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Commonwealth Development Corporation

7.45 p.m.

Lord Lucas rose to ask Her Majesty's Government what are their plans regarding the Commonwealth Development Corporation.

The noble Lord said: My Lords, I am grateful to all noble Lords who have put down their names to speak on this Unstarred Question. I see that I am to be followed by three old stagers who know a great deal more about the Commonwealth Development Corporation than I do, so I shall not start my speech by going into long details about what it is. To the extent that we hope to hear information today, we hope to hear it from the noble Lord, Lord Whitty. We are all looking forward to that, so I shall keep my speech brief and merely point out a few matters on which I hope that the noble Lord will be able to enlighten us.

Looking at the Commonwealth Development Corporation, it seems to me that it is very hard for anybody in government--in governments back down the ages--to take responsibility for its existence. It is an

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extraordinary and wonderful beast when you get to know it. We are grateful to this Government for having picked it up off the floor and polished it. Suddenly, we discover that we are in possession of a unique organisation with enormous potential for doing good in the world, particularly now that the Cold War has ended and commerce and capitalism of various varieties are spreading and succeeding. We are greatly encouraged by what the Government have said about turning it into a public/private partnership. We very much support what they are doing in that regard--to the extent that we understand it. I hope that the noble Lord, Lord Whitty, will be able to improve our understanding considerably because although we have the concept of a public/private partnership, what it means is a mystery to us.

I shall ask a lot of questions. Indeed, I hope that the noble Lord, Lord Whitty, will consider most of my comments to be questions even if I do not put question marks at the end of every statement. I am sure that he will not be able to answer them all today, but I hope that he will write to me in due course to cover those points which he feels that he has not covered today.

My overall question is how the Government see the strategic role of the Commonwealth Development Corporation. How do they see it fitting in with the Department for International Development in providing a continuum of support to developing countries? How do they justify the term "public/private partnership"? What is CDC to do which a private company could not? Apart from the obvious few petty restrictions on what it can do and how it should behave which might be applied equally to any private company, what is it about the concept of a public/private partnership which is so unique and which marks it out from a mere privatisation? And, when that is established, will that understanding of CDC's role inform the Government's actions when they come to roll out CDC into the private sector or half into the private sector? Will the yardstick against which the financing structure and the governing structure and other aspects of CDC are to be judged be that that role should be central to the Government's thinking? I hope that we shall see that it is, but as yet we languish in confusion.

Turning to some particular aspects, do the Government envisage that CDC and DfID will work together in an active partnership? Indeed, if it is not to be an active partnership, DfID will have the role of passive investor with a bit of government oversight and we are really looking at a privatisation. I hope that we are looking at something that is much more active. If it is more active, how do the Government see it working? For example, are there to be projects in which CDC provides the equity to help industries off the ground and DfID is alongside to provide education, training and infrastructure, or perhaps is upfront providing pilot studies? Is that the kind of future that the Government envisage for the partnership between CDC and DfID?

I turn to objectives. What objectives do the Government envisage for CDC? How will they be set, maintained and monitored? How will they evolve? I understand from what has been said that one objective is the concentration of CDC on poor countries. I am sure

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that that is something with which we can all agree as a concept, but how will the list be set and changed? Who will be in charge of making sure that the list is kept up to date? What procedures do the Government envisage for taking a country off that list or forbidding CDC from making further investments in it?

Will CDC have objectives related to female employment, labour rights, technology transfer, poverty elimination and social responsibility? Are those the levels of objectives that the Government envisage setting for CDC, or will they be much looser, relaxed and general than that?

How do the Government see the future of the governmental aspect of CDC? One of the very attractive aspects of CDC at the moment is that it is pretty well corruption-free, because anyone who works with CDC knows that it is associated with the British Government and tends not to try it on. It also has the attraction for third country governments of probably being take-over free because there is no mechanism by which a corporate raider can come in and asset strip it. I believe that that is a very important aspect of the present set-up of CDC.

The governmental connection also provides the governments of other countries with a means of voicing concern or discontent with what CDC may be doing in a particular country. It provides them with a channel through the normal diplomatic route to express concern and receive a response. The link with government strengthens CDC's ability to ensure that it gets fair play in its investments and it is not done down by some local change in the law or local politics. There is always a relationship with the Government in the background to ensure that CDC is treated fairly.

All of those appear to me to be valuable aspects of the present arrangement. How do the Government envisage maintaining, monitoring and enforcing, where that is relevant, those aspects of CDC's qualities in the new world of public-private partnership? What part in that will be played by the constitution of CDC's board and the way that that is selected? Do the Government yet have any ideas on how that will work?

