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Baroness Rawlings: I apologise to the Committee. In dealing with Amendment No. 6, I forgot to speak to

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Amendment No. 7, which is grouped with the lead amendment. If I may, I shall say a few words on Amendment No. 7.

The amendment would allow the Secretary of State to provide assistance for measures designed to attract "foreign direct investment". That is based on the assumption that attracting foreign direct investment and private investment is a major purpose of development aid and that they help to provide more tax revenue for government, boost the local economy, create jobs and bear the risk if the election fails.

The background to the proposal appears in the 1997 White Paper, Eliminating World Poverty: A Challenge for the 21st Century. The first line of section 1 of the White Paper states that the Government would:

    "Refocus our international development efforts on the elimination of poverty and encouragement of economic growth which benefits the poor".

It continues:

    "The experience of recent years in the most successful developing countries has clearly demonstrated the value of maintaining a sound fiscal balance and low inflation. Equally, it has shown the value of promoting more open and less regulated domestic and foreign trade. This increases the scope for higher savings which can help to finance investment. Such a framework will encourage the private sector, which provides the main impetus for economic growth".

That paragraph, which appears in section 1.18 of the White Paper, shows that the Government believe that attracting foreign direct investment into developing countries is an essential element of poverty reduction.

In the latest White Paper, on globalisation, the Government say that economic growth is indispensable. The White Paper states that,

    "the progress which has been made over the last few decades in reducing the proportion of people living in poverty has been largely the result of economic growth: raising incomes generally, including those of poor people. Economic growth is an indispensable requirement for poverty reduction".

That appears in chapter 1 on pages 17 to 18. Foreign direct investment by multinational companies in developing countries can boost the local economy, create jobs and help alleviate poverty. Foreign direct investment is far more important to developing countries in the long term than small increases in overseas aid. Foreign direct investment helps to take away some of the financial risks that developing country governments face if they borrow money from banks. Companies bear the risk if their investment fails. If the investment is successful, the host government benefit from increased tax revenue and the investor benefits from the resulting profits.

The Government stress the importance of foreign investment in the globalisation White Paper of 2000. They say that the attraction of capital inflows is an essential element of a strategy to speed up sustainable development and poverty reduction. They also say:

    "A central feature of globalisation has been the substantial increase in movement of capital around the world. Foreign direct investment ... to developing countries increased from US$36 billion in 1992 to US$155 billion in 1999, more than three times the level of development aid".

That appears in chapter 4 of the White Paper.

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The Government therefore believe that attracting foreign direct investment is vital for economic growth and that economic growth is vital to development. However, much of the work needed to attract foreign direct investment cannot be said to lead directly to a reduction in poverty. It may involve assisting reforms in the law and the judiciary of developing countries or working with developing countries to alter taxation law to encourage more investment. It may involve assisting in the break-up of state-owned enterprises.

The World Bank has amassed a great deal of empirical evidence about foreign investment through its business environment work. It says that the right kind of investment promotion is important to increased growth and poverty reduction. It also says:

    "Experience suggests that much can be done to remove barriers, distinctiveness and distortions that may discourage investment or divert it from efficient usage. Investment promotion should not be about tax holidays or special deals but rather about getting the fundamentals right. Once a country has good investment conditions, it can market those to investors".

That appeared in the World Bank business environment theme, Encouraging Investment.

Given the central importance of economic growth and investment to developing countries, and the need for investment promotion and marketing, what cannot really be described as "poverty focused"? The Government should add a commitment to the encouragement of foreign direct investment to the face of the Bill.

Lord Desai: A number of amendments, both in the previous group and this, point out various means by which the Government can do their work. Given the fact that the reduction of poverty is a fairly complicated process, good governance is important, foreign direct investment is important and a civil society is important, as is the avoidance of conflict.

In a sense one understands the complexity of the process, but we are legislating in a Bill and I am not sure that we want a Bill which spreads out the entire complex model of development and poverty reduction. I could easily add another 32 amendments if I thought about it.

