence sessions like this can obviously be helpful in giving me a chance to explain how we approach those decisions. The Bilateral Aid Review was a very robust approach, where we used a common approach for looking across the piece at what our bilateral aid programmes should be. We ended up reducing from 43 countries, when we came into Government in 2010, to originally 27 and then, when South Sudan broke from Sudan, to 28. People expect us, in a developing world, to continue to make sure we target the countries where we feel we can make the most difference.

As I have said, the way that we approach that is to look at prospects for growth, levels of extreme poverty-it is worth pointing out that the incidence of extreme poverty in Vietnam is higher than that in South Africa- and their trajectory, and, critically, the capacity of the country itself to be able to lift its own people out of extreme poverty. Indeed, finally, it is whether we have the capability and the comparative advantage to be able to have a sensible relationship with that country. I think we do have a robust process. My sense is that, actually, the decisions we are taking that come out of that systematic look-whether on the Multilateral Aid Review or the Bilateral Aid Review-broadly are sensible ones. If you look at them dispassionately, setting aside the process, they do seem to be ones that are sensible and reflect the progress that countries are making.

Q222 Chair: This leads us into the next session about forward planning. I think you can tell from the Committee’s questions, Secretary of State, that there was less concern that we were changing our relationship with South Africa than about the blip in the bilateral relationship that was attached to it, which was an understandable and legitimate cause of concern. Thank you very much for coming in and giving us an explanation and a talk through what was involved. We now move to the future of development finance, which is exercising the Committee.

Just by way of introduction, you will be aware that the Committee visited Washington, specifically the World Bank and the InterAmerican Development Bank, and also looked at Brazil, which was partly to do with finance and partly to do with knowledge transfer. We will be reporting on that in due course and reflecting on what we heard in that process. Perhaps just on the basis of your response to Mr McCann at the end of that last session, the position that the Government is setting is that we are targeting our bilateral aid on a diminishing number of countries, mostly poor countries but not exclusively. It is not just that. Is that sensible? It is a good thing the number of countries that are absolutely poor is diminishing.

I think I am right if I roughly say that, when people talk about "the bottom billion", it was probably true, before the Bilateral Review and going back five years ago, to say that our bilateral programme reached nearly all of those people. From the review we have now, we only reach about 150 million of them. The other 850 million are in countries that we either do not have or will not have bilateral programmes in. The question I am asking you is: is it sensible to concentrate so narrowly? How are other bilateral donors operating in these circumstances, where the world is changing? In a good way, I suppose you could argue, because countries’ income levels are rising, but there are still a billion people living in absolute poverty.

Justine Greening: I will bring in Stefan Dercon, who is our Chief Economist and has spent a career looking at development economics, but broadly, as I have said, it is right to target. You have to target. It would be nonsensical to continue to have a bilateral programme in a country that was successfully transitioning and developing and, in addition to that, had the wherewithal and the means to do that on its own. The British public would not expect us to be operating in those sorts of countries, and that is why it is right that we have a process that allows us to look systematically at how we work our bilateral programmes.

I would also say that it is not just about the money. You talk about a country like China or a country like Brazil. We have a good, in fact very good, development cooperation programme with China. It just does not focus on traditional financial aid anymore. It is really around us working with them, so that they can share their own learnings on development with other countries similarly aiming to develop-the socalled SouthSouth cooperation. We absolutely continue these relationships.

What I am saying, though, is that it does not need to be based on money; it can be based on advice, influence and a different form of working relationship than purely cash. Where we have bilateral programmes, there are countries where we want to, and we feel we can, sensibly invest to help alleviate extreme poverty, and that represents our bilateral programme. Of course, we achieve some development objectives through the investment that we make through multilateral agencies as well.

Q223 Chair: I think we understand that. For example, the evidence we had on India demonstrated that, for India to lift 400 million people out of poverty, those who could afford to pay tax would be required to pay a marginal rate of over 100%. It is about money; it is about transfer as well as technical expertise. I think you have talked about £30 million in technical assistance. £30 million a year for a country of 1.2 billion, with that scale of a challenge, does not sound like an awful lot of technical assistance.

Justine Greening: I think we can have a very good extensive programme of work with the South African Government and-

Chair: No, I am talking about India.

Justine Greening: Sorry, I meant India-apologies. In relation to the earlier point you made, I think you have hit the nail on the head. This is ultimately about economic development. We should not have this sense that it is purely ODA and our investment that can solely drive development. Ultimately, it has to be the private sector creating jobs and a successful economic development programme that we have in countries and that they have themselves. That goes well beyond this traditional aid notion that many people think is there, in relation to our bilateral programme.

What I am saying is that you have to transition that relationship. When a country is at the stage India is, that imperative for them becomes exactly what you said, Sir Malcolm; it is around economic development. Therefore, the technical assistance and the efforts we are making around setting up returnable capital focus on helping them drive that economic development. I can see that Stefan is chomping at the bit to come in here from earlier. It is about economic development and I will hand over to Stefan. I think he can probably give a bit more background on the way in which we look at this development trajectory.

Q224 Chair: Before you just put it in context, I want to make it clear that is exactly why the Committee is doing this inquiry: we see it changing; we see different mechanisms. It makes it difficult, when we are the only G20 country delivering 0.7% specifically of ODA, to hear the Secretary of State saying it is less about money and it is more about other things. How are you going to spend 0.7% if you change the parameters? That is perhaps something that we need to explore.

Professor Dercon: If I may try to answer that question and also link back to the question you raised just earlier, first of all, briefly looking at how we come to these countries that we focus on bilaterally, the Secretary of State has emphasised our resources, to a large extent, go through multilaterals, and a big part go through them. It is not that we do not reach these countries, where there is high poverty but where we don’t work bilaterally. Bilateral programmes are one particular way of intensively working on extreme poverty, and focusing on some countries may well make sense. Spreading yourself too thinly in terms of knowledge, expertise and where you have comparative advantage and where you can make a difference may not necessarily be the right thing.

How do we look at it systematically? If we look forward, lots of people, and in fact also evidence you have taken in the Committee here, has focused on this. In a very simple way, about three-quarters of poor people live in middleincome countries, and our own projections would say they are likely to be living in middleincome countries for the next 20 years to come. That is a big part of it.

That actually misleads in terms of understanding what it means for us. The real thing is what the Secretary of State has alluded to: quite a lot of these poor people in these middleincome countries are living in countries that are on trajectories and prospects that are rather positive. They are on declining poverty trends while, in others, they may be much more stuck. Looking in a static way at where poor people are now and that, therefore, concluding that we are in the wrong places may not be the right way of looking at it. Looking forward is more important. What are these countries doing in terms of economic development and growth? What trajectories are they on in terms of poverty reduction?

If you then start looking at it, quite a lot of poor people with poor prospects are in the countries we focus on. Our targeting starts looking more interesting and correct, we would say, for the next few decades. At the moment, about 98% of extreme poor people live across about 73 countries. This is going to go down to about 50 countries. Some of the poor are in countries that are powering ahead, but if you then start looking at what countries we think, in the next 20 years, will have poor people, we are probably active in more than half of these countries, with a bilateral programme. We say, "There are other countries that potentially could be in but, here, we have something to offer and we have a comparative advantage from being there." There is a real rationale why we are in specific countries with high poverty and not in others.