I turn to financing. Tony Blair said words to the effect that CDC would have substantial extra funds to invest each year in development as a result of the changes envisaged. Are those words which the noble Lord, Lord Whitty, is prepared to repeat today? If so, can he enlighten us on what "extra" means? What is the base level against which this commitment to "extra" is to be judged? Further, am I right in understanding that the future of CDC will be to concentrate largely on making equity investments? Does the noble Lord agree that to a large extent the previous government picked the plums out of CDC's existing equity portfolio? Therefore, in looking at how CDC is to be financed in future does the noble Lord agree that it will be perhaps seven or 10 years before it reaches a point where its equity portfolio is capable of generating sufficient cash inflow to finance its continuing investments?

Does the noble Lord share my understanding that the words uttered by Tony Blair--which I hope will be repeated today by the noble Lord--imply that CDC will

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be set up in a way that gives it certainty of funding, at least as to its base level of costs and investments, and it will know where to go to obtain the funds that it needs to make the additional investment which the Prime Minister has said it will be able to do?

One can look at two obvious secure sources. If CDC is left with its existing debt investment intact and ungeared that portfolio can be used to generate funds in a predictable way in the next seven or 10 years. If CDC is given partly-paid shares that will give the corporation certainty, but to drop below that level of certainty will call into question the Government's commitment to make sure that CDC has extra funds. It would be interesting to know what financing routes the Government are considering for CDC. On top of the base level of funds the CDC has already had considerable success in launching investment funds of its own. One hopes that they will continue but they cannot be relied upon for the base investment. Nor can it rely on borrowings. There is no asset structure in CDC other than its loan portfolio that can support borrowings.

Equity investments, particularly start-up or relatively young ones, cannot support a substantial portfolio of debt. If CDC is to be floated and the idea is that it should run share issues every other year to finance its continuing investment that is a most unsound prospect. If the Government have that in mind, does it mean that they envisage their interest being diluted considerably below the 40 per cent. initial shareholding in order to allow CDC to achieve that financing? If the price of that financing becomes necessarily low because of market conditions at the time, will the Government avoid the exercise of veto on CDC raising money on terms that they consider temporarily unsatisfactory?

I am getting into too much detail. Perhaps the noble Lord will enlighten me by spelling out the principles on which CDC is to be financed so that all my worries about the detail disappear and can wait for the Bill. I hope that we do not have to wait long for the Bill. Can the noble Lord, Lord Whitty, provide me with some comfort in that regard? I hope to hear that it has been leaping the hurdles in the Cabinet committees and is firmly on the stocks for next year. If not, I should like to hear the noble Lord's confirmation that the Chancellor will make good the shortfall which would otherwise occur in DfID's budget and that aid funds will not be cut as a result of the Government's inability to get this legislation into the programme where it should be. I should like to know who, in the absence of BZW, the Government now have as their advisers.

I should be interested to hear the noble Lord's reply to these questions. I hope that we shall learn something today. I am sure that we will learn a great deal more in a few months' time. However, we on these Benches wish the CDC a strong, prosperous and successful future and trust that the Government feel the same.

7.58 p.m.

Lord Acton: My Lords, I am most grateful to the noble Lord, Lord Lucas, for asking this important Question about the Government's plans for the Commonwealth

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Development Corporation. I congratulate the noble Lord on his speech, which contained more questions than any speech, that I have ever heard in your Lordships' House.

The Attlee government originally founded the CDC in 1948 as the Colonial Development Corporation, with a mandate to assist the economic development of the British dependent territories. Today, although the Commonwealth Development Corporation is empowered by statute to operate in any developing country, 70 per cent. of its investments are in the Commonwealth. The CDC has £1.6 billion invested in 404 projects in 54 of the world's poorest countries. In 1997 the corporation managed 33 businesses in 16 countries. Those businesses employed 40,000 people directly and, allowing for families and ancillary services, supported nearly 1 million people all told.

In addition, the CDC has a network of 27 overseas offices. They are responsible for developing new business and managing existing investments. The offices are staffed by experienced professionals--half recruited locally and half in the UK. Mention must also be made of the CDC's 14 capital investment funds.

The corporation in 1996 made a pre-tax profit of £97 million. Its return on capital over the years 1994 to 1996 averaged 8.2 per cent. Despite its obvious importance, the CDC has for some time been constrained from significant expansion because it has not been allowed to borrow in the capital markets. The corporation has been entirely self-financing, having to rely on profit flow and the sale of existing investments to finance new investments.

