§ Order for Second Reading read.4.22 pm
§ The Minister for Overseas Development (Mr. Chris Patten)
I beg to move, That the Bill be now read a Second time. [Interruption.]
§ Mr. Patten
I hope that I shall be able to calm things down.
I realise that it may well be thought that some of the other Second Reading debates in the House during the next few weeks and months are likely to be a touch more controversial than this one; some may even be regarded as more important. But we should not underestimate the value of the Bill. Britain is the second largest investor in the developing world. From 1982 to 1986, our private investments totalled £6,727 million. International investment insurance is therefore particularly important for us. In ratifying the Multilateral Investment Guarantee Agency convention we shall be discharging an obligation that we implicitly accepted at the Venice economic summit earlier this year, and which we reaffirmed during the Commonwealth Finance Ministers' meeting in September.
The Bill is required to enable the United Kingdom to ratify the convention establishing MIGA, which is an international organisation associated with the World Bank, and is intended to promote foreign direct investment in developing countries, primarily by offering would-be investors insurance against non-commercial risks. The Chancellor of the Exchequer signed the convention establishing the agency on behalf of the United Kingdom in April 1986. In order to become members of the agency, we need to ratify the convention; and before we can ratify, legislative provision is needed to give effect in domestic law to our obligations under this convention.
I should like first to give the House some background on the general subject of international investment insurance, and explain in more detail what the agency will do. The idea of insuring foreign investment against noncommercial risk is not new; it is more than a century old. In the late 1800s, state authorities in the United States guaranteed payment of interest and principal on railway bonds sold in the capital markets of London and Paris. Following the second world war, the industrialised nations began establishing programmes and agencies for investment insurance for their citizens. The United States began the first programme in 1948. Our Export Credits, Guarantee Department's investment insurance scheme began operations in 1972. Today, there are such schemes in 22 countries.
Foreign direct investment represents an attractive source of capital for developing countries. The investment return will be related to the commercial success or otherwise of the enterprise, unlike the interest paid on an ordinary loan. It can assist the process of industrialisation and help to increase employment, introduce new skills and transfer technology. However, such investment has been inhibited by investors' concern about non-commercial or political risks. The agency has been created to counteract that.
156 International efforts to establish an agency providing multilateral insurance began in the late 1950s, but did not build up a sufficient head of steam to proceed. In the early 1980s the idea was revived, and the convention establishing the agency was opened for signature in October 1985. To date, 62 countries have signed the convention, including 50 developing countries. Twenty have ratified, 15 of which are from the developing world. The 20 that have ratified have about 23 per cent, of the allocated shares. In order for the convention to enter into force, five developed and 15 developing countries, representing between them at least one third of the allocated shareholding set out in the convention, must ratify it.
We wish the United Kingdom to be among the founder members. We have already played a full role in the preparatory stages, and were the first of the five major industrialised countries to sign the convention. When we signed it last year, Mr. Tom Clausen, then president of the World Bank, noted:The United Kingdom played a key role in the negotiation of the MIGA Convention".We have much to contribute to the agency, particularly during the crucial formative stages.
The agency's main activity will be to offer insurance, in the form of "contracts of guarantee", to would-be private investors. Those investors may come from other developing countries, as well as from the developed world. Four categories of risk will be covered: first, the risk of loss as a result of host Government restrictions on currency conversion and transfer; secondly, the possibility of expropriation of assets by host Governments; thirdly, repudiation risk, where the investor suffers a loss through breach of contract by the host Government, in cases where the investor has no recourse to a judicial or arbitral forum or where the decision of such a forum is unreasonably delayed or cannot be enforced; finally, loss as a result of military action and civil disturbance is covered.
However, the agency will be more than just an insurance agent. It will carry out a number of promotional activities designed to increase the flow of private investment to developing countries. It will disseminate information on investment opportunities, carry out research on investment issues, provide technical assistance and advice as requested by member countries and, particularly important, it will serve as a forum for members for discussion on questions of investment policy. Those activities, and the provision of insurance for particular investments, are intended to be mutually reinforcing. The promotional activities are likely to generate business for MIGA, and as the agency builds up experience in insurance across the developing world it will become better equipped to carry out its promotional activities.
The criteria for eligibility for investors and investments are, at the same time, broad and flexible. Eligible investments must be new and economically sound. The enterprise concerned should be run on commercial lines, and preferably should be in the private sector. Investments may comprise equity interests, loans made by investors with an existing equity interest, or other forms of direct investment as may be determined by the agency's board. One important point is that only investors from a member country may obtain insurance. Therefore, the United Kingdom must join the agency if British companies are to benefit.
157 The general operations of MIGA will be the responsibility of a board of directors, elected by a council made up of one governor appointed by each member. The number of votes each member has in the council is dictated mainly by its shareholding. The indicative shareholdings set out in the convention are based roughly on relative economic weight. Britain is likely to hold about 5 per cent, of the total shares. The board of directors will appoint a president, who will be responsible for appointing the staff of the agency. There are measures under the convention to ensure a reasonable balance of shareholding and representation in the board between developed and developing countries.
The agency is intended to be financially self-sufficient. That means that administrative expenses and insurance claims should be paid from premium income and other revenues, such as returns on invested funds. Initial financial contributions will come from members' share subscriptions.
Under the convention, the agency is specifically directed to co-operate with related international development organisations. I place particular importance on that point. It is to complement existing national and regional investment insurance programmes and agencies. We envisage close co-operation between MIGA and our own Export Credits Guarantee Department. Useful exchanges, in which we have been able to pass on the benefit of our experience in ECGD, have been going on for some time between officials here and those concerned at the World Bank in Washington.
I refer now to the details of the Bill. Legislation is required for three main purposes: first, for the payment of our initial subscription to MIGA, and for certain additional payments; secondly, for certain privileges and immunities for MIGA, its property and personnel; and, thirdly, for the enforcement of awards from arbitration proceedings held under the convention, and the powers of the courts in connection with such arbitration.
The first clause refers to the convention establishing the agency, and notes that parts of the convention are set out in the schedule to the Bill.
