RORY SPEAKS ON THE COMMONWEALTH DEVELOPMENT CORPORATION BILL

Rory:

I want to say a great thank you to all the hon. and right hon. Members who have taken part in the debate. I particularly praise the tone set by the hon. Member for Edinburgh East (Tommy Sheppard) and the way in which he picked up on the good atmosphere in the Chamber. I also pay tribute to the tone set by the shadow Secretary of State, the hon. Member for Edmonton (Kate Osamor) and by the shadow Minister, the hon. Member for Bradford East (Imran Hussain), and to the constructive way in which they have approached this short but quite technical piece of legislation.

Four major types of concern seem to have been raised today, and I will try to deal with them briefly, with the aim of stopping at exactly 5.20 pm. Those questions were as follows. Why are we focusing on private sector-led economic development? How do we balance the private and public inclusion in that development? Why are we using development finance institutions and, in particular, what quantity of money are we putting into them? Why are we specifically putting money into the CDC? That last question relates to concerns that have been expressed about the governance and transparency of the CDC. I shall try to deal with those four types of challenge in turn.

The first is a general concern about the weight that we place on the private sector’s role in economic development in general. That concern was expressed by a number of people today, particularly Members on the Opposition Benches. The shadow Secretary of State used the word “profiteering”, and the hon. Member for Edinburgh East talked about international capitalism. The right hon. Member for Leicester East (Keith Vaz) spoke of distracting our attention away from humanitarian concerns, and the hon. Member for Glasgow North (Patrick Grady) was worried that some of the investments might be made at the cost of other potential investments. The hon. Member for Kilmarnock and Loudoun (Alan Brown) emphasised the fact that aid is needed as well, and the hon. Member for Cardiff South and Penarth (Stephen Doughty) emphasised the importance of health and education.

The way in which to deal with these generic concerns about the role played by the private sector in economic development—and with all the matters in the general portfolio of the Department for International Development —is to state that what we are talking about today is just a part, not the whole, of what DFID does. Economic development is absolutely vital—I will come on to that—but it is currently less than 20% of the Department’s overall portfolio. The shadow Secretary of State quite rightly raised water and sanitation as important elements of our Department’s strategy—they are—but they are not primarily delivered through development finance institutions. The £204 million that we spent in 2015-16 came from other parts of the Department’s budget. As for the humanitarian concerns mentioned by the right hon. Member for Leicester East, the £2 billion that we are spending over this period on Syria alone comes from other parts of the departmental budget.

However, as pointed out by the hon. Member for Yeovil (Marcus Fysh), poverty alleviation cannot happen without economic growth, and that relies on the private ​sector. It relies on the private sector for jobs, for Government revenues and for the services that the sector provides. It is not a zero-sum game. The hon. Member for Glasgow North issued a challenge when he talked about investments coming at the cost of others, but it is not that kind of zero-sum game. To take a specific example, we were criticised by one Member for some of our investments in electricity, as opposed to other forms of infrastructure, as though that was somehow at the expense of other developmental objectives. However, that electricity not only delivers jobs through the business side, but allows us to deliver our objectives in health and education. We cannot have a decent education service and get children into school if there is no electricity and they have to go 10 miles to pick up firewood. We cannot deliver decent healthcare in Africa unless there is refrigeration for immunisation drugs and unless we have the electric lighting that allows doctors to perform surgery in the clinics.

We are delivering on the STGs, particularly goals 7 and 8 on energy and economic growth. Ellen Johnson Sirleaf, who is both a distinguished international civil servant and a President of an African state, has said that poverty in Africa cannot be eliminated without private sector growth. That also reflects the demands of Africans themselves. I was taken by the statements of my hon. Friend the Member for Bedford (Richard Fuller) about mutual respect. Recent surveys conducted in sub-Saharan Africa show that sub-Saharan Africans identify energy and jobs as two of their top three priorities at a level of 80% or 90%. We should respect their wisdom and desires when we talk about the kind of development investments that we make.

The next question is how to balance the roles of the public and private sectors in delivering development. I do not want to talk about this too much, but it is clear that there are serious constraints on the public sector’s ability to deliver all forms of commercial activity, partly because it often lacks the skills to ensure that those things happen. It lacks the skills to understand the market dynamics, the logistics, the productivity and the efficiency. We have all seen well-intentioned charitable and Government development projects attempt to set up businesses that have not worked. However, as Opposition Members have pointed out, the private sector cannot do it on its own—there are clear market failures. Returning to electricity in Africa as a good example, the private sector has clearly failed. If the private sector had been able to do things on its own, we would not be in a position where only 6 GW of power generating capacity has been built in Africa over the past decade. In China, 8 GW of capacity is built every one to two months.