With that background, on 22nd October last year the Prime Minister announced that the CDC would become a public-private partnership. He underlined the corporation's contribution to promoting economic development in areas of great need such as sub-Saharan Africa and South Asia. However, he emphasised that the corporation was an under-utilised asset. He announced that legislation would be required to allow private investment in the CDC, while the Government would retain a substantial minority holding.

The Prime Minister promised that the money raised from the sale would be ploughed back into the international development programme. The kernel of his speech was that that new partnership would allow the CDC to borrow on the capital markets. It would give the corporation substantial extra funds each year to invest in development.

On 27th November, Mr. Roy Reynolds, chief executive of the CDC, issued a statement on the CDC's future. He pointed out that the Government would retain a substantial minority holding together with a golden share. He stressed that the corporation's board and management welcomed the proposals, and that:

    "CDC's ability to contribute as a long-term commercial investor supporting economic development will be significantly improved by this decision".

In October, following the Prime Minister's announcement, the CDC started to raise its profile in the City by holding a successful investment conference for fund managers, invited to come from London to Edinburgh for the occasion.

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From the point of view of ethically minded potential investors, the ethical aspect of the CDC is obviously important. Some time ago the corporation codified its environmental guidelines. Currently, the board has commissioned a study to produce a document to formalise its social policies and procedures. Subjects for consideration include human rights, resettlement, rights of minority groups, gender issues, linkage with the community, impact on rich and poor groups, social mobility, welfare services, health and safety, and many others. The study should be ready in a few months.

Clearly, turning the CDC into a public-private partnership will require a great deal of financial work. Among many considerations, the size of the Government's shareholding has to be worked out. The value of the shares to be sold has to be calculated, and just how much the corporation will be allowed to borrow has to be decided.

The CDC and the Department for International Development are working on the financial and legal aspects at the moment. I wonder whether things have reached a stage--I shall not ask as many questions as my noble friend Lord Lucas, as I think I should call him on this occasion--when my noble friend the Minister can give any indication as to these matters. I am particularly keen to learn what amounts of money might become available for the development programme.

In answer to a Written Question on 28th January, my right honourable friend the Secretary of State for International Development indicated that she hoped to bring forward legislation to create the new public-private partnership for the CDC during the next Session of Parliament, if parliamentary time permitted. I know full well that my noble friend the Minister cannot say what will be in the gracious Speech in the autumn, but I echo the noble Lord, Lord Lucas: I strongly support my right honourable friend and strongly urge that the new CDC legislation be foreshadowed in the gracious Speech. If that is achieved, the sale of the majority of shares in the CDC to the private sector should take place at least by 2000.

Delay of another year would be far from helpful. The corporation would find itself in a sort of limbo. Potential investors might start to think that the public-private partnership had taken place in 1997, at the time of the Prime Minister's speech, and be surprised when the shares actually came on to the market in, say, 2001. CDC staff morale might well sag. I am very much in favour of the new proposals for the CDC. I urge that legislation be brought forward as soon as possible.

8.5 p.m.

Viscount Waverley: My Lords, I welcome the proposal to permit access by CDC to private sector funds through public and private sector co-operation and note that that is part of the Government's initiative for the Commonwealth following the recent Commonwealth Heads of Government meeting, but practically speaking the need for privatisation has arisen from the inability to borrow funds on the open market, restraining the organisation from maximising on its investment programmes.

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In addition, the redirection of the organisation's own investments, away from governmental and parastatal clients and towards the private sector in developing countries, suggests that it is incongruous for the organisation to remain a government-owned vehicle.

In addition, in the spirit of a win/win situation, the Secretary of State for International Development has an incentive to support the sale of 60 per cent. of the organisation not least to bolster her department's funds. I want to stress the unique role of CDC and ask the Minister tonight to ensure that future ownership and structure retain the following advantages. First, it operates solely in the poorer developing countries. Secondly, it is trusted by governments overseas because of its association with the UK government and stands for creating financially viable development which is economically sound. That relationship makes governments comfortable with the activities of CDC knowing that it behaves both ethically and responsibly. That is especially important, for example, with regard to privatisations. The target government can be confident that CDC will act in that country's interests and include plans to have nationals participate in the to-be privatised enterprise.

Thirdly, it has a network of offices maintaining close touch with overseas governments and the local business community. Fourthly, it has a staff that is skilled in the investigation, financing and management of projects in developing countries.