The second clause concerns payments to and from the agency. It authorises payments for the United Kingdom initial subscription. That is likely to be, in total, just over $52.5 million. Ten per cent, of that will be paid in cash, a further 10 per cent, will be deposited in promissory notes, and the remainder will be callable. The clause also authorises the Secretary of State, with the consent of the Treasury, to make other payments under the convention by order made by statutory instrument. Any such order would have to be approved in draft by this House. Similar provision is made for the payment into the Consolidated Fund of any sums received from the agency.
The third clause provides that certain privileges and immunities, as set out in the convention, shall have the force of law in the United Kingdom. That is subject to certain protective provisions and arrangements. Privileges and immunities along those lines are standard for international institutions of this type. The relevant articles of the convention that confer the privileges and immunities are reproduced in the schedule to the Bill.
The fourth, fifth and sixth clauses relate to arbitral proceedings held pursuant to the convention. Under the convention, certain disputes between MIGA and its 158 members and ex-members, should they ever arise, are to be submitted to procedures including arbitration. The convention also provides that any awards rendered in such proceedings are to be enforceable as awards of the courts in member states. That obligation is given effect by clause 4, which provides for the registration in the High Court of such arbitral awards, and for their enforcement as if they were judgments of that court. Clause 5 extends the power to make rules of court required to give effect to clause 4. Clause 6 authorises the Lord Chancellor to make orders to apply provisions of the Arbitration Act 1950 concerning procedural matters—for example, the attendance of witnesses and the production for documents—to such arbitration proceedings, were they ever to take place in the United Kingdom.
The seventh clause concerns Scotland. It provides for the application of the Bill there, and substitutes appropriate references to the Scottish legal system for certain expressions used in clauses 4, 5 and, the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) will be delighted to know, 6.
The eighth clause—it will give the hon. Gentleman as much gratification as the seventh clause—provides for the application of clauses 5 and 6 to Northern Ireland, with appropriate references concerning the courts and arbitration there.
Clause 9, the final clause, says that the Bill will come into force on a date to be appointed by the Secretary of State. It is intended that the appointed date will be the date when the convention enters into force for the United Kingdom. It formally extends the Bill as a whole to Northern Ireland. It gives power for the provisions relating to privileges and immunities and to arbitration to be extended, with appropriate modifications, to the Channel Islands, the Isle of Man and any colony. That power is to be exercised by Order in Council.
There is also a schedule to the Bill. It contains various articles of the convention that are specifically referred to in the Bill, together with certain related articles. Hon. Members will find that the complete text of the convention was published in June of this year as Cmnd. 150.
I believe that the agency is a welcome new recruit to the battalion of financial institutions which are designed to promote development in developing countries. Its arrival on the scene is certainly timely. As my right hon. Friend the Chancellor of the Exchequer announced in his Autumn Statement, our aid budget is set to increase in real terms over the next three years. Official funds are therefore set to play their part in the development process. New commercial bank lending to developing countries has declined sharply in recent years, because the banks have wished to reduce their exposure and because developing countries have sought to contain their debt service obligations.
The agency is designed to promote the flow of capital and technology for productive purposes to the private sector in recipient countries. It therefore conforms to our view that private flows to developing countries should in the long term, be mainly in the form of project or equity investment, rather than of bank lending for general balance of payments support. It conforms equally to our conviction that we must do more to help the private sector in the developing world. That should be one of our priorities—a priority for all donor countries and also 159 for multilateral donor institutions. The Bill will allow us to play our full part in the new agency, and I wholeheartedly commend it to the House.
§ Miss Joan Lestor (Eccles)
I agree with the Minister. The Bill is likely to be one of the less controversial matters to come before the House in the next few months. As he has given a detailed explanation of the Bill, I shall not go into the details of it. I begin by confirming the Opposition's support for MIGA. We hope for an early ratification to enable it to begin its operational life as soon as possible. As the Minister said, the purpose is to encourage foreign direct investment in developing countries, mainly by offering to private investors guarantees against non-commercial risks.
We offer our support because we recognise that development is about partnership—the partnership of official aid with private charities and commercial companies. All of them together can make their contributions, working with Third world countries towards the common goal of economic development. Foreign direct investment has always had a legitimate, if controversial, role to play in the development process.
We welcome the World Bank's initiative, because the prospect for finance for development in the Third world is gloomy. The Third world is facing financial strangulation through lost earnings caused by collapsed commodity prices, increased debt service burdens and a sharp curtailment in the availability of private finance. Between 1981–86, total net financial flows to developing countries have contracted sharply—from $139 billion to $84.7 billion in current dollar terms. That dramatic decline has occurred almost entirely in private flows. The steepest falls have been in bank lending and export credits, which last year fell to one tenth of their 1981 levels. Foreign direct investment has similarly contracted. According to the OECD, net direct investment fell by more than half of its 1981 level of $17 billion to $7.6 billion in 1985.
In response to the recession of the early 1980s, the private sector, far from embracing the challenge of enterprise in developing economies, has turned on its heel and fled. For many countries, trends in direct investment, bank lending and provision of export credits move together. The judgment of the market place on Third world creditworthiness, growth and export potential has provoked the private sector's ungainly retreat from the business of overseas development. Therefore, Opposition Members are delighted that the international public sector, in the form of the World Bank, is offering a helping hand to those faint hearts in the private sector. MIGA is really an extension of the international public sector, offering confidence-boosting measures to timid entrepreneurs.
§ Mr. Nicholas Soames (Crawley)
Would the hon. Lady agree with me—I do not seek to make a party political point—that the experience of the private sector in developing countries has been an unhappy one, in most cases through no fault of its own? Many companies have been badly treated. An important aspect of the MIGA convention is that it will enable companies to have a good deal more confidence when they are badly treated.
§ Miss Lestor
I would not disagree with that. One of the reasons for the convention, as the Minister mentioned, is to provide safeguards and stimulate companies to go in the direction in which we want them to go.
