Commonwealth Development Corporation Bill — House of Lords, 2017-02-09
Topic: International Affairs
Michael Bates (Conservative, Centre-right): My Lords, this is a short, two-clause Bill. It is a necessary piece of enabling legislation to ensure that the CDC is able to continue investing in the world’s poorest countries to create jobs, support local businesses and stimulate economic development. No country can defeat poverty and end aid dependency without sustained economic growth and a thriving private sector. Strong profitable businesses are needed to create better jobs and generate the tax revenues required to deliver improved public services There is, however, a huge unmet demand for capital in developing countries. In the poorest and most fragile countries, there is a long way to go to create the right conditions for investors to have the confidence to meet and fill this gap In 2015, the UN agreed the sustainable development goals, which are the focus of the Department for International Development through its UK aid strategy. The financing required to achieve these goals is estimated to be $2.5 trillion dollars a year through to 2030. This far outstrips what can be funded through traditional aid-funded programmes and public finance. This is where the CDC comes in The CDC was founded back in 1948 and has enjoyed support from successive Governments. It is wholly owned by the UK Government and is a development finance institution, deploying patient public capital to achieve an objective of doing good while not losing money The CDC has a portfolio of £4 billion invested in more than 1,200 businesses in more than 70 countries. In 2015, businesses backed by the CDC helped to create 1,030,000 new jobs in Africa and southern Asia. Over three years, these businesses have generated more than $7 billion in tax revenues to the countries in which CDC has invested The CDC invests long term to achieve development impact. It has a higher risk appetite and can take a more patient view of financial returns than private investors, but by demonstrating that responsible investing in difficult markets can be commercially viable, it helps to crowd in the private finance that the poorest countries desperately need In 2015, the CDC helped to mobilise an additional $832 million of capital from private investors. Over the years, it has made ground-breaking investments in unproven markets, planting the first seeds for industries that have since become mainstream, such as tea exports in Kenya and mobile telecoms in Africa. As an investor, the CDC sees the potential of the people of a country rather than its problems The NAO completed a value-for-money study of the CDC last year. Its report highlights the transformation that the CDC has undergone over the past five years, following the agreement of a new strategy and investment policy with DfID in 2012. The CDC now invests only in Africa and south Asia—two regions that account for 80% of the world’s poor. It is the only development financial institution to have this narrow a geographical focus. It now targets the sectors that create the most jobs in an economy. CDC investments in the energy sector are providing the investment needed to improve access and power economic growth in Africa. In the financial sector, the CDC has enabled microfinance institutions and retail banks to advance loans to support small businesses in agriculture and manufacturing in south Asia While the CDC continues to invest through funds, it has now built up its capacity to make direct investments and do debt deals alongside equity. It has also tightened controls on costs and cut average salaries by over 25% over five years. It has become a leader among its peers in transparency: it was the first development financial institution to sign up to the International Aid Transparency Initiative and provide full information on the name and location of all its investments The Bill is focused on one issue only: raising the limit on the level of financial support that we can provide to the CDC under the CDC Act. The Bill is needed because the current limit, set 17 years ago, has been reached. The Bill will raise the cumulative financial limit by £4.5 billion to £6 billion. It also introduces a delegated power to raise the limit further via statutory instrument, to an upper limit of £12 billion. To be clear, the Bill is not a commitment to provide this level of financial support to the CDC, nor is it a target to be achieved in a set timeframe. No new capital will be provided to the CDC without a new strategy and business case setting out the market demand, value for money and how development impacts are to be achieved. Both will be published and Ministers held to account in the usual way. Furthermore, after ministerial approval the CDC would be able to draw down the capital only when needed in response to market demand The Bill passed its stages in the other place unopposed, reflecting the cross-party nature of its objectives, but not without careful scrutiny. In Committee in the other place, expert witnesses gave oral evidence and several noble Lords—including the noble Lords, Lord Boateng and Lord Stern—provided helpful written submissions which have been taken into account There was a healthy debate in the other place, responded to by my honourable friend Rory Stewart, but I would argue that that genuine interest and concern is best addressed through the CDC’s strategy rather than via primary legislation. Work is under way to finalise the CDC’s new five-year strategy. It is critically important to get this right and address the issues raised during the Bill’s passage by NGOs, Members of both Houses and the National Audit Office We need to capture better the full development impact of the CDC’s investments. We need to ensure that the CDC’s policy on the use of offshore financial centres is reviewed regularly and meets the OECD’s high standards in this area, and that it pilots new approaches to deepen development impact still further The passage of the Bill is an important step to enable the CDC to continue playing a central role in the delivery of the UK’s international development objectives: to boost economic growth and eradicate extreme poverty by 2030. It complements other approaches through which the UK is playing a leading role in the international development market, including in our responses to humanitarian disasters, global epidemics and pandemics The CDC is a great British organisation with a proven track record and a clear development focus. The Bill will help the CDC to continue its pioneering work, creating opportunities and bringing hope and opportunity to the poorest people in the world. It is an institution of which British taxpayers can be rightly proud. I beg to move.