Those are all most worthy, but while there are a number of ways to achieve the Government's objectives, I believe that we need to ask ourselves the following: will the private sector consider holding an equity stake in the organisation unless financially attractive, particularly when the Government continue to hold a significant amount of equity plus a possible golden share in the organisation? To what extent will the Government's approach inevitably drive the organisation into making safe, high-return investments and in doing so move it out of its traditional role of development-orientated business?

The organisation has in the past few years been achieving financial targets similar to those of the IFC and has been able to do that without having to satisfy a market-driven return to its own shareholder, the Government. These targets may not be sufficient for a private equity partner.

That brings me on to a point which I believe to be important. Although profit is important to the CDC on one side, from a development point, being profitable at 8 per cent. of capital employed creates a sufficiently sustainable business. There are many who believe that this is, however, a low return for commercial investors and that if the CDC is to move towards a greater equity component in its investment portfolio it will be under pressure to improve returns, with the bottom line needing to be improved.

I believe that we need two things: shareholders who will sympathise with the CDC's development aims, but somehow not to restrict corporate shareholders and yet retain the profit level at around the 8 per cent. mark. Would the Government undertake to offer the shares, or

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at least have substantive discussions with like-minded bodies such as the African and Caribbean development banks, together with such institutions as the Caisse de Developpement of France? They share the CDC's objectives and would make understanding partners.

I offer my final remark with a degree of sensitivity as I have friends who work in the CDC. I am aware that the CDC is owed considerable moneys from the state of Cameroon to the tune of £50 million to £60 million. Clearly, any sale with that recouped would add value to the company. It is fair to say that the CDC has tried every trick in the book to be paid, but without success. I believe that attention should be paid to this and that the timing of any sale should coincide with a successful resolution of this matter. On that point, when is the sale to be and when will Parliament be allocating time for the required legislation?

8.11 p.m.

Lord Watson of Invergowrie: My Lords, the noble Lord, Lord Lucas, said, and I paraphrase, that the Government have taken the CDC off the ground and are polishing it for a bright new future. That is true in terms of the information which we have thus far. It is appropriate, because a Labour Government founded the CDC almost half a century ago. It was founded with the aim of channelling desperately needed investment to the world's poorest countries. Tragically, many remain among the poorest.

Today, the CDC manages investments worth more than £1.5 billion. They are extremely important and stand to be influential in helping to alleviate world poverty. Much of that money is spent in countries which are still among the poorest in the world. It is appropriate that about two-thirds of that investment is active within the Commonwealth. The Commonwealth is vastly different today than it was half a century ago, and we should not lose sight of the fact that the links which remain, and were clearly seen in Edinburgh in October to be strong, are used to ensure that not in a paternalistic sense but in a genuine sense of partnership the United Kingdom seeks to assist those corners of the Commonwealth which still require our assistance.

During the past half century much has changed in the world of finance. Constraints on public sector borrowing restrict the ability of the CDC to attract sufficient capital to act as effectively as it might. The public-private partnership offered by the Government and outlined in the Prime Minister's speech last October offers the best means of allowing the CDC to achieve the necessary financing to continue to operate effectively.

I welcome the golden share, which I hope will match the suggested 40 per cent. level. It will ensure that the DfID, the new government department, which I welcome, retains sufficient influence to ensure that the new partnership respects the need for ethical considerations to be placed at the forefront of the CDC's investment. That point was mentioned by previous speakers and it cannot be overstressed.

The ethical trading and investment agendas are gaining in importance. They draw in many people who in the past would not have become involved in political

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activities. These days, many people decide against joining political parties but instead enthusiastically join single issue groups, charities, aid and campaigning organisations. It is appropriate that they should do so, but often it is in the desire to ensure an ethical basis for what they are doing and becoming involved in. That is understandable and is to be welcomed. That ethos fits neatly with the ethical foreign policy outlined by the Foreign Secretary in the early days of the Government.

People increasingly want reassurance that the money they invest, whether it be directly into companies or indirectly through pension funds, should actively benefit the people in the countries in which the money is being invested. The new deal for the CDC presents those who regard themselves or want to be seen as ethical investors with a real opportunity to place their money with confidence in an organisation committed to ensuring ethical and socially responsible investment in the poorest countries of the world.

Another example of the CDC's philosophy is illustrated in its attempts to develop a new code of core business principles and values. That should be central to the new public-private partnership within the CDC. It recognises that it is not only developmentally sound but also makes good business sense to have a socially responsible code of business conduct.

I know that in such debates it is appropriate to ask questions, and I wish to conclude by asking my noble friend to address two issues. I mentioned ethical investment, and make no apology for repeating it. I encourage my noble friend to outline the procedures which the CDC and the Government will put in place to ensure that they encourage socially responsible investment which benefits the poor.