Thinking about how you engage with those other countries, the countries that are powering ahead, then clearly trying to do aid in the usual way is not the most effective way. Then we come to the way we think about transition programmes in India or, indeed, in South Africa. One needs to start looking at other ways of engaging with them, and money is not necessarily the binding constraint.

I am sympathetic to the analysis that you refer to, the marginal tax rate-the Martin Ravallion analysis. It is worth updating this a little bit. His data are a little bit out of date, but quite a few people have been looking at it. India is an interesting one because, even in his analysis, it is somewhere near the margin. It is probably the next one where you could have said, "Well, maybe they can start self-financing poverty reduction now…" Indeed, if he had used the data that the national statistic office in India published in June, he probably would have come to a slightly different conclusion. India is on a trajectory of poverty reduction. There are still a lot of poor people, but they are making remarkably strong progress. That is not comparable to a Pakistan, a Nigeria or some other countries that may, on GDP per capita, look superficially similar now. There are some quite important differences.

It is a general but simple point. Once these countries get richer, we have to engage in different ways with them. That is what we do. It is not simply whether we have a bilateral office, in the same way the Secretary of State has talked about, compared with how important it is in some of these other countries. We may well have offices in South Africa or other places to deal with these kinds of challenges. That seems to be absolutely right, also intellectually and conceptually. I think there is a real rationale and consistency in the way we are trying to approach these things now.

Q225 Hugh Bayley: You draw a distinction between India, on the one hand, and Nigeria and Pakistan on the other, and urge us not to look at GDP per capita as the only indicator of whether a country is on a trajectory out of poverty. What would be the most important alternative indicator? Would it be growth or unemployment? What should you look at?

Professor Dercon: I just tell you what we have, in practice in our analysis, been using. The last point you make is that, in the end, it is going to be whether a country is indeed having a growth process that is delivering poverty reduction. We look both at growth and the extent to which in countries, on current evidence, poverty is being reduced with growth. At the same time, we look at the selffinancing ability. Do they have the ability to selffinance? These are the key factors. It is not growth alone. We look at economic development, always to the extent that it is delivering jobs and incomes for poor people as well.

Q226 Mr McCann: Secretary of State, if it is not always about the money, there is a question that follows on from that. Given that the number of lowincome countries is reducing and given that those lowincome countries have got a limited ability to absorb aid, the question then comes back to the 0.7%, as to whether or not you think that is a viable and appropriate figure for the future.

Justine Greening: I think it is. It has been a critical driver and mobiliser of ODA internationally. It sits alongside the Millennium Development Goals as what we need to be investing in. Of course, we are now having a debate internationally as to what the new development framework should be. As Stefan has just said and I have said, for countries that are now well into their transition as developing countries, we need to transition our own relationship, so that it does not just necessarily mean it is about the money that goes in; it is about the advice, the support, the help on economic development and, indeed, putting our own private sector investment into those countries, so that that can be part of the development push. 0.7% is important for us.

Yes, we may have fewer bilateral programmes; however, we also continue to invest in things like the Global Fund, which we know is a very effective multilateral body for tackling AIDS, TB and malaria. We know that, with sufficient resources going into that, we can reach a tipping point on some of those diseases that can systemically start to really turn the corner on them, in the way that we have seen the corner turned on polio across the world. Therefore, on socalled global public goods, there is still a clear agenda as well for us to make sure we can get value for taxpayer money in tackling extreme poverty. Over time, we have to evolve the portfolio that we invest to match bilateral programmes and multilateral programmes and then, within that, make sure we get the best value from the multilateral spend that we are making.

Q227 Mr McCann: I am very grateful for that. The other side of the coin, however, is that very few European Union states are going to hit 0.7%. Therefore, I would ask what your reaction would be, or what should the British Government’s reaction be, to those states that are, in fact, travelling in the other direction, from 0.7%, rather than getting closer to it. Ultimately, given the furore that you know existed about 0.7% in the British public’s mind, about whether we should do it or whether we should not, do you think there is a danger that we will stand out like a sore thumb, as the only big nation in the world that is actually hitting 0.7% and making a strong commitment to it?

Justine Greening: I think we made and indeed many countries have made an international commitment to 0.7%. It is a longstanding one. We have hit it this year for the first time, and that is an important moment for us as a country, but also it is well recognised internationally. We want to see other countries live up to the commitments that they have made. Ultimately, I believe that spending this 0.7%, if done effectively, is absolutely in our national interest. Therefore, I do not see a compromise between what we are doing and what is in our national interest. It is in our interest to help countries stay stable, so that we can stay safe and have a better chance of reducing terrorism. It is absolutely in our interest as a country to be working in that next wave of emerging countries.

One of the things that I have been very clear about, within the Department and across Government, is the need for DFID to much more systematically work across Government on our broader Government agenda of helping to drive trade with that next wave of emerging economies. I think DFID can play a role that, alongside tackling extreme poverty, can help on this economic development agenda, and can really be a winwin, not only for the countries we are working in but also for our economy.

It may be that other countries take a slightly different view around what they see as the benefits of investing in development but, to my mind, it is also significantly about national interest. Interestingly, if you look at a country like the Netherlands, they have now put international trade into international development as a department, so they have matched the two up together. That does show that we are not alone in seeing the key national interest aspect of what we do, in terms of our bilateral programmes. It is right to have a joinedup approach.

Q228 Fiona O’Donnell: Good morning, Mr Dercon. I do not think I have heard you or the Secretary of State yet talk about sustainability and where that sits in terms of economic growth in developing countries. You agreed that you have young women in Malawi earning money to keep them in education, but they are doing that through becoming agents for CocaCola. What impact does that have, first of all on health in the area, and also on their use of clean water, which is limited? Where does sustainability sit in DFID’s vision of promoting economic growth?

Justine Greening: It is a matter of responsible investment, and DFID’s role in helping to shape that inward investment can be a significant one. It is one that I have tried to step up within the Department, since coming into this role. It is why we are having much more work between us and key sectors in British industry, because I do want us to play a role in trying to shape that inward investment so that it is responsible.

You are right to highlight that there are those who are concerned about the development impact of large corporations, and a lot of the work that we have tried to do as a Government has been around transparency-for example, look at extractive industries-to try to manage those risks. What I am saying, though, is that we should not lose sight of what the upsides are to the fact that people, and in particular women, can get the chance to have a livelihood and to have the sort of economic independence that is critical for them to be able to get on in their own life and to make sure that their children are going to school. We know that, when a woman gets an education, she is more likely to get married later and have fewer children. The children she will have are likely to be healthier. We know that, when she gets a job, she will probably reinvest 90% of it back into her family and her community.

Are we really keen to make sure that we look well beyond those big companies and shaping their investment, so it is responsible, to smaller and mediumsized companies, and helping to unleash the enterprise that is there in many developing countries? It is certainly there in many parts of Africa. Absolutely. We should have a balanced approach to economic development that does not just look at us working with big companies, but does go well beyond that and looks at access to capital, for example, and looks at the SME investment that can take place. That creates that much broaderbased development that we want to see, which can really start to lift people out of extreme poverty.