160 For that reason and others, Opposition Members welcome the collaboration to which I referred. We recognise the validity of public and private partnership to promote growth and development. We are happy to extend what our Tory opponents often call the nanny state to multinational corporations. We hope that MIGA will help to persuade the private sector more readily to invest in the Third world, and restore the loss of finance that has occurred in recent years. We are realistic, however, in recognising that for the foreseeable future the role played by foreign direct investment in development will remain very small.
Although monetarists ignore the evidence, foreign investments cannot replace the crucial role of official development assistance. For many developing countries, especially the poorest, aid remains a crucial source of income to finance development. To most of them, the apparent luxury of hosting foreign investment is not available. Most foreign investment occurs in the industrialised world, which accounts for about three quarters of the total. The remainder is heavily concentrated in a few higher income nations, notably in La tin-America and Asia. The largest such recipients include Brazil, Mexico, Hong Kong and Singapore. In marked contrast, the low-income countries hardly gain any foreign investment at all. Between 1980 and 1983, for example, Africa obtained only 3 per cent, of world overseas investment.
Figures for the United Kingdom show a similar pattern of concentration on the industrialised and richer developing countries. In 1985 only 16 per cent, of United Kingdom overseas investment, worth £ 1 .4 billion, went to the developing countries, and Africa received only £95.4 million—just 1 per cent, of total United Kingdom foreign investment.
Those figures serve to illustrate the fallacy of the argument that private investment should take over the aid role. Despite the yearnings of Lord Bauer and others, the major multinational companies will not fulfil the theorists' aspirations. Africa does not loom large in boardroom agendas. For the poorest countries, the majority of which are found in Africa, official aid will remain the primary source of foreign finance. Last year, for example, 73 per cent, of the region's external finance was accounted for by official aid.
Even the better-off developing countries are becoming more, rather than less, dependent on aid. In 1980 the upper-middle income countries relied on aid for only 11 per cent, of their total financial inflows. Now aid accounts for 33 per cent., as a result of the sharp drop in bank lending and other forms of private sector finance. While we welcome the MIGA initiative, we have no illusions about the potential for foreign investment. It is no viable substitute for official aid and the Minister did not try to pretend that it was. It is official aid, well planned and well spent, which provides the firm foundations on which private investment can grow. Few companies are prepared to undertake the primary investment in infrastructure and so-called human capital that is required in the less-developed countries. Official aid, free from the constraints of commerce, can provide the necessary long-term provision of concessional finance. It is the public sector which must act as the pioneer, creating an environment in which private investment will eventually occur.
For those and other reasons the Labour party has strongly opposed the successive cuts in the aid budget. In 161 1979, when Labour left office, the absolute level of aid spending in current prices amounted to £1.6 billion and stood at 0.52 per cent, of GNP. Since then, United Kingdom aid has fallen to a mere 0.32 per cent, of GNP. If the real level of annual aid spending had merely remained constant at the 1979 level, the United Kingdom aid programme would have benefited cumulatively by a staggering £1.6 billion.
It would take many years of sustained aid increases to match the performance of the last Labour Government. The prospect of reaching the United Nations aid target of 0.7 per cent, of GNP seems even more remote. We all welcome the recent small increase announced in the Autumn Statement of about 1 per cent, in real terms, but the Government's overall aid performance has been shortsighted and ungenerous. Britain has tumbled down the league of international generosity. We led the aid donors of the Group of Seven industrialised countries in 1979, whereas today we are in fifth place.
What kind of leadership does that abysmal record offer to our major companies? A large and expanding aid programme would be the best catalyst available to encourage just the kind of foreign investment that it is hoped that MIGA will serve. I take this opportunity to urge the Government again to reaffirm their commitment to reach the United Nations target for official aid and to set a timetable of annual aid increases to achieve that target and to encourage other forms of investment. We must also ensure that our aid budget and the programmes of the major international agencies, such as the World Bank are of the very highest quality. Good projects and sound development are the best kind of investment. Too often, donors have favoured projects that suit their own commercially-based interests and not those of the recipient country. Fortunately, today there is a much greater awareness of the risks of aid-funded "cathedrals in the desert".
There is also much greater recognition of the need to focus development on human needs, and I hope that MIGA will contribute towards that. In the mid-1970s, the World Bank played a major role in shaping the debate about so-called basic needs and the strategy of redistribution with growth. After Robert McNamara left the bank and the chill winds of laissez-faire swept around Washington, these ideas seemed unfashionable. Today, the bank is returning to the agenda of the alleviation of poverty.
That turnaround is encouraging. It proves that concern for basic needs is not simply humanitarian but is a prerequisite for sustained economic growth. It is a strategy of investment in people. To ignore that dimension is, to quote Richard Jolly of the United Nations Children's Fund.an economic error of the most fundamental sort. Much evidence already exists of the economic returns to investment in human resources. To fail to protect young children at the critical stages of their growth and development is to wreak lasting damage on a whole generation, the results of which may well have effects on economic development and welfare for decades ahead".Richard Jolly's analysis is humanitarian and it presents an economic case which is of fundamental importance to the promotion of foreign investment in the Third world.
Ultimately, the best guarantee of security for foreign investors in any country is a secure, well-fed and healthy 162 population. Poverty, hunger and disease are the primary causes of the instability that commercial investors fear. MIGA can play its part, but without sustained effort by the international community to promote human welfare and economic development, the present decline in overseas investment is unlikely to be reversed.
Action to deal with the debt crisis is also urgently required to stimulate fresh flows of investment. The severe debt-induced austerity, in both Latin America and Africa, is causing a major slowdown in economic growth and investment.
Therefore, we strongly support efforts to achieve debt relief both in Latin America and Africa. We endorse the Chancellor's efforts to promote a plan for debt relief in sub-Saharan Africa. Bipartisan support for this initiative is warranted given the scale of Africa's plight, but since the debt plan was initially put into effect by the previous Labour Government, we have no difficulty offering our approval. Indeed, given that the agreement to convert former aid loans into grants was negotiated in 1978 by my friend and colleague Dame Judith Hart, I think that in the interests of determining accurate parentage we should stop talking of the so-called Lawson plan and refer now and again to the Hart plan. In any event, I hope that the Minister will prevail upon the Chancellor to acknowledge in at least one of his speeches on the subject of debt the Labour origins of his African debt proposals.