Secondly, how will the Department for International Development benefit from the proposal? We have received assurances that the proceeds gained from the sale of equity will be ploughed back into the development programme. I hope that my noble friend will be able to comment on that because, as the CDC moves into the second half of its first century, it is important to have reassurance that it can do so with confidence under the proposals which we have heard outlined. I echo the hopes of other noble Lords that there will be legislation at an early date.

8.17 p.m.

Lord Redesdale: My Lords, I, too, thank the noble Lord, Lord Lucas, for initiating the debate. He gave the Minister warning that he would ask a vast number of questions. Perhaps I, too, should warn the Minister that I have a number of questions. However, a few years ago I was told by a noble friend to ask only two questions because more would not be answered. With the leave of the Minister, I will outline the two questions that I wish him to answer in particular.

The privatisation of the CDC comes two or three years later than I was expecting. The party of the noble Lord, Lord Lucas, legislated on the Crown Agents rather than the Commonwealth Development Corporation, and I found that surprising. It is now the Labour Government

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who are bringing about the privatisation. I hope to confirm my party's position on the far Left of British politics by opposing a privatisation, as I did in respect of the Port of Tyne Authority. However, this privatisation is to be welcomed. If the legislation is handled properly, it has no adverse effects which can be seen and it has many advantages. The advantages are mainly concerned with allowing the CDC to expand its work; for example, the Commonwealth Africa Investment Fund. That fund is particularly welcome and is pumping money into sub-Saharan Africa.

The CDC is an unusual company. To see that one only need take a quick look at the accounts and reports, which I saw the Minister glancing at earlier. As was remarked to me recently, company accounts are usually taken up and the first couple of pages scanned before one goes to the back to see what the chief executive is paid. I found this report to be slightly different. If anybody wishes to know on which page the chief executive's salary is, it can be found on page 68. But I was much more impressed with the first few pages of the report which outlined the fundamental philosophy of the CDC. I was especially interested to note that there is a committee on the board of the CDC which looks specifically at the issue of development and how company policy should be directed in that area.

The CDC is unusual in that it operates in areas which investment companies often avoid. It acts in developing and high-risk countries. It does that because of its unusual structure, which is supported by the Government. It is given a form of stability based on a large degree of knowledge gained from many years' experience.

Its work in sub-Saharan Africa is particularly welcome in view of the fact that very little private investment flows into that area. In the White Paper, a particularly interesting graph showed the growth of private investment as the great hope of development. But in the case of sub-Saharan Africa, there was a flat line just above zero and in some cases it was difficult to distinguish it from the bottom line.

That is where the CDC is most helpful. It acts as a catalyst, drawing investment into those areas which would not normally attract it. And it does so in a way which is realistic. The noble Viscount, Lord Waverley, mentioned an 8 per cent. return. That is quite a low rate of return in a high-risk market. Private investment will be prepared to invest in such a market because, rather than acting as an obstacle to investment, government support of the CDC will bring essential stability and credibility to that organisation. I hope that that will bring in funds.

Moreover, the CDC is expanding its range of activities. It is well versed in agriculture, but I was interested to hear that it is looking also at moving into mining and tourism. The mining aspect is particularly interesting in view of the inherent problems which are associated with mineral extraction.

I now move on to my vast list of questions, and I apologise for that. The questions do not have any political Machiavellian instinct about them. I believe that they will be answered when the legislation is

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brought forward. The Prime Minister mentioned back in October, as the noble Lord, Lord Acton, pointed out, that the CDC is to be privatised. The Minister, Clare Short, made a statement to that effect. There were rumours at the time--I do not know the foundation for them--that the staff read about that privatisation only in the Financial Times. Why was there so much haste? I believe that parliamentary time will not be found for that legislation in this Session of Parliament, and that may be the case until 1999. I understand that that may be due to other pieces of legislation being brought forward. But it seems unfortunate that there was such haste then when now there is to be a delay.

At that time a value for the CDC was put at about £1.4 billion, with an estimated value on privatisation of £500 million being available to the DfID. I wonder where those figures come from, because, looking at the books, they seem to be quite crude estimations.

I should like to know also to what extent the Government's golden share will operate. I hope that the Government will be prepared to keep as much of the share in the CDC as is practical, because it would help the credibility of the CDC to have that safe backing. It would reduce the political risk and so bring forward the idea that private investors will take part.