What is important is the present formulation in Clause 1(3) and the way "sustainable development" is defined. I can assure the noble Baroness, Lady Rawlings, that even things like improving the legal structure and so forth can be described as generating lasting benefits for the population of the country. That is a broad enough formulation to include all these points. It is not that they are not important; but it is important that they do not appear on the face of the Bill.

Baroness Amos: Clause 1 sets down the overarching aim of development assistance and the two purposes of development assistance; namely, the furthering of sustainable development and the promoting of the welfare of the people. In our previous discussion my

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noble friend Lord Brennan endorsed the flexibility we are seeking to achieve, as did my noble friend Lord Desai.

Amendments Nos. 6, 7 and 8 add to the purposes for which development assistance can be provided and make explicit that the Secretary of State is able to support activities which promote good governance, establish the framework necessary to attract private and foreign direct investment and reduce conflict or the potential for conflict.

I can confirm that under the provisions of the Bill the Secretary of State will be able to support activities in all those areas, where such activities contribute to the reduction of poverty, through furthering sustainable development or promoting the welfare of the people. The Bill will, for example, allow us to support anti-corruption initiatives where the impact of such initiatives is likely to benefit the poor. It will allow us to enhance the investment environment where we believe that the poor will benefit from the resulting economic growth. The Bill will also allow us to continue to support security sector reform, where such support is likely to prevent violent conflict and increase stability, thereby decreasing suffering and poverty. To specify those areas as separate purposes for development assistance is therefore unnecessary. It is also undesirable.

There are two significant risks to inserting into the Bill references to the particular activities that the Secretary of State can support. First, the explicit references to good governance, establishing the framework necessary for private investment and conflict reduction in the Bill might lead a court to conclude that, were it not for those references, activities in those areas could not be undertaken. Following that line of reasoning, the court might conclude that it was appropriate to interpret the core power set down in Clause 1 very narrowly. That in turn would place a question mark over the Secretary of State's ability to support activities in areas that were not expressly mentioned in the Bill--areas which have often been debated in this Chamber and which are seen as important, such as health, education, water and the environment, human rights, and the empowerment of women. It cannot be in the interests of development assistance to foster a situation in which such doubts could arise.

The second element of risk relates to the need to develop comprehensive and workable definitions of "good governance", "private and foreign direct investment", and "conflict reduction".

4.45 p.m.

Baroness Rawlings: If the noble Baroness will allow me, I mentioned earlier that Amendment No. 8, relating to conflict, will be taken separately. I hope that that saves the Minister responding to it now.

Baroness Amos: I shall repeat the arguments when we come to Amendment No. 8, but they are exactly the same arguments as I make now.

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Inserting any definition into the Bill creates the risk that the Secretary of State would not be able to support an activity which was in itself worthwhile and likely to contribute to the reduction in poverty because it fell outside our definitions.

When this Bill was debated in the other place earlier this year, similar concerns were expressed that the expression "good governance" should appear as a purpose on the face of the Bill. Given the commitment of the Government to tackle issues around good governance, the Government responded to those concerns by asking parliamentary counsel to advise as to the merits and demerits of making such an amendment. The advice we received confirmed our view that such an amendment was not necessary to allow progress towards good governance to be supported and that to include a specific provision to that effect risked constraining the Secretary of State's powers, just as I described. The Government accept that advice.

Even if those risks could be overcome, I believe that inserting such references would misrepresent our development effort. The quality of governance is important but so are the other issues I have mentioned: health, education, water and the environment, human rights, the empowerment of women, and so on. All those aspects of development are inter-dependent. To mention one without the others would give a distorted perspective on development.

I hope I have been able to give assurance to the noble Lord, Lord Swinfen, who asked specifically about our ability to be able to provide advice on good governance. It exists within the context of the Bill. I could repeat the noble Lord's arguments, but I hope that he accepts that broad response. For those reasons, I would ask the noble Baroness to withdraw Amendment No. 6.

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