I hope that the forthcoming meeting in Paris will make real progress on African debt relief. There really is little chance for such countries to attract foreign investment while debt burdens are hung round their necks. Steps to improve their creditworthiness will also enhance their investment appeal.
Of course MIGA's purpose is to offer guarantees to private investors. That is a fair point, but it is also fair to ask what guarantees are offered to developing countries that accept such investment. The recent history of international investment and the growth of multinational companies provide plenty of fuel for controversy. The case of ITT and its attempts to destabilise the democratically elected Allende Government are, of course, well known—and brilliantly documented in Anthony Sampson's book "The Sovereign State: The Secret History of ITT". One must hope that malpractice by multinationals on this scale is rare. However, legitimate anxieties remain, about, for example, the practice of transfer pricing and other devious accountancy tricks designed to defraud Third world Governments of tax receipts and other income.
The tragedy in Bhopal highlights other risks. It is almost three years since the world's worst industrial accident killed at least 2,500 people, but the argument about responsibility and compensation still rages on. The Union Carbide company has tried to distance itself from its local subsidiary, even though it holds over 50 per cent, of the Indian company's shares. Meanwhile the Indian Government are suing for $3 billion on behalf of the claimants. This appalling case clearly shows the need for a clear definition of responsibilities and liabilities of multinational companies.
While MIGA is a timely initiative, it is disappointing that more progress on offering guarantees to developing countries has not been made. In the long run, more transparent and legally enforced principles to govern foreign investment will be required. While regulation and control of multinationals may seem unfashionable, it 163 would build confidence between both the investor and the host Government. That is what we want to see if investment is to take off as we hope.
Today it seems that the international community is concerned only with the interests of private sector investors—predominantly multinational companies that are among the most powerful institutions in the world. We trust that MIGA will display broader concerns, building on the work of its parent, the World Bank. We hope that MIGA will concentrate its activities on the poorer developing countries. It must try to persuade investors to risk higher levels of investment in Africa. If it is successful, it can broaden the geographical spread of foreign investment away from the newly industrialised developing countries towards the low-income nations that desperately need foreign capital. It can also facilitate investment between countries in the developing world. So-called South-South investment can complement the traditional patterns of investment from North to South.
MIGA must also ensure that the investment that it supports is of the highest quality. In recent years the World Bank has suffered justifiable criticism for environmental short comings of some of its larger development projects. The new World Bank president has addressed these worries and seems willing to improve project appraisal to take account of the impact on the environment. MIGA must follow the bank's example and refuse to guarantee any investments that fail to meet stringent developmental and environmental criteria.
The task facing MIGA is challenging, it must encourage investment in the best projects in the most difficult countries where entrepreneurs fear to tread. We shall watch its progress under the guidance of the World Bank with much interest.
§ Mr. Jim Lester (Broxtowe)
It is a great pleasure to follow the speech of the hon. Member for Eccles (Ms. Lestor), my namesake, on an issue where, yet again, we speak with a common voice and enthusiasm about something involving the developing world and the interdependent world. We frequently share platforms on this issue and, although I will not follow her down some of the routes spelled out in her speech, I join her and my hon. Friend the Minister in welcoming this Bill and the agency.
When we are looking at the World Bank and the change in the pattern of its lending, the hon. Lady and many of our colleagues will remember that the House sent a letter to Barber Conable. It was signed by 250 Back Benchers, roughly an even number on both sides of the House. It spelt out the direction and the pattern that we thought the World Bank should follow. Apart from the percentage argument, my hon. Friend the Minister agreed with that letter. It was a helpful move to show the way that many people feel. The letter was also supported by the Australian Parliament, the Canadian Parliament, members of the Senate and members of the Congress. Therefore, the question of interdependence and the transfer of resources in a meaningful and worthwhile way to the developing world is of wide concern.
I also congratulate my hon. Friend the Minister on increasing the aid budget this time round. As one who has spoken on every occasion and even voted on this issue against my Government, I am interested to see that there is now a reversal of the original programme. However, we 164 can become too mesmerised by the 0.7 per cent, of GNP. Frequently on public platforms, I have been able to point out that it is possible to put together an aid programme of 1 per cent, of GNP that would be going to the poorest countries in the world but still would not help any of the really poor people in those countries. It is important to increase the aid budget, but it should be increased as effectively as possible. That is why it is possible to give an enthusiastic welcome to the agency. It is another way of ensuring the effective transfer of resources in another direction into the developing world.
We all recognise that the three flows—trade flows, aid flows and private direct investment—all have a role to play. It is important that we recognise, especially through the difficult times of the past few years, that trade flows especially have declined and, as has been pointed out already, so has private investment and private flows. Therefore, aid flows still retain an essential role.
With this organisation, we seek to ensure that those countries most in need and which are always at the tough end of the stick, as we say in my part of the world, get a better deal. It is true that, naturally and sensibly, commercial decisions will be made to invest where there is likely to be the greatest commercial return. That would not be sensible otherwise. With this form of guarantee and help, companies will see that there are good commercial prospects in those African countries. The guarantee will mean that the argument in the boardroom about whether the company should invest here or there, and the myths about a country's record can be dealt with. It is a natural guarantee of the sort that most sensible people would seek.
I am also delighted that we are a main role founder member of this organisation. I welcome the partnership struck between my hon. Friend the Minister for Overseas Development and my right hon. Friend the Chancellor of the Exchequer in this key area of increased transfer of funds and the interdependent world. This is important, as the Chancellor made clear to the interim committee in plenary session when the matter was introduced. He said:This morning I signed a convention which makes the United Kingdom a founder member of the Multilateral Investment Guarantee Agency. I have long said that flows to the developing countries should be increasingly in the form of private equity investment rather than Bank lending. In my speech to the Annual Meetings of the IMF and the World Bank in 1984, I expressed the hope that we should be able to bring to fruition a workable plan for the insurance of private overseas investment. I am delighted that we have done so. This should make a real contribution to removing the obstacles to private investment in the developing countries.In September of this year, the Chancellor said to the development committee:The World Bank Group has an important role to play in encouraging private investment flows. I welcome the setting up of the Multilateral Investment Guarantee Agency. The United Kingdom was an early signatory and we have already embarked on the parliamentary procedure for ratification. I hope that MIGA can begin its operations as soon as possible.It is welcome to see the Treasury, not the most prominent body in aid and development, recognising the importance of the interdependent world and the need for the transfer of resources, and being prepared to take a lead in bringing this about. I am unstinting in my praise for the way in which the Chancellor has set out the issues involved in the debt problem, which will become overwhelming unless other agencies show greater urgency.