I should like some assurance--and this is my second question--that the £500 million or thereabouts, whatever is realised from the privatisation, will go to the Department for International Development. Obviously that will not solve the funding crisis of the DfID, nor reverse the cuts over the long term because it is a one-off investment. But that money would be extremely valuable to the department. I hope the Minister can give an assurance that during the time before privatisation takes place that will not be whittled down.

This privatisation will be far from straightforward and will not be like the privatisations that we have had in the past. I suspect that there will not be any small investor element. It is more likely to be institutional investors taking part. The CDC will change fundamentally. It will change from being an organisation which has dealt mostly with debt and a small amount of equity to being a company which is far more interested in equity. But I hope that the very character of the CDC will not be lost.

The noble Lord, Lord Watson of Invergowrie, mentioned the fact that ethical funds are gaining a degree of prominence. That is not just because of the moral implications although I believe that even small investors will invest in moral funds. Rather it is because in the long term there will not be the implications of pollution and short-termism which can lead to problems in the long term that many other funds might face.

I hope also that the Government can make a commitment that, although the CDC must make a profit, it will remain focused largely on Commonwealth countries; that it should remain focused quite clearly on the poorest countries. It has an excellent record in that field. Although I do not believe that under privatisation there is any need for it to remain strictly bound within the Commonwealth--there are many poor countries

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which could gain from the CDC's knowledge--I hope that sub-Saharan Africa will attract very large parts of the investment.

I hope also that the knowledge and experience which have been gained by the CDC, especially in relation to training its executives to handle funds which are based on development, can somehow be spread throughout the private sector. I hope that the Minister can make some commitment as regards the nature of the CDC, and that its focus on development can be maintained.

8.28 p.m.

Lord Whitty: My Lords, this has been a very useful, albeit short, debate. I am grateful for the degree of consensus achieved, at least on the principle. I shall endeavour to answer some of the questions that have been raised but I hope that noble Lords will recognise that, to some extent, it is too early for us to give answers to all the questions that have been raised, in particular by the noble Lord, Lord Lucas. In addition, estimates have been bandied about on which it would not be sensible for me to comment.

Before I deal with some of the issues that have been raised, perhaps I ought to put the whole concept of the CDC in a wider context. The new Government are clearly and firmly committed to the new international development strategy. Our objective is to halve the proportion of people living in poverty by the year 2015. Those policies were set out in a White Paper published last November. In order to do so, poorer countries will need to achieve much higher rates of economic growth in order to meet the targets for poverty reduction, but growth must be in a form which embraces the poor, conserves the environment and allows the poor to secure new income-earning opportunities. Obviously that includes increased levels of official development assistance in order to deliver those poverty reduction goals.

However, in addition to development assistance, increased flows of private investment will be needed for those poorer countries, especially of Africa and South Asia. That is primarily what the change in the status of the CDC is about. Additional private capital must be mobilised if the world is to stand a chance of moving away from the current unacceptably high levels of poverty. As various speakers, especially the noble Lord, Lord Redesdale, pointed out, the poorest countries in the world are receiving only a very small proportion of total private foreign direct investment. The least developed countries receive under 2 per cent. of all the private capital flows to developing countries. That means an insignificant amount of total global flows. Indeed, as the noble Lord, Lord Redesdale, said, sub-Saharan Africa in particular is unfavoured by that process.

Therefore, mobilising more finance to invest in the private sector of the poor countries is a clear objective for the department. It is also important that private investors should not have to put up with either low levels of profit or subsidised returns. There is a whole range of opportunities for commercial and sustainable investment in the poorer countries. Increasing the amount of long-term investment in viable businesses in

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those countries is good for development. It will also significantly enhance the livelihood opportunities of the poor. However, there are also commercial returns to be had.

I am grateful to my noble friend Lord Acton and others, for outlining both the history and the current achievements of the CDC. In effect, it is currently the main instrument of Her Majesty's Government for mobilising private finance and other finance into the poorest countries. But, as the Prime Minister said when announcing the proposed public/private partnership, the CDC is very much an under-utilised asset: it could do significantly more. The Government's plans for the Commonwealth Development Corporation are to create a new dynamic public/private partnership with the Government retaining a substantial minority holding; a partnership that will provide leadership as an ethical and socially responsible investor in poorer countries and a partnership that will catalyse new investment for sustainable business.