Q229 Hugh Bayley: Where do you stand, Secretary of State, on the arguments at the moment about whether the OECD/DAC definition of ODA should be broadened?

Justine Greening: The original definition was essentially set in about 1972. We can all recognise that the world has changed and the development agenda has changed a huge amount since then. For a start, as we have been talking about, many countries are now steadily developing, so they are at a different point in their development, and economic development is becoming a more important aspect of their transition.

Also, alongside that, we are seeing other flows beyond ODA, which are of course official government flows, becoming more important-for example, from the private sector in particular. We are also, though, finally seeing governments, whether in developing countries or indeed ours in the UK, looking at more innovative mechanisms, for example guarantees, loans and equity. I think all of that is prompting the beginning of a discussion at the OECD about whether it is time now to modernise this definition, try to bring it up to date and, in doing so, absolutely make sure that we are keeping the integrity of what ODA is around. It is just so that we are clearcut about how some of these new instruments, for example guarantees, which can be very useful in having a development impact, should be accounted for.

Q230 Hugh Bayley: I think you used the phrase "the essence of ODA". Hitherto, the core purpose has been seen as poverty alleviation. Does that remain the core purpose or does that become one of several core purposes of aid?

Justine Greening: If you go back to the origins, it is around alleviating poverty through economic development. It is a slightly broader concept, if you like, than pure poverty alleviation. It is important to keep that basic concept, but underpin this current definition there. What we are saying is that the world has gradually changed. Some of the instruments that are being used in the development world, not just by us but by countries we are working with, are changing. There is a general question about how to make sure we account properly for that in a way that means you can start to have that transparency across the piece and comparability.

Q231 Hugh Bayley: Can I ask, perhaps you in relation to two and your economist in relation to one, about the suggestions for change that I have heard mooted? It has been suggested by some people that the ODA definition should be broadened to include some other global public good, such as adaptation to climate change. Is there not a danger that the "poverty alleviation through economic growth" focus could become diluted, so that there would be substantially less money available for poverty alleviation and growth in the poorest countries?

Secondly, it is suggested that the definition of military or perhaps security assistance could be broadened, so that ODA could be used more to create the security that is necessary for development. Where, might I ask, do you stand on those two? Could either you or your economist answer the point that some people are saying that some government loans to developing countries are now on terms that are frankly not concessional at all? How can one remove those loans from the ODA count, so that you only deal with loans that are concessional in character?

Justine Greening: I will obviously let Stefan also respond to this. You are right to flag up that we should make sure that this intrinsic original concept of what ODA was all about, which was poverty alleviation and economic development, remains. I would not want to see it watered down either. We need to make sure it is effective in today’s world, but I agree that it would not be sensible to start broadening it out as a concept so much that you end up losing sight of what you were ultimately trying to achieve. For example, there may be some people who would say we should include some kind of private sector investment. All of that starts to extend. You can look at cuts of data that might include that but, in terms of the basic classification of what governments are doing in relation to development, essentially you have to keep that original integrity to it, as you have said. That is the first bit.

On military, again similarly, we have to be very careful that we do not see an inappropriate rebadging of what is essentially military expenditure into development. At the same time, clearly where there is peacekeeping that is done by military units, a proportion of that, at the moment, can be classed as ODA. The proportion that is there at 6% falls out of some work that was done to analyse, in practice, what element of peacekeeping ought to be classed as ODA. You might want to refresh the process to understand what peacekeeping today looks like and, therefore, whether that percentage looks the same now as it did back in the 1970s but, fundamentally, I do not think you should extend it beyond that.

In relation to your final point on concessional loans, this is why, at some point, we clearly need to have a discussion around modernisation. That is a really important discussion. Again, the UK’s approach to this issue has been that we think loans do need to be concessional in character. There is a debate going on around how you define "concessional in character", because that was never tightly defined within the OECD. Therefore, that is why at some point you need to have a proper discussion about this internationally and try to resolve some of these issues that have cropped up over recent years. Another issue that the UK would want clarity on, for example, would be around guarantees. We are not, per se, spending money; on the other hand, it can often unlock private sector investment that can have a development benefit. Getting some clarity around how that should be accounted for would be helpful to many countries.

Chair: I will bring in Fiona Bruce, because I think she has questions related to that.

Q232 Fiona Bruce: I have two questions. One of them has been framed by Jeremy Lefroy, who we regret cannot be here today. He very much wanted us to read this question. It touches on issues that you have mentioned already. What use do you have of the current definition of ODA? Will you recommend any changes to the OECD? For instance, do you believe that it makes sense to include net investments or net disinvestments by CDC within ODA, when these are unpredictable and depend on commercial conditions, not government reporting periods? Also, what do you think of the fact that some countries are deliberately boosting their ODA by providing concessional loans, which are lately financed through the issuing of bonds, rather than coming from the country’s state budget? Is that a sensible way forward for the UK, given fiscal conditions that are likely to remain tight for some time?

Justine Greening: The second point was what I was answering on the back of Hugh’s question. In relation to the first point, there is an ODA definition and, broadly, in terms of how it is approached and how we define it, it works. However, there is a need to make sure that it keeps up with the world today. Alongside that, yes, there are some challenges. For example, if we make an investment through CDC, it is classed as ODA, because cash is going out the door. Of course, if it is a very successful investment that has created a huge development impact and that investment has driven a big return, once we crystallise it, it creates negative ODA, because we get money back in through the door. In a sense, it looks like your disinvestment decision, on the back of some very successful investment, is almost a negative outcome, when in fact it is not.

My sense is that those are quite important discussions, which we need to have, about how we can make sure that we have an ODA definition that does not disincentivise good investment decisions. Ultimately, it is certainly clear in my mind that this underlying rationale as to how we define ODA and broadly what it is all about is quite clearcut, which is investment by governments in relation to tackling extreme poverty and in relation to this economic development agenda.

Q233 Fiona Bruce: Could I ask a further question? If we accept your point about wanting to stimulate trade and the private sector, my question relates to SMEs. You mentioned SMEs. When we travel, there is the constant refrain that we hear that SMEs-not micro but businesses that potentially will contribute to the tax base of their countries-cannot develop. They find it difficult to raise finance. At the same time, we hear that administration of grant support to them is also extremely difficult, because of the numbers. I wondered what work DFID is doing to look at how, practically, support can be given to SMEs, which, at the end of the day, are the majority of businesses in any country-ours and developing countries.

Justine Greening: We have a wide range of routes to support SMEs. One of them is through CDC. It is worth pointing out that, of the 1,200plus investments CDC has, around 460 are in SMEs. Alongside that, we have the Global SME Finance Initiative that we have set up with other donors to tackle this accesstofinance issue that many SMEs face. We expect, by 2016, that that will have reached over a quarter of a million SMEs.