I do not disagree with the hon. Member for Eccles about the original transfer from aid loans to grants. There 165 is no reason why we should not ensure maximum bilateral understanding and support. However, some people believe in transferring back from grant aid to loans as a preferable system. The battle is not over. We must maintain those values in which we believe and extend them to our European colleagues, and particularly to such countries as Japan. Unless we do this, there is little hope for those sub-Saharan African countries who carry most of their debt with the official agencies rather than with the private sector.
This partnership is valuable and worth supporting. I hope that hon. Members who take an interest in these issues will ensure that their support is known. We are all good at criticising when we do not like things. Occasionally, it is useful for both sides of the House to come together and support something, and let that message be known, rather than constantly harping and criticising. This will help to ensure much wider contact with those countries which we are seeking to help. Those of us who take an interest in these matters know that official aid flows, although important, tend to go from Government to Government, so contact is through Governments, rehabilitation commissions and their parastatals. These countries have a wider infrastructure and it is important to involve that infrastructure.
Recently I was in a refugee camp in Djibouti, in Dikhil, where refugees from the Ogaden war have lived for some eight years. They trade and are entrepreneurs. They may trade with the world programme for food, but it is the only way in which they can operate. They sell food in the town so that they can afford to buy things. That is not the sort of thing that private investment will take up, but the point is that in every person, however poor or destitute and whatever his status, there is an instinct to do something to improve himself. Whatever country one goes to, one finds people in a better way of business who will welcome this input and the possibility of partnership.
Often this is a tender flower. Some countries such as the United States try to make the growth of the private sector in developing countries a measure of success and of whether they get further aid. Those countries should be very careful. In countries such as Jamaica, which do not have a commercial background or a tradition of development business, if the prospect of commercial return is applied too quickly and too harshly and if people are expected to go from zero to producing a commercial return within two to three years, that will kill off the very entrepreneurial spirit that we want to encourage.
Many of us strongly support the bank system, where people are given time to develop their business and management instincts and all the things which are required in a successful entrepreneurial development. In regard to the discussions, I remind my hon. Friend that one needs to set realistic targets and potential for the investments which we encourage. We must not go too far too hard and therefore defeat the whole object.
I do not think that the Bill is designed to give weak-kneed entrepreneurs protection where they will not proceed themselves. I think there is a reasonable prospect of their needing protection against the very things that MIGA is established to do. It is difficult to make a commercial decision based on war expropriation of assets by host Governments and exchange restrictions. As I travel through Africa, companies ask me to see if I can do 166 anything to facilitate the repayment of money that is being held or to encourage the repatriation of profits, because that would help them to make more investment in those countries. That is a real and understandable concern. Therefore, it is not unreasonable that a guarantee agency such as MIGA should give an assurance against unreasonable risk, if I may put it like that. Reasonable risk in a traditional investment is fine, but this is unreasonable risk.
I am sure the agency will be welcomed by those with an interest in the developing world. Many multinational companies have not just a commercial interest in but an overall commitment to world development. Many of us recognise that the future of our standard of living is in investment in the developing world. There is no way that the developed world will trade with itself for ever more. Therefore, the change of emphasis towards realistic investment in the developing world is essential and should be encouraged.
The agency will be widely welcomed in the developing world itself. My hon. Friend referred to the signatories, the countries which hopefully will be recipients of the private investment. Another valuable element in the Bill is that, in the discussions between various partners and shareholders, there will be agreement and wider education hopefully on both sides about what is needed to make successful private transfers and investment.
For all those reasons, I welcome the Bill. I hope that, when the agency's title was proposed, consideration was given to what the acronym would sound like. I hope that MIGA by name will not be meagre by nature. I hope it will be generous and supportive. I would perhaps prefer to give the body its full name, the Multilateral Investment Guarantee Agency.
§ 5.9 pm
§ Sir Russell Johnston (Inverness, Nairn and Lochaber)
I am happy to follow the hon. Member for Broxtowe (Mr. Lester), whose record on aid has been so consistent and enlightened. Evidently this is not a controversial measure. It is a limited proposal—useful, effective and constructive, but not exactly far-reaching. Indeed, when one realises that the agency's authorised capital will be only one thousandth of the total value of Third-world debt, one appreciates the scale of the thing, which is why I had exactly the same thought as the hon. Member for Broxtowe has just enunciated about the acronym "MIGA" and the word "meagre". If I have worked out correctly the pound-dollar relationship, we will have to contribute directly and immediately between cash and promissory notes roughly £7 million or perhaps more, because the United Kingdom contribution is $10 million. That is not very much.
While I welcome the Bill, like all hon. Members who have spoken, I find it difficult to get ecstatic about it. I spent three weeks in Brazil this autumn and saw directly the consequences of the debt crisis. Having spoken with representative politicians and economists from President Sarney downwards, I think the ongoing delay in facing up to the problem is the urgent, dominant issue.
Although it is beyond the direct purpose of the Bill, I thought that the Minister might have taken the opportunity to make wider references to the most up-to-date thinking of the Group of Seven. These things move very slowly. From the Seoul meeting which established the agency in October 1985 to ratification has taken more than 167 two years. One wonders whether there is a more rapid system of doing these things, particularly since in the end we are not talking internationally about vast sums of money but about agreement on a limited sum.