Therefore, the objectives are clear. The Government are doing this because the environment in which the CDC operates is constantly changing. In many of the poorer countries economic reform is taking place and the private sector is growing. There are probably more opportunities today than ever before. The CDC is exceptionally well placed with its historic record to identify new opportunities and to invest in those countries. It is better placed than almost any other financial institution, traditional or new, in seeking to invest in developing countries. Indeed, its wide network of offices on the ground and its strong track record have already been mentioned. To enable it to fulfil its full potential and to make a greater contribution to development, we want to bring in more private capital. By offering private investors an involvement in a clearly defined and stable development partnership, it is intended to establish the partnership to raise private capital in ways which do not impinge upon the public sector borrowing requirement.

So how much more can the CDC do? The introduction of private capital should be a unique opportunity for private investors to gain a new exposure to pre-emerging markets. With access to private capital the CDC will be able to do more. At present, the CDC invests about £300 million from self-generated revenue. It is perhaps too early to say by how much the CDC could grow, but we see substantial potential to build upon CDC's existing strengths.

Those strengths lie in the CDC's close understanding of business in poorer countries. The new partnership will emphasise continuity and build on the corporation's current business focus. Indeed, many of the questions about the balance of CDC's profile relate to that. The CDC currently makes 30 per cent. of all new investments in sub-Saharan Africa and over 70 per cent. of investments in the poorest countries of the world. Broadly speaking, we would aim to continue with that balance.

The CDC operates in a range of different sectors. Agri-business has always been one of its strengths and still represents one-third of its investments.

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Infrastructure is also important, with about 25 per cent. of its total portfolio being in infrastructure projects. The CDC also has expertise in the commercial and manufacturing sectors and also increasingly in the mining, oil and gas industries. The corporation has also expanded its country and regional fund management business. During last year, two new funds under the Commonwealth Private Investment Initiative were launched--one for South Asia and a smaller fund for the Pacific Region to add to the CDC's pre-existing fund for Africa.

The CDC has for some time been refining its business strategy in line with the new opportunities. In particular, it is shifting more away from simply making loans towards offering more equity. Equity is a scarce resource in many of these countries and has the potential to catalyse more investment. The CDC is currently required to make at least 25 per cent. of its investment in equity and this will increase. The CDC's office network and knowledge and skills base put it in a leading position to find and manage equity investments.

Under the new arrangement, as now, it is important to consider the framework in which the CDC carries out its business. As the noble Lord, Lord Lucas, and others have said, the CDC already has a philosophy: it will provide leadership as an ethical and socially responsible investor in its new manifestation. As my noble friend Lord Acton and the noble Viscount, Lord Waverley, pointed out, the corporation is already working on developing its code of core business values in that ethical context. Like many other national and international businesses, both private and public, the CDC recognises that it is not only developmentally sound but also that it makes the strongest business sense to have a socially responsible code of business conduct. That relates to many of the questions raised by the noble Lord, Lord Lucas.

In making new investments, the board will continue to seek to ensure that the positive social impact outweighs any negative effects and that ways to tackle the negative impacts of investment have been addressed. The CDC will continue carefully to consider the impact of investments on local communities. In managing its businesses, the CDC will provide guidelines on minimum standards for a range of issues--indeed, that relates to questions raised by several noble Lords this evening--such as housing, education and health and safety as regards its workforce and the environment. We believe that that approach will not only enhance the impact of all investments of the CDC, but also make the company an attractive proposition for the kind of ethical investors to which my noble friend Lord Watson referred.

As to the form of the new partnership, I should tell noble Lords that we shall be creating a new public-private institution. First and foremost, the new partnership must reflect a genuine and lasting relationship between government and the private sector. Therefore, the department will retain a substantial minority interest in the new company. I believe that I was asked indirectly why we want to keep the 40 per cent., or thereabouts, stake in the corporation. The general view is that the CDC would have much to

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gain from the continued endorsement of government. I believe that the noble Lord, Lord Lucas, referred to that fact. For its part, the department has done much to build the CDC over the years and the retained stake would allow it to share in the success of that partnership.

The continued involvement of Her Majesty's Government will also enable the CDC to provide its private sector partners and overseas governments with continued and increased comfort. The Government's involvement will add weight to an organisation operating in countries in which the traditional financial sector is small.

In general response to the point raised by the noble Lord, Lord Lucas, the balance between the public and the private areas will be reflected in the way in which the whole structure of the company is geared, including the board. This has been referred to as a straightforward, simple privatisation. I wish to modify that concept. Of course it is a privatisation in one sense but the motives behind it are not the same as in the case of many privatisations in the past. Our concern is not so much the return on the equity sales that will be involved but rather the ability to use that to extend access to additional funds. This new institution will lead the way in gaining access to funds in pre-emerging markets. To ensure that it does so, the Government will make a long-term commitment to its place in the new partnership. Substantial extra funds will arise from that access to the market. Clearly, the CDC will operate within a framework agreed with the Government, but within that it will optimise its return. It should be attractive to investors of all kinds. There will be a return on its own equity. As my noble friend Lord Acton said, there will be borrowings and there may well be additional equity issues at some future date. Those will be decisions for the future.