In-country, for example in Tanzania, we are looking at whether we can do a piece of work to improve how the capital markets work there. I start from the premise that there is a huge entrepreneurial drive and spirit. What DFID needs to work on is how to unleash that. Capital is part of it; investing in infrastructure can be part of it too. Specific challenge funds that are there to provide direct investment can be part of it. Of course, CDC has a role to play as well.

Professor Dercon: I thought you were going to continue on ODA for a moment. I have two small points in response to the earlier points made. We should not forget that, while some of the frameworks around the definition seem to be so incoherent at the moment, it is also because circumstances have changed quite a lot. Some of the anomalies that people are now picking up are largely because world interest rates are so low. You get very strange situations in terms of profit seemingly being made on some of these things. Secondly, there is lots of financial innovation and new instruments. What the Secretary of State has said is that the updating is just trying to ensure it is reasonable. I do not think it is something our partners fundamentally say should not happen; it is actually just about rationalising something that was done 40 years ago. It is about time to think a little bit about it.

On the small point that you made when you started earlier regarding the focus of the task, even though we say we like to try to have a mantra about economic development and extreme poverty, the general language used for the ODA definition is still broadly about development, and this could do with some clarification. You mentioned adaptation spending as an example. Most countries do adaptation spending overseas, at the moment, because it is also good for poverty now. Arguably, I do not think it is so controversial at this moment, but I agree with you that, looking forward, there may be a sense of thinking carefully about properly accounting for it. Mr Manning gave evidence to the Committee earlier that he thought virtually every country would probably book adaptation spending as ODA at the moment anyway. I do not think that is a fundamental debate and discussion for most people.

Chair: We have a number of questions exploring new instruments, starting with Fiona O’Donnell.

Q234 Fiona O’Donnell: It is not so much the controversy the Committee is trying to explore, but rather the Department’s thinking as to how it has developed. Secretary of State, you talked about the pace of change in developing countries and also the way that aid is being financed. What we are looking for is more detail in terms of the direction of travel of the Department and its preparedness. What specific new needs or opportunities have you identified for DFID, in terms of the fact that we are increasing the range of financial instruments that the Department has to use in developing countries?

Justine Greening: Over recent years, we have set up a number of different routes, if you like, to go well beyond traditional grant financing in terms of how you get investment into developing countries, including the strategy refresh that we have done at the CDC. I know you had Diane Noble in to give evidence earlier around how we can make sure their investments continue to target extreme poverty. We have set up the Private Infrastructure Development Group, which is a publicprivate partnership particularly focusing on investment in infrastructure. We have launched very recently our first Impact Investment Fund, which again is around leveraging in private sector investment.

We will continue to innovate around how we work with multilateral agencies. For example, we can partner up more broadly with multilateral agencies through loans or we can partner up on specific projects. We can look at whether we want to develop CDC’s ability and investment although, as I have said, we have reworked their strategy pretty recently. We could do direct lending ourselves, although I am sure you will have some questions around our capacity to do that and some of the challenges around DFID itself stepping into that sphere. There is a range of logical areas where we could extend our work, particularly in some transition countries, where we may feel a grant-putting money that we do not expect back into a country-may prove to be something we think we do not need to do. Finding a route to lend some cash that we do expect back may be more appropriate.

Chair: Presumably that is what you meant when you talked about returnable capital in India.

Justine Greening: Yes, absolutely. That is probably one of the first projects in bilateral countries that we have that works in that way. We will have to see how successful and effective that approach is, and that will inform the potential to do more of that over time. We also have to be pragmatic and careful. We already have quite a wide range of channels by which we can do a different form of investment that goes beyond our traditional grant aid. I do not think we are starting from a zero base; I think we actually have quite a sophisticated number of channels out there that we can use.

Q235 Fiona O’Donnell: Looking for a bit more detail, do you have any thoughts at this stage about for which countries and what kinds of projects bilateral concessional loans might be appropriate?

Justine Greening: I should say that, as of now, we do not have any plans to do any concessional loans directly to governments bilaterally. Our sense is that a more sensible route is to work with multilateral agencies, which often have the scale and reach, and can pull in not only other donor investment that is needed to get the level of investment required, but also the private sector.

Q236 Fiona O’Donnell: Finally, do you think there is any possibility of the UK deciding that we should not engage in this and what we do best is to give grants to countries?

Justine Greening: We have to be prepared to look across the range of different modalities, as they would be called within the development world, as to how we can work with countries. Going right back to the beginning of this evidence session, as countries are transitioning, we have to go beyond doing pure grant aid. For some of the projects that we were working in, that is simply not appropriate. We have to match how we are doing our investment with the project, with the country and with what is actually most sensible in terms of pulling in other private sector and indeed public investment. We have to be flexible and we will work across the piece.

What we are seeing, though, is that, over recent years, that plethora of different channels we can use has grown, as we, other countries and, indeed, developing countries themselves have innovated. In the case of Africa in particular, we have started to really get a clear sense of what their infrastructure needs are, and, therefore, these very big projects that no donor country could finance on its own or would want to finance on its own are emerging, which actually require a much more international financing approach in order to make them happen.

Q237 Mr McCann: Secretary of State, we have touched upon a couple of these points, so I will refine the question from the original text. In your written submission, you said that DFID officials have been working with HM Treasury officials on looking at the possibility of having a development bank. I just wondered if you could give us an update on what progress has been made and what the current status is of those discussions.

Justine Greening: It is something that we have looked at, at a relatively high level. I am interested in the inquiry that you are doing. The range of discussions you have had can be part of informing that process that we have kicked off within Government.

What I would say, though, is that we should be clear that any move to set up a development bank is not going to happen overnight. It is a significant undertaking. It requires very careful thought around the skills that we would require, in order to be able to get that established, and running effectively and sensibly. Also, it requires very careful thought around what channels are already out there that we can use if we want to go down more of a lendingbased approach, rather than grantbased, if we want to, over time, move down this road of expecting to get money back, possibly with some sort of return, compared with simply a more historical strategy of focusing on grants, which we pass over and are not intended to have any returnable aspect to them. I would describe any discussions around setting up a development bank as at a very early stage. We will take a very pragmatic decision around whether creating a brand new entity is really the most effective way for us to be able to achieve those objectives.

Q238 Mr McCann: Is there any structure to those talks? Are they held on an ongoing basis? Are they in diaries, or does it become an agenda item whenever you are meeting about other subjects?

Justine Greening: They have been part and parcel of a broad review that I kicked off on coming into this role, looking ahead, just as this Committee is doing, at what the development landscape will be over the coming years and, therefore, what DFID’s response to that needs to be, in terms of how we invest, where we invest, what we are investing in and the right channels to make sure that we are delivering best value for money. Looking at whether you continue to do grants versus whether you move to more loanbased and expect some of that investment to come back to you, so that you can reinvest it, is part and parcel of that review.

As I have flagged up, I see the discussions that we are having around any sort of development bank as much longer term, frankly, for the Department. It should not hold us up on the rest of what we are looking at. As I have said, it may well be that the most effective thing for us to do is to see whether we can achieve those outcomes through existing channels that are already there. That may be more effective. I think you also have to be very clearcut around how we account for it in our own government national accounts too.