As the Minister said, MIGA is not a new idea, but it is good to see it finally put into effect. One hopes that it will enable more foreign investment in profitable production which will be of value both to underdeveloped countries and independent companies and enable them to build a mutually beneficial partnership. MIGA is a small international industrial insurance company. I congratulate the Government and the Minister. I welcome the agency and the United Kingdom's involvement. I hope that it will be a harbinger of determined wider action to tackle the major issues of Third-world debt.
§ Mr. Nicholas Soames (Crawley)
First, I should like to congratulate my hon. Friend on the speed with which the matter has been brought before the House. It is a remarkable tribute to the British Government that they should have been singled out particularly for the effort that went into establishing MIGA and for the work that went into framing the convention. Like hon. Members on both sides of the House I greatly welcome this important extension to facilitate trade in the Third world.
No one could sit on this side of the House without reflecting how great is the interest among Opposition parties in the Third world. It is a sorry day for the House when so few hon. Members have come to take part in this debate on what is, after all, a very important matter which greatly affects several countries which are great friends of ours. This convention will play an important part in increasing the flow to developing countries of private equity investment, instead of bank lending.
I entirely agree with the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) as to the consequences of this terrible over-lending for some developing countries. However, I would like to pay tribute to my right hon. Friend the Chancellor on the particularly enlightened work which the Treasury has undertaken recently. I understand that a good deal of discussion is taking place as to what further steps Britain might be in a position to take to assist Third-world countries in resolving their terrible debts which undoubtedly make their difficult lives even harder. This is therefore an important step in facilitating non-debt-creating capital flows. As my hon. Friend the Minister said, our aid budget will increase in real terms during the next three years.
That is an important achievement on the part of my hon. Friend, and I hope that all sides of the House will acknowledge the wisdom of the Treasury in agreeing that this should go ahead. Nothing could be more timely, with Ethiopia being on everyone's mind at the moment, and the heightened publicity that has been given to it. Although this may not be the right forum for it, I must say that I hope that my hon. Friend will do all he can to ensure that, if a request is made, the Royal Air Force Hercules are released again to facilitate food distribution in that most unhappy country.
Nothing could be more timely than to try to facilitate the extension of private sector investment in developing countries. Indeed, private sector trade with developing countries is critical to their future. I think that British industry is not aware of the many opportunities that are available in the Third world. However, in fairness to 168 British industry—the hon. Member for Eccles (Miss Lestor) is not in her seat; I do not mean to speak behind her back, but she was a little unfair when she spoke about weak-kneed entrepreneurs—British companies have had a wicked time in the Third world.
The Third world is scattered with the relics of British companies, some of which have been bankrupted by sequestration of assets, by war and by famine. British business has every right to view with extreme caution, and some cynicism, the opportunities that are available to it. Nevertheless, having regard to the fact that there are many substantial opportunities, with a little assistance and with a little push, British industry could play an important role.
The MIGA convention is an extremely important extension of a highly effective aid programme. My hon. Friend at Question Time recently made much of the tributes paid to the British aid programme. I have seen that aid programme in operation in some parts of the world, and would like warmly to endorse those tributes. Our aid programme is marked by the effective way in which we give aid, by the direct way in which it helps those who most need it, and by the fact that we are not hidebound in our thinking, but all the time look for the most effective and easy way to facilitate the lot of Third-world countries. It is a valuable extension to the many different types of assistance that we make available to industry to help its trading efforts. I hope that British industry will respond positively, pick up the opportunity and run.
Not before time, there is a new realism in developing countries. Even in the most shambolic, private equity investment is now welcomed with open arms. British industry, with the Confederation of British Industry, and other local industry bodies, should carefully assess the countries that they believe are the most likely to welcome the provision. They should then select the projects that are easiest to fund and the countries in which MIGA guarantees will be extremely important to the overall success of any project.
I hope that the private sector will seize the extended opportunity offered to it by the convention. To murder a great saying of Mark Twain, this is one of the few occasions when a banker is likely to lend one his umbrella before it starts raining.
§ Mr. Michael Jack (Fylde)
In opening my remarks on this important international development, I should like to say how glad I was to hear that when my hon. Friend introduced the Bill he laid emphasis on the fact that all sections of the United Kingdom would specifically be named and have the opportunity to benefit from the MIGA measures. That may help to heighten awareness of in all parts of the kingdom of the opportunities that are afforded by this interesting development.
I was touched equally be the remarks of the hon. Member for Eccles (Miss Lestor) who, sadly, is not in her place at the moment. She drew the attention of the House to a matter that is of great concern to the entire world —the worsening terms of trade, especially for Africa. I have recently had the privilege of being a member of an all-party delegation that visited the United Nations. In some of our many discussions during that interesting visit, it became clear that the problems of Africa and of the terms of trade will be with us for many years to come. The present financial problems of the world are amplifying 169 those difficulties. That is why any measures that can be introduced to increase the amount of investment and thus trade in the world must be seen as positive contributions.
During my time in New York, I became aware of another matter that we miss in the somewhat cloistered surroundings of the Palace of Westminster—the way in which people in other parts of the world perceive what we are doing. That was brought home to me most forcefully when visiting the United Nations Children's Fund. Dr. Richard Jolly, who has been mentioned in the debate, told us how grateful he was to the hon. Members who had signed an early-day motion praising the work that had gone into securing immunisation facilities for people in the Chatila and Bourj el Barajneh camps in that strife-torn and trouble-ridden country of the Lebanon. He said that the text of the early-day motion had reached Lebanon and had given great courage and heart to those who were involved in that vital work.
I cite that as an argument that what we do here this afternoon will no doubt be communicated to other countries that are considerably less well-off than ourselves as a gesture and statement of how important we consider the subject of finding ways, other than direct governmental intervention, of improving opportunities for investment in those countries. The development of the private sector throughout the less-developed world is most important. That was another theme that came out of our discussions at the United Nations, especially on the United Nations development programme. Even in its environmental strategy, for example, it sees an important role for private venture and private capital.
Although the measure may act as a catalyst to encourage private involvement, we must also recognise the need, as other hon. Members have already suggested, to develop an economic regime that can respond to private investment. I am delighted that the United Nations has taken such a leading part in monitoring such measures through its Economic and Social Council.