However, the framework will need to recognise the ground rules right from the start. That clarity is important not least because it will prevent any concern from private investors about potential hidden interference by Government. The aim is to set up a firm and agreed framework; not for frequent, day-to-day interventions by the department. The framework will be drafted so as to ensure that the CDC remains focused on the poorer countries, as the noble Lord, Lord Redesdale, requested. It will continue as a leader in ethical investments.

As regards the detailed figures of the financial structure, I think noble Lords will understand that it would not be sensible for me to comment on either the figures or the precise way in which the balance sheet will be restructured. However, it will be restructured with a substantial equity base so as to enable it to develop its portfolio over time by a mixture of internally self-generated funds and additional borrowing. We would expect it to attract interest from the private sector in the emerging and pre-emerging markets and from those concerned with ethical and sustainable investment in poorer countries. The creation of the partnership will allow the CDC to continue to be financed as it is now, that is, mainly through self-generated revenue as well.

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The CDC will continue to mobilise funds from management in respect of the way in which the new funds were set up last year.

A number of noble Lords while applauding the objective have queried the timetable. I was not clear whether the noble Lord, Lord Redesdale, was complaining about haste last October. That was the start of a long and detailed process of assessment. We are still receiving advice and guidance on that assessment. The noble Lord, Lord Lucas, asked about our current advisers. The advisers now are Credit Suisse First Boston who have replaced BZW, as the noble Lord will be aware. Those advisers continue to make a number of assessments on the detailed preparation. The timing of this will depend on our getting all of that right but also on the busy parliamentary timetable. However, the Government are determined to ensure that we can legislate at the earliest possible opportunity. Noble Lords must not believe everything they read in the newspapers. The Government's programme for the next Session has not been determined and will not be determined until we are much closer to the next Queen's Speech. However, when we have this matter right, we are determined to legislate at the earliest possible opportunity.

Active partnership involves not only the structure of a company or an organisation, but also active co-operation on the ground. We shall build on existing relationships. The DfID is a partner with the CDC in a number of equity funds in Africa which target smaller businesses. The department will of course have to maintain a level playing field with other businesses who may benefit from joint working. The partnership will continue to create more opportunities for the CDC and the department to join forces in the creation and implementation of projects of all kinds. The DfID can certainly benefit from the CDC's understanding of and approaches to private sector development. The department is particularly keen to work with the CDC and others in new public/private projects for infrastructure in the poorer countries. In some cases we may as a department also consider asking the CDC to manage funds which are targeted at small and micro businesses. In this way the aid programme of the DfID can be leveraged with the CDC's commercial funds to create sustainable local businesses.

My noble friend Lord Watson asked how the DfID will benefit. In addition to those advantages of working on the ground, the department will also benefit from the ability to realise part of its existing investment in CDC and from the retained interest in the partnership. It is, of course, too early to say how much the CDC is worth. Ultimately the market will decide. But in making the announcement about the partnership last October--and in response to the noble Lord, Lord Redesdale--I make it clear that what the Prime Minister said at that time still stands; namely, that any funds raised from the sale can be retained by the department and used in its work for the eradication of poverty. That remains the commitment. I think that I have answered most of the points raised. On the point raised by the noble Viscount,

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Lord Waverley, on the particular difficulties with Cameroon, I shall be happy to look into that but I cannot give the noble Viscount the answer tonight.

The new CDC partnership is creating a new being. It is the first public/private partnership of its kind and in designing the partnership we are breaking new ground both in terms of development policy and in terms of the relationship between government and the private sector. It is not a straightforward exercise, as noble Lords have recognised. However, there is an exciting opportunity to demonstrate that the public and private sectors can work together for the common goal of investing and creating wealth in poor countries in a way which will benefit

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poor people. We are confident that the new partnership will make a significant contribution to long-term sustainable development. The Prime Minister's announcement in October to create the partnership was widely applauded not only in this country but also by the leaders of developing countries in anticipation of the wide benefits it will bring. I believe those benefits will arise and I am grateful for the support of noble Lords tonight.

Fossil Fuel Levy Bill [H.L.]

Returned from the Commons agreed to.

        House adjourned at fifteen minutes before nine o'clock.

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