Q239 Mr McCann: Our visit to Washington highlighted a lot of those challenges. I can understand your caution on that point. You have actually answered my followup question as well, in terms of working with others. The only other thing is you mentioned CDC earlier. You mentioned recent changes; do you feel that there is the potential for further expansion there, in terms of it being another tool in that particular box, rather than looking at, for example, a development bank alone?

Justine Greening: I know the World Bank itself is looking at its own approach, and Dr Jim Kim, who now heads up the World Bank, has done a very effective job of challenging that organisation to look at how it needs to modernise its approach, how it should be driving for results and where its priorities should be. I am about to get on a plane later this afternoon and go to the autumn World Bank meeting in Washington to make sure that I advocate for what we would like to see the World Bank doing.

This is the same question that they ask themselves, around what the right mix is of grants versus a more loanbased approach to development. I think we see that there is this potential to have more of a balance on returnable capital or a loan-whatever you want to call it-in relation to some of the infrastructure projects in particular that could be invested in over the coming years, which are often huge and probably need privatesector investment to match along with any World Bank project. Stefan, do you want to add to this at all?

Professor Dercon: You have covered it comprehensively. It is clearly the case for either lending instruments or a development bank. The instrument side we should not look at in isolation, in terms of where the niche is, what the need is and where we actually fit in. Within the Department, as the Secretary of State said, we look at the whole series of options, which people have been looking at very carefully. It is clearly something that we have to keep live and keep on thinking about. These are very exciting times. There is a lot changing in these countries. The way we most effectively engage with them will keep on changing, and so there may well be a right moment. The choice at the moment to be a bit cautious and not jump into it seems to be the right one.

Q240 Hugh Bayley: Can you say a little bit more, Secretary of State or Professor Dercon, about how you have come to the conclusion that you need to be cautious? You appear to be saying "no". For example, do you see any advantages from having a development bank over using loan finance-developing facilities to provide loan finance within the Department? Would it make a difference, for instance to the PSBR, if you had a development bank that could perhaps borrow money against contributions that a government is making? Would that make a difference?

Justine Greening: You have outlined the fact that a development bank-and indeed, if you look at France and Germany and the way in which they approach funding their development-does have a different mix of whether it goes to the government profit and loss or whether it ends up on the balance sheet. Our focus is clearly not only about of course making sure that DFID plays its role in helping us meet Government requirements on deficit reduction and debt reduction over time, as we have said; critically, as Stefan has said, from a DFID perspective, it is also around the outcomes that we want to achieve and whether this is the right or most effective mechanism to achieve them. It is a matter of whether you actually need to set up something new to do that, or whether it is more effective to use existing mechanisms that are there-whether they are some of the things that DFID has set up, whether it is CDC, or whether it is the World Bank and other multilateral development institutions.

What I am saying is, from our perspective, we need to be absolutely conscious of how changing the way in which we do development impacts the national accounts, of course. Ultimately, from a DFID perspective, our look has been at effectiveness and whether it can give us more effectiveness. You could argue that one of the advantages of a development bank is it gives us an ability to raise capital into it from the markets. Those are the questions that, over time, we need to weigh up, but I have also been clear that you can leverage in private sector through other mechanisms already. Indeed, we do through the Private Infrastructure Development Group work that we are doing. It is not like we cannot do that now.

Q241 Hugh Bayley: I appreciate, as Professor Dercon told us earlier, that interest rates globally are currently at a very low level, but, if one were to set up a new instrument like a development bank, you would have to be thinking decades ahead and not of the short term. Thinking ahead to when global base rates might be significantly higher than they are now, would a UK development bank be able to borrow at lower cost or lend to developing countries at lower cost or on the basis of a longer period to maturity of a loan than an inhouse DFID mechanism?

Justine Greening: In the absence of having a fully workedthrough plan and proposal around a development bank and what investment portfolio approach it would take, it is not possible to say exactly.

Q242 Hugh Bayley: Are you doing some work with the Treasury? Are you working with the Treasury to develop those models or scenarios?

Justine Greening: At this stage, the discussions have been very high level and, as I have said, our instinct is to look to use existing mechanisms, rather than to set up something new, which, in any case, would take some time to establish and would require bringing in new skills as well in the practicalities of setting up some sort of development bank. For the time being, the weight of our focus has really been on how we can use existing mechanisms and how we can continue to drive this economic development agenda through pulling in private sector investment.

Q243 Hugh Bayley: Presumably you need those new skills-the ability to assess the performance of a loan, rather than the delivery of a grantfunded development project-even if you are providing loan finance within the Department, will you not?

Justine Greening: Skills within the Department, and within any department, will need to change over time to match a changing agenda. As we ramp up our work on economic development, we will need to pull in new skills from outside to match that agenda. I do not think it is particularly different in relation to a policy around establishing a development bank in the future from any other transition that we might have. One of the reasons why I have been keen to go through a similar process to the Select Committee, which is to look ahead to understand where DFID needs to be, is to understand what that then means for the skills we have in the Department and also what we need to potentially bring in or otherwise access externally.

Q244 Hugh Bayley: To ask one final question, you made the point earlier, Secretary of State, that the UK moved away from using loan finance in response in part to the debt crisis that was faced by many developing countries. If we go back to using loan finance, how will either your Department or, were it to be established, a development bank guard against the risks that the countries to whom we lend money would, once again, end up with unsustainable debt burdens?

Justine Greening: Two points on that: I do not think it was a case of moving away. What I was saying was this is clearly an area, in relation to financing of development, that is growing over time, because of the nature of how development is changing, and particularly some of the infrastructure projects that are out there and the private sector investment that can go into them, which can often be matched with public sector. Could you just remind me what that second point was?

Hugh Bayley: If you are doing more loans, how do you guard against overindebtedness by developing countries leading to a sustainability crisis?

Justine Greening: That is a very important point, and there are well grounded, recognised approaches by the World Bank to look at indebtedness levels and when those levels get to becoming unsustainable. You would want to factor that into any thinking around any loan approach. I have been clear already in this evidence session that we do not have any plans to do any bilateral loans to governments, at this stage. I do not think that question arises, but what I am saying is that there is a very clear process at places like the World Bank for establishing countries’ capability to take on additional debt. I think it is a very important question that you raise because, of course, we went through a programme of getting rid of some historical debt, because we could see just how much it was weighing on countries in their ability to be able to invest themselves in development, from debt that they had built up in previous years.

Professor Dercon: If I quickly add to that, it is exactly right. We went away from that for very good reasons, at the time. Of course, it is again that the world is changing. A lot of these countries are in growth cycles that actually have never been seen in these countries. At the same time, to reemphasise this process, when we were looking at it within the Department, of course that sustainability was a key element. Nobody would want to go back to doing it irresponsibly or whatever. Taking it as part of a cautious approach, we are at the same time saying, "Is this the right moment for us to be doing this?" This is definitely one other element of the mix that we would have considered.

Q245 Hugh Bayley: If one used or possibly adapted a World Bank tool, should we start loan finance, would that tool also take account of commercial loans to the government? One thinks a lot of BRICS investing a lot in developing countries, a good deal of it being loan finance, on terms that are not constrained by ODA requirements.