It is worth putting the MIGA measure into context. The report of 4 February 1987 by the Commission on Transnational Corporations, which was made to the United Nations, sees the MIGA measure as part of a much wider attempt to try to gain co-operation in commercial matters. That growing commercial partnership has covered areas such as consumer protection, international trade law and even pesticide use. Therefore, it is part of a wider development in the world to try to combine various efforts, and should not be seen simply as an isolated example.
I should like to pay tribute, through my hon. Friend the Minister, to the fact that the United Kingdom is a founder member of the MIGA development. It is good that this country has been seen to be taking the lead in yet another important stepping stone on the way to international cooperation in this vital work. It focuses again on the important point that Britain is taking a leading role in the international community where specific projects are involved.
I have already mentioned the United Nations development programme. To that I should add a tribute to our work and contribution to UNICEF. I know how strongly we as a country were praised when we visited the United Nations. I feel certain that, if we returned, we should be thanked for our support for MIGA.
170 In my business activities before entering the House, I faced the problem of assessing overseas investments. The measure is about minimising risk. Although Portugal is now a member of the Common Market, the company for which I worked considered investing in Portugal's agricultural activities before Portugal began its journey into membership of the Community. After one had visited the underdeveloped part of that country—underdeveloped in the sense that the infrastructure had been built by the Salazar regime but then deserted because investors had become worried about the political risks of that regime—one was left wondering why nobody was developing that part of Europe. The recurring answer was, "We are not sure how certain our investment will be."
I am sure that, when looking around the world, at parts of Africa and South America where stability is always an issue, many people will welcome the MIGA proposals because they underwrite the answer to the question, "Is it a safe place to invest?" Addressing that problem, together with the other forms of commercial insurance that are available, will underpin people's intentions to invest internationally.
I recognise that the other problem facing any such development is world debt. That was brought home to me by an article in the Financial Times of 27 March 1986 which stated:Debt service payments by developing countries exceeded new borrowings by an estimated $22bn in 1985, according to figures published today by the World Bank."Certainly, the $1,000 billion total of liabilities for 1986 —that is according to the World Bank—amplifies the major problem of Government and bank lending that is faced by the less developed world.
Therefore, the MIGA proposals open the door to a new tranche of investment capital that could be put into those areas of the world. Most importantly, the generalised projects can be targeted to specific activities and the risk can perhaps be more carefully assessed in terms of economic investment potential and the cover that could be afforded by the proposals. The proposals will assist in generating that additional investment capital and help to counter the problems of the debt burden.
The record of foreign private investment is a sad tale. In 1981, for example, $17 billion was invested, but in 1984 that amount had dropped to $9.3 billion and that is a matter for considerable concern. As this country and the Western world in general have pulled out of a recession, corporate sector profits have increased. When the Minister spoke of training, hon. Members made reference to the use of those profits and suggested that more money should be put into training. Private enterprise companies in the Western world should reconsider their priorities and consider the use of such increases in funds.
One of the other major effects of the MIGA initiative is the fact that—it has not come out in the debate so far—the agency will offer to encourage and advise on investment decision-making in the Third world. That is extremely important. We are not talking about little bits of charity going to unspecified activities. We must consider it as a two-way process and try to encourage the correct identification of possible investment targets. That is clearly laid down in the proposals for the MIGA convention. I commend that advice and encouragement as I believe that that is a fundamental effect of the measure and it means that we can get excited by this initiative. It is a positive tool.
171 However, I am rather concerned about the American continent. I was delighted to learn that the South Americans have warmly taken to this measure. That region has presented difficulties for private investment. However, when the Minister replies, I hope that he will address the question of the United States and its contribution to development. I am somewhat unclear whether the Americans fully support this measure. Obviously, I am aware of their difficulties vis-a-vis the United Nations' contribution. However, I should like to be reassured that they will fully participate, because their participation is important in making the package credible.
The measure is an important additional back-up facility to our own export credits guarantee activity. The maximum liabilities to which we are presently committed—as reported in the export guarantees overseas investment annual report by the Secretary of State for Trade and Industry on 31 March—are only £150 million. Obviously there are facilities to expand the amount of trade that can be backed. If the MIGA proposals receive the right amount of publicity it will enable people to understand that not only can the political risks be covered, but that there is an obvious possibility for commercial risks to be covered. Indeed, the two go hand in hand.
If the House passes this Bill and it eventually becomes an Act, I ask the Minister that we take seriously the promotion of opportunities for investment in the most risk-free way. It is important that the Government take the responsibility to get the message across to industry. In this country we do a good job in telling people about Department for Trade and Industry back-up for schemes based in the United Kingdom. I suggest that we do likewise for overseas "risk aids".
There is a drawback to any investment activity abroad. When my right hon. Friend the Chancellor of the Exchequer discussed this matter on 25 September 1984 at a joint meeting of the World Bank and the International Monetary Fund, he correctly drew attention to some of the difficulties that affect those wishing to invest. The MIGA proposal tries to take away some of the risks. Indeed, hon. Members have referred to that and the question of bringing funds in and out of the countries involved. However, there are other bureaucratic problems.
At that meeting, my right hon. Friend the Chancellor said:I welcome the emphasis the managing director has given to the importance of borrowing countries taking steps to dismantle or relax administrative or other obstacles which often apply to inflows of direct investment. This is a matter to which I believe the executive board should always pay close attention both in its regular surveillance and in its examination of country programmes. An important advantage to developing countries, especially debtors, of seeking private direct investment is that it can service itself as, and only as, it contributes to profitable output … I hope we shall be able to bring to fruition a workable plan for the insurance of private overseas investment."That last sentence refers to MIGA, but his other remarks refer to removing barriers so that advantage may be taken of something such as MIGA. That is a fruitful area for us to consider.
The measure has a number of practical implications. Before I entered the House I was involved with the fruit and vegetable business. That business draws many of its raw materials from the less developed parts of the world. There is an existing mechanism for that trade through third party agents and trading houses. I believe that that 172 business lends itself—it is a golden opportunity—to direct investment in the countries that are potential suppliers. To that end, I can see a role, for example, for Britain's leading supermarkets. They should talk with their major suppliers in this important industry and discover the potential within the food industry for that industry to invest directly and generate controlled sources of supply—those countries that would produce the raw materials of the right quality for sale in this country.