That brings us to the question why we are putting money into DFIs, which was the particular challenge of the shadow Minister. The shadow Minister and the hon. Members for Glasgow North, for Cardiff South and Penarth and for Edinburgh East focused on the quantity of investment. The response is that I am afraid that some people still confuse stock and flow—in other words, the annual overseas development spend and the creation of a capital fund. The second response is that it is an option, not a commitment. What we are doing is raising the ceiling for what CDC, through rigorous business cases, can request; we are not imposing this on CDC. Over a five-year period, even if the maximum were drawn down, we would be talking about 8% of the total anticipated ODA spend, which is smaller than the amount I calculate the Scottish Government appear to be putting into a similar instrument in proportional terms.

There have been challenges on strategy. The strategy will be produced in line with departmental practice at the end of this year, but this Bill is enabling legislation, so we are putting the horse before the cart. We need the enabling legislation in place—we need the ceilings to be lifted—before we can look at individual business cases that wish to draw down on that money.

That brings us to the overall question why use DFIs at all, and I wish to pay a huge tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who provided perhaps the most powerful explanation of why we go into these mechanisms in the first place. The answer of course is that they bring together the very best of the private sector and the very best of the public sector. They provide the discipline of the private sector in insisting on returns that produce sustainable enterprises and sustainable revenues; and they provide freedom from political interference and they provide leverage. To respond to my hon. Friend the Member for Bedford, let me say that they also allow us, as my hon. Friend the Member for Portsmouth South (Mrs Drummond) pointed out, to draw in other forms of capital behind. Some £4 billion of investment from the CDC has drawn an extra £26 billion into our investments in Asia and Africa. In addition, this approach provides good value for money for the taxpayer.

Stephen Doughty

The Minister is talking about the capital that this approach has brought in, but that has not always been in areas where capital has not been available—I think of places such as India. Given that he is about to publish the bilateral aid strategy, will he consider forcing the CDC to look more closely at the lower-income countries in Africa and elsewhere that need the investment the most?

Rory:

I am trying to move towards my 5.20 pm conclusion, but let me deal with that quickly. As I was saying—and this partly answers the point—we are combining the best of the private sector incentives with the best of the public sector, because we are exactly able to prioritise maximising development impact. That is where our development impact grid, which, with respect, the hon. Gentleman is not providing enough focus on, answers his question. Members on both sides of the House should be aware that that grid targets explicitly countries with the lowest GDP per capita, countries where investment capital is not available and countries where the business environment is worse—that is the Y axis of the grid. On the X axis of the grid, we have sectors in which the maximum employment is generated. Every business case since 2012 has been assessed exactly against those criteria, which is why, as my right hon. Friend the Member for Sutton Coldfield has pointed out, many of the criticisms made today—the idea that somehow the CDC has lost its way—are not appropriate for the CDC of 2106; they are appropriate for the CDC of 2012 or 2010. Let me deal with a few of the objections. An investment in Guatemala was mentioned, but all investments in Latin America stopped in 2012. An investment in Xiabu Xiabu in China was mentioned, but all investments in China were stopped in 2012. The issue of pay was ​raised, but, as has been pointed out again and again, the pay of the chief executive has been reduced by two thirds, to a third of its predecessor. Tax havens were mentioned, but we no longer, in any way, ever invest for reasons of tax or secrecy; we invest only to find secure bases for investment and to pool other forms of capital. All our investment goes simply into locations that meet the highest OECD transparency standards. On development impact, our DFID chief economist, Stefan Dercon, has worked with some of the most distinguished academics in the world, from Harvard and elsewhere, to create exactly the kind of impact that people are pushing for.

That is why right hon. and hon. Members should support this Bill. It is not only because of the history of the CDC, to which the shadow Secretary of State paid such good tribute to in her opening remarks: its experience of 70 years; the culture it has developed; the extraordinary brand that the institution has in Africa and south Asia; and the focus that my right hon. Friend has brought to this institution since 2010—its rigour and its narrowness of focus, which makes it very unusual among DFIs. It is one of the only DFIs in the world to be spending so much in conflict-affected states. It is accountable directly to DFID, which owns 100% of its shares. The examples of its performance today can be seen in the DRC; in places such as Burundi, where off-grid power would not be built without the CDC; and in its investment in energy through Global in Africa.

In conclusion, we should take pride in this institution; it is a very great British institution. In its historic evolution it has gone from a past where it was dominated in the 1950s by ex-military officers interested in building rafts and going into jungles to its current leadership under Diana Noble, a chief executive who exemplifies much of the best in development thinking and some of most progressive intuition in the British Government. She ensures that we are delivering in Pakistan gender-based programming that affects workers’ rights and that we have an institution that is today highly relevant and that faces and solves some of the greatest development challenges in this century.

Question put and agreed.

29 November 2016.