Professor Dercon: In a very simple way, the tools that the World Bank has are not just like, simply, a debt sustainability ratio or whatever you would calculate. When we looked at it, and people looked at it in a couple of countries-as a case study, we had a careful look at it-these days, the IMF and World Bank would take into account what Chinese loans are doing. There are some well publicised examples in the DRC and so on, where things were taken into account. That is obviously all part of the whole setup. It is difficult; it is complicated, but it seems to be relatively selfevident that we have to do this extremely carefully.

Justine Greening: It is fair to say also that some countries are themselves going out to the capital markets, doing their own bond issues and raising loan finance, as many developed countries would do. It is worth bearing in mind that, again, it is not just through multilateral institutions that they are able to raise finance.

Q246 Chair: Obviously, Secretary of State, we are hoping that our report may actually help these deliberations, because we have collected evidence from a number of quarters. The interesting thing is that we absolutely accept that you could not set up a development bank overnight and you need to develop a range of instruments in the mean time, whether or not you go down that route. It is interesting to hear from specifically the Japanese and the Germans that they started out with a mix of instruments and then, ultimately, concluded that a development bank was the logical way to bring them all together. It is an interesting piece of evidence.

Also, when we were in Washington, both the World Bank and the InterAmerican Development Bank were offering almost a partnership, in saying they would appreciate embedding DFID people within the institutions, enabling them to gain insight and understanding, and add value both to the Bank as well as adding value to DFID. These are ideas that might be coming through. Obviously, we still have to deliberate on our report, but quite a lot of different options, mixes and models are being pursued.

Just a final point on Hugh Bayley’s question about sovereign debt: I completely accept that we are in a different era, where quite a lot of these emerging countries have the capacity to take on debt, which should not really become unsustainable, but might still regard the combination of a concessional loan with technical assistance to deliver some of their public programmes as a way forward. When you said you were not considering that, certainly in my mind, and I think in those of some other Members of the Committee, there was a feeling that might be the way you would want to develop a relationship, for example with India or with comparable countries of that kind.

Justine Greening: There is a difference in my mind between a general strategy of saying, "We are now going to do sovereign lending," and a pragmatic approach to saying, on a case-by-case basis, if there was a clear option that represented good value for money and was sensible, and we understood through due diligence and risk assessment that it was a proper approach to take, you could consider that. However, that is different from saying that, systematically, this is now going to become a significant part of what we are doing. It goes back to the point I made earlier, which is that there is a range of different mechanisms we can use in order to carry out investment. It is about finding the right one for the right project.

Q247 Chair: I am not going to ask you to view this as a specific point but as an illustration. If, for example, on a technical assistance programme in a country like India, they identified a problem, for example of maternal malnutrition amongst mothers and babies, and wanted to roll out a public health programme across the whole country on the back of that technical assistance, is not that the sort of context where there might be just a basis for saying, "We have given you the assistance to manage the programme, and we will also help you with finance in order to add to your own capacity to deliver it across a country of that size"?

Justine Greening: Interestingly, that is one of the potential benefits of doing the Impact Investment Fund that we launched last November, where you could have a public policy imperative that could pull in a private sector solution to it that would match up with our DFID Challenge Fund and generate a return, because it was fundamentally delivering a more effective lowercost approach to the public sector.

Q248 Chris White: Secretary of State, you have highlighted, this morning and in recent speeches, the importance of economic growth in DFID’s work. I was wondering how you think DFID will liaise with the private sector to support this, in terms of growth and poverty reduction.

Justine Greening: There are a number of strands that we need to look at. One is in relation to the domestic situation within developing countries. We talked a little earlier with Fiona Bruce in relation to some of the work that we are doing on SMEs domestically. We also have a number of projects that look at how to reduce red tape, so TradeMark East Africa is a very good example of investment in infrastructure, but also streamlining processes, particularly customs processes, which can often mean that the cost of transiting goods across parts of Africa is significantly higher than it needs to be. Therefore, it becomes a real barrier to trade and economic development. We have also done a number of programmes around access to finance, and we will continue to look at more opportunities in-country. Of course, there is microfinance, which is perhaps one of the things that many development institutions have done over recent years that has got more publicity, but it sits alongside a portfolio approach.

Alongside that, I have been clear that we can do a lot to help unleash entrepreneurship in those countries. We can also play a role in helping to drive responsible UK investment that can make a positive difference to development as well. That is why I have been clear to start engaging with the CBI, with various sectors like the retail and garment industry sector, for example, and extractive industries with the infrastructure companies, to really start understanding more clearly how we can work more effectively together and also where that relationship should join. There are some things the private sector should do and there are other things that perhaps DFID should do, and there is clearly a point where we can work together. We need to be clear between ourselves and the private sector within the UK about how that relationship can work more formally.

I also think that DFID has a lot of knowledge on the ground about the countries we work in. That can be put to good use to help drive responsible investment faster. I am particularly interested in looking at countries like Tanzania, where I think there are some interesting opportunities around partnering up UK investment that matches with their development aspirations as well.

Q249 Chris White: You mentioned microfinance and entrepreneurship. Some of the most successful initiatives we have seen in Africa have been associated with those projects. Do you see the number of secondments from DFID to the private sector and vice versa rising? Also, do you have any intentions to measure the impact of DFID’s private sector investment?

Justine Greening: We can develop our knowledge base by working more effectively with the private sector. I do not think that just goes for some of the opportunities I have just talked about; I think that goes for our work with suppliers from the private sector that help to deliver some of our programmes. We have secondments there as well to deepen that relationship, so we get better value for money. On top of that, as I said earlier, over time our skills will need to change so that we have a bigger footprint within the economic development agenda in the future than we have had in the past. That will mean we need to have the right skills and the right people to be able to help us pursue that.

Q250 Chris White: Just the last couple of points: do you think you have the right financial instruments to work effectively with the private sector? Do you think your instruments match and balance? Do you think there is a role for DFID to provide nonconcessional loans to the private sector?

Justine Greening: We have a range of instruments. We are innovating new ones: this Impact Fund that we launched last November was the first impact investment fund in relation to development. I would be very keen to see London and the City emerge as a leading global centre for impact investment within developing countries. That would be good for us and it would be good for the developing countries that we could help drive capital towards.

Q251 Chris White: Do you see us, DFID, promoting that particular initiative regarding London and the City? Do you think there is work to be done?

Justine Greening: There is work to be done and, indeed, it is the reason why I gave my opening speech on economic development at the London Stock Exchange. It is why, since, we have started to engage more systematically with different parts of UK industry to understand how we can work effectively together on responsible investment going into developing countries. I think it is a very exciting agenda and that, over time, we will continue to think creatively and innovatively about some of the ways we can partner up with UK industry to jointly help drive development.

If you look at some of the projects that we have already kicked off around global value chains, where, for example, we will work with John Lewis, I think in South Africa, that is a very good example of a programme that is providing job creation and skills, but also makes good business sense for them and is sustainable. Ultimately, all companies need to have sustainable value chains. It is about finding these commonground areas, where we can unlock a win for development through working with the private sector and actually, for them, doing the right thing is good business sense too. We can do a lot more around understanding the breadth of that agenda and also then where it is sensible and responsible for DFID to be part of it.

Q252 Fabian Hamilton: Secretary of State, given the changes to development challenges and development finances, are you confident that DFID still has the right balance between bilateral and multilateral aid?

Justine Greening: Over time, you will see that balance shift. We do not, per se, approach our resourcing within the Department by saying, "How much do we want for bilateral? How much do we want for multilateral?" We will have a general approach on replenishments. For example, the World Bank is coming up to replenish through a new round of IDA. The Global Fund will finally go through its replenishment this November. We of course have to respond to that over time.

Alongside that, though, we also have what I might call a bottomup approach to what the opportunities are in our bilateral programmes. We, of course, do the Multilateral Aid Review and the Bilateral Aid Review to get a sense of consistency across the piece, around where we think best value for money is to make sure that we are not just spending in the right places but driving effective spend that is value for money.

Q253 Fabian Hamilton: You do not think that there is a particularly desirable balance between multilateral and bilateral spending. What do you think would be the most likely balance, in the next five to ten years, between the two, or can you not predict that?

Justine Greening: It is hard to predict it, because a lot of it falls out of decisions that we may take around how we want to, for example, invest in tackling malaria. We know that malaria has a much bigger element of our economic development strategy than people perhaps realise. In a place like Ghana, treating your family for malaria is about 30% of your household income a year. The question for us is: what is the best way for us to drive value in investing in tackling malaria?

The Global Fund has been a very successful multilateral organisation that has pulled in both private sector and public sector investment to tackle malaria. We will predominantly use that. Will it mean that we do not do any malaria bilateral work? Probably not, but we will do it where we think there is a complementary approach that can really work hand in hand with what is already happening through the Global Fund. It comes down to understanding value for money, the different channels we can use and then getting the right mix on an overall strategy, for example in tackling malaria. That is not a bad example of where you probably need a mix between what we do multilaterally and then bilaterally but, over time, I would expect that you would probably increasingly do more through the Global Fund, for example, than you would do bilaterally, as the Global Fund develops and becomes even more successful than it has been in the past.

Q254 Fabian Hamilton: Does DFID have the skills and the tools to be able to assess the overall or relative strengths between bilateral and multilateral spending, or is that something you need to buy in?

Justine Greening: We do have the skills. The Multilateral Aid Review, for example, is something that the National Audit Office has pointed to as a much more robust approach for consistently looking, from a comparable perspective, across a range of different institutions in saying how they are performing and who is giving value for money.

The biggest challenge to these processes is around the evidence base and making sure you have good data to go into that process. We are very capable of running sensible processes around multilateral aid and bilateral aid. It is about having good data. As an aside, one of the things we pushed at the Highlevel Panel that the Prime Minister cochaired was this socalled data revolution. When you look at progress on the Millennium Development Goals, one of the challenges, looking back on it, was not having good baseline data. There is a data challenge on how we can take decisions.

That is not to say that we do not have a very good evidence base of what works and where you get value for money. A lot of the work that Stefan’s team does is around helping us make sure we get the most out of every pound. We are flagging up that we think you need to push even further on data, but the Department is well placed to understand what works, how to target and then how to do that process on an ongoing basis.

Q255 Fabian Hamilton: That is very reassuring. One final question, Chair, if I may: do you think that global public goods, for example climate finance, are better managed through multilateral spending and, if so, what is the role for bilateral donors?

Justine Greening: As you will know, the push around financing for climate change and combating it, both in terms of adaption and mitigation, has been international. In 2009, there was an international commitment to raise $100 billion in order to do that, and the UK will play its role. You then have a similar mixed market between some projects in that regard that need to be taken at a more international level, simply because of their size, and then other projects that can happen at a more bilateral level and that can be done by individual countries or, perhaps, two or three countries working together with a third nation. In many respects, it is driven by the nature of the work that needs to take place.

Professor Dercon: To add to that, almost by their nature, if they are global public goods, they involve collective action problems. We need to engage with these. It is really at that level that we have to start, and the finance is then something that follows. That is why it is very important for us to engage in all these processes multilaterally and with our partners.

Fabian Hamilton: The very nature of global public goods is that they are multilateral by definition.

Professor Dercon: Exactly; they are collective action problems that we need to overcome.

Q256 Chair: Some of our witnesses did say that, although the Bilateral Aid Review and the Multilateral Aid Review were generally regarded as very good things, there was not a crossover. In other words, there was no evaluation of bilateral versus multilateral, and it may be something that the Department should consider doing, because they were put in two separate boxes rather than asking, "Would this be done better bilaterally or multilaterally?"

Justine Greening: That is precisely what we looked at over recent months, as part of our broader review: how to get some confidence about whether that final pound invested in malaria needs to go via Global Fund or via a bilateral programme, and in which country. That is exactly what we have been looking at to try to get much more clarity around how you drive value for money and the comparative effectiveness of these different channels.

Q257 Fiona Bruce: I wonder how, if you do, you operate a different method of implementing the monitoring of multilaterals where there is no DFID presence in a country. Do you take a different approach to monitoring them there?

Justine Greening: We are able to keep track of what is going on. We have driven, interestingly over recent years, for a much tougher and stronger results framework for the World Bank, so that the processes in place to track are more effective. We have our embassies; we work with other donors that are there. We are absolutely able to understand how effective programmes are. Clearly, where we have a bilateral programme there and we are there every day, that enhances our ability to understand how projects are being delivered by the World Bank.

We are very clear around the results agenda that the World Bank is pursuing and Dr Jim Kim is really pushing now, appropriately. That is part of making sure we can understand, on a day-to-day basis as well as more strategically in terms of priorities, how effectively the World Bank is performing. When we went through the Multilateral Aid Review, the IDA funding came out of that very well, so that was seen as an effective investment in terms of development outcomes and value for money.

Q258 Fiona Bruce: Do you think you could do it more effectively if you did have regional offices and programmes in those countries?

Justine Greening: By definition, if you were there every day, you would have more chance to get more insight on a day-to-day basis. You would have to set against that the cost of doing that and the need, ultimately, to have good World Bank processes in place that are transparent and a good organisation that delivers value for money as a matter of routine, without you necessarily having to look over their shoulder. That is why we have pushed for an improved results framework from the World Bank, and it is why we are very keen to advocate for the right priorities at the World Bank for the next IDA replenishment.

I should caveat all of that by emphasising again that, when the World Bank went through the Multilateral Aid Review and the IDA funding was looked at, it actually got a very good rating from our Multilateral Aid Review process. I do not think we go into this monitoring and evaluation question thinking that there is a major issue; it is something we want to see continue to be improved, but we are already well placed to understand the effectiveness and the value for money of the World Bank work.

Professor Dercon: Could I maybe add to that? It is just to reemphasise that, if we want to monitor multilaterals, it is not by being in every country where they are doing something, but it is getting very strong representations within these organisations. That is what we have clearly invested in. Results frameworks then become the way you properly manage your funds within it and push for indicators that actually mean something. That is the strategy we use.

Q259 Fiona Bruce: That is very interesting, because one of the reasons we are asking about this is that, on our visit to Brazil in particular, it was suggested that maybe one of the ways of facilitating knowledge transfer is to have not necessarily a regional centre but teams sent out by DFID to work with multilaterals-embedded in them-or even interns sent out for a period of time. I wondered if you could tell us to what extent DFID might be doing this or might consider it.

Justine Greening: I can clarify this with the Committee, but I think we do have a secondee over at the World Bank and, of course, we have a whole team based pretty much in the World Bank. They are not seconded to it; they are there to work for DFID, but they are there on a day-to-day basis to make sure that they are advocating on behalf of the UK. In order to do that, they clearly work with the Foreign Office very seamlessly as well.

Q260 Fiona Bruce: The kinds of things we were looking at were very grassroots. They were things like how to transfer knowledge about forest management, so that indigenous peoples living in the Amazon-and I understand they are about 25 million-actually have a sustainable livelihood. It is about whether there are ways that we could ensure that experts could go out from the UK to work with teams, for a period of time-it might be six months or it might be a year-to facilitate knowledge transfer, and not just within a country but SouthSouth.

Justine Greening: You are right that making sure expertise can be shared is very important, and that has really been the focus of the development work that we are doing with Brazil. They have clearly gone through their own transition, in terms of poverty eradication. Part of it has really been around agriculture and livelihood; part of it has been around social safety nets, for example. Therefore, we work with them to help share that knowledge.

Indeed, India itself is playing quite an important role in sharing its knowledge of poverty eradication with other countries where that can be beneficial. It is something that we very much support. What it shows is that this investment is seeing clear results on the ground. There are countries that have now dramatically developed and, in doing so, with that growth lifted millions of people out of extreme poverty. Of course, China would be another example. It is really sensible to work with them to get those learnings from those countries properly disseminated into other places where they have consistent challenges and they are going through the same process.

Q261 Fiona Bruce: What is needed now is really specific expert and often technical knowledge, rather than perhaps general representation in a country.

Justine Greening: That might be technical knowledge, for example that a country like Brazil has. Therefore, what we can do and the relationship we can have with them that works is working with them to help get their knowledge out, as well as partnering up with our development knowledge.

Q262 Hugh Bayley: Does the Department have any programmes to increase or enhance the SouthSouth cooperation between countries in Latin America and other developing countries, SubSaharan Africa and elsewhere?

Justine Greening: We do. We have developed a very good working relationship with both Brazil and China, as two good examples of that. I myself cochair the Global Partnership for Effective Development Cooperation. It is very much a piece of work that sits alongside, first of all, the Busan Agreement, which looked at how you can co-ordinate development more effectively across different donors and countries, but also alongside this debate on the post2015 framework. If that is the "what" in terms of what the new framework should be and where we focus attention, the work that is happening on the Global Partnership for Effective Development Cooperation is about how we can work together to help deliver that.

We will be having a ministeriallevel conference in Mexico next year that will pull together that work, which will hopefully be another step forward in terms of global cooperation on development. It will, as part of it, have a specific element that will focus on this SouthSouth cooperation. That is very welcomed across the development community.

Q263 Hugh Bayley: Are there any lessons you are able to draw so far on what kind of SouthSouth cooperation is effective, how you effectively transfer ideas and technology from SouthSouth countries, and what you can achieve, in terms of value for money, through SouthSouth cooperation that you cannot through NorthSouth cooperation?

Justine Greening: Part of the reason for setting up this Global Partnership work is to more systematically look at how we can knowledge-share. There has been a general sense that it is a good thing to do, but that it often happens on quite an ad hoc basis, so we should more systematically look at how we can knowledge-share and particularly how we can get SouthSouth cooperation.

We are also going through a process of understanding what works, as we have done in many other aspects of development, which are much older in a sense. For some of the work we do on health and education, we have a good sense of what works. On this SouthSouth cooperation, because many of these countries are comparatively newly transitioned, as it were, and newly involved in a broader development push, we are understanding how they want to be involved and also what works for the countries that they can work with.

For example, you may have a state in India that has had a particularly successful programme around safety nets or around the right to information that has helped people access public services more effectively, which can then partner up with another country. It needs to go beyond the national level to potentially also include the subnational level, where the size of a state in India can be as big as some of the countries that they might want to partner up with. The challenge has been how to work through that. Ultimately, it is for the SouthSouth countries that we are talking about to work through how they think that relationship can work in the future. The Global Partnership is really about making sure we can help that discussion and debate take place.

Chair: Are you able to provide us with a bit of a note about how the Global Partnership operates? That would be helpful.

Justine Greening: Yes, I would be delighted to. In Washington over the next few days, we have our next steering group meeting on that, and I would be happy to give you an update on that work. The group is cochaired by me, the Planning and Regeneration Minister of Indonesia and also the Finance Minister of Nigeria, who as we know plays a big role internationally on the development agenda-Finance Minister Ngozi. It is also now joined by representatives from the Mexican Government, because they are hosting the key meeting that we will be at in order to push this agenda and take it to the next step.

Q264 Hugh Bayley: Finally, in relation to Brazil particularly, where we have a small office to do this kind of work, what do you see as the achievements of that small office over the last three years or so?

Justine Greening: It has been extremely good for broadening out our relationship with the Brazilian Government and for transitioning our relationship on development with Brazil, which clearly came from an original basis of there being a fourcountry programme and has evolved over time to one that sees us now working with them to work with other countries on their development agenda. It is a good example of where we can have a very strong development relationship with countries that is not about a huge bilateral aid programme, and is much more around us working together on a common agenda.

That is a sensible thing for us to do, because it sits alongside our broader relationship that the Foreign Office has and leads, on a day-to-day basis, with Brazil. It is all part of developing a really strong relationship with what is a very important country and clearly a growing economic player on the world economy scene, and one that we not only want to develop our diplomatic and development relationship with, but of course develop our trading relationship with too.

Hugh Bayley: Thank you for that. Good luck on the IDA replenishment and other matters in Washington.

Chair: Thank you very much, Secretary of State. I hope, first of all, you found that a useful exchange. I think we have. We will be able to provide you with a report, which we hope will be before Christmas, on this particular aspect of future development cooperation that draws together some of the ideas that we have had. I do not see it as us necessarily saying, "We think you should do x, y and z." What we will be teasing out is the options that we think you are facing, with perhaps our own Committee views as to which we think are the most interesting. We certainly have a lot of very valuable information. What has been interesting too is the enthusiasm with which other bilateral partners have sought to engage with us as a Committee, as I am sure they have with you as a Department. Notably, the French, the Germans and Japanese all have a different agenda, including the possibility of a joint visit by French Development Committee Members and us to West Africa next year. It is a possibility, but it would be quite an interesting development.

Justine Greening: That sounds like a potentially very interesting trip that raises development cooperation beyond Government Departments.

Chair: Indeed. Thank you very much. We look forward to seeing you again.

Prepared 11th February 2014