The sale of Third-world food products is certainly expanding. People are much more willing to try new things. I believe that seeking to lengthen the supply chain and to invest in that chain right back to source would be a good way to take full advantage of the opportunities afforded by the MIGA proposals. MIGA removes politically-orientated risk. It is a catalyst and generates interest in the subject of overseas investment. I commend it to the House.
§ Mr. William Powell (Corby)
Like other hon. Members who have spoken, I welcome the Bill. I congratulate the Minister on introducing it and I welcome his speech. I wish the Bill a speedy passage through both Houses so that it may become law as quickly as possible.
I welcomed the content, tone and style of the speech of the hon. Member for Eccles (Miss Lestor). I would rather that she was not the hon. Member for Eccles. I do not mean that in any personal sense and that is not to say that I would not wish the hon. Lady to be a Member of this House; rather, I recall with great affection her predecessor, Lewis Carter-Jones. I spent many happy moments, indeed hours, talking to him during the previous Parliament. I got to know and love him very deeply and I miss him greatly in this House. No matter how long the hon. Lady stays here and no matter how distinguished her career may be, I shall think of her predecessor as the hon. Member for Eccles. That is not to say that I did not welcome the hon. Lady's speech and indeed, all the other contributions that have been made.
The personnel in debates on aid have changed a bit since I had the privilege and pleasure of being the bag carrier, as Parliamentary Private Secretary, to my right hon. Friend the Member for Aylesbury (Mr. Raison), when he was the Minister for Overseas Development. The hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) is still here, as he was in those days when he was accompanied by the hon. Members for Vauxhall (Mr. Holland) and for Monklands, West (Mr. Clarke).
§ Mr. William Powell
Yes, indeed. In fact, the hon. Member for Carrick, Cumnock and Doon Valley is the only face that I recognise today apart from that of my hon. Friend the Member for Broxtowe (Mr. Lester), who was always present when overseas matters were discussed in those happy days not so long ago. Indeed, the Minister is extremely lucky to be able to carry on the work that was undertaken by my right hon. Friend the Member for Aylesbury during his years at the Department. I know that he is assisted by officials of the highest calibre, who are deeply devoted to their work. They do magnificent work, not only on behalf of this country, but on behalf of many people elsewhere.
173 The hon. Member for Eccles made an important point, on which it is worth dwelling for a moment. Inevitably, in a debate of this kind, hon. Members will tend to concentrate on the backcloth to the Bill, and try to put it into the context and perspective of the general aid scene. The hon. Lady's point about equality of overseas aid was as important as any that can be made on this subject. My hon. Friend the Member for Broxtowe (Mr. Lester) said that it would be possible to devote 1 per cent, of our gross national product to overseas aid, and for the quality of that aid to be no higher than it is at present. That is undoubtedly true—it is possible to spend aid money badly, just as it is possible to spend it well—but we owe it to those whom we are trying to assist to spend every pound of our overseas aid budget in the most effective way.
I must confess that, although I concede that certain multilateral aid agencies do outstanding work, I have— alas—a bias against working through many such agencies. Unfortunately, the quality of the aid with which the European Community has provided some Third-world countries has not been as effective as it should have been; I regret to say that that applies to some of the contributions made down the years by UNESCO. However, I feel that the central thrust of British aid has been as well directed as we are ever likely to make it. We have had some castles in the desert, and that may happen again in the future, but we are becoming more experienced.
We should try to channel as much of our aid as possible into infrastructural development—the building of roads and bridges to open up communications systems in countries that will then be able to operate more economically. We must also try to channel as much as we can through private development agencies such as Oxfam, Christian Aid and some of the charities run by the Roman Catholic church. All those agencies are working at local level, and all contain people who are experienced in agricultural and agriculture-related schemes. Such schemes may have a much greater impact than the building of international airports, and other such huge projects.
I hope that we will do everything possible to maximise the quality of our overseas aid contribution, and try to eliminate schemes that are grand in their conception, inefficient in their execution and disastrous in their long-term consequences. The Bill will give us a modest additional resource, which—as the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) pointed out—will enable us to do exactly that. Mistakes made in the 1960s and 1970s had a disastrous environmental effect on some of the countries that we are anxious to assist, and we must avoid such mistakes in the future. Deforestation, for instance, will have a profound long-term impact on the countries that have been affected by it.
My hon. Friend the Member for Crawley (Mr. Soames) spoke of the need to stimulate private industry and enterprise. What worries me is that, at present, the big fish in the commercial sector seem to benefit most. Companies such as GEC and Plessey are the most anxious to become involved in aid work. I do not for a moment deny that they have been involved in projects of considerable importance to the countries where they have been working, and, if they have managed to make a profit at the same time, I shall 174 not complain. However, it is important to encourage companies that have not been involved in such projects to invest in the Third world.
As my hon. Friend the Minister knows, my constituency contains a thriving—indeed, booming—small manufacturing sector. Many of those companies have never been involved in any kind of international trade. They would not know how to go about becoming involved—trying to identify markets where they can assist, and to master the rules that they must follow if they are to trade successfully and prosperously. I hope that some kind of sponsorship can be found—perhaps using the mechanisms mentioned by my hon. Friend the Member for Crawley, such as the CBI or local enterprise agencies, or perhaps more direct sponsorship through seminars organised by my hon. Friend's Department.
I am not putting forward any definite ideas, but a much more intensive effort must be made to encourage those who have not been involved in aid work to realise that there are openings for them. They may then be able to identify new markets, to the benefit not only of the countries in which they are investing and trading, but of our country as well.
Let me emphasise, however, that one of the most disagreeable features of the development of aid policy in the Western world—and elsewhere—in recent years has been the tying of trade to aid. Too many countries look on their aid budget merely as an extension of subsidies for their own companies to engage in trade. We were not the leaders of that trend, but we have been forced to react to some of the schemes, projects and incentives that have been made available to our competitors. That does not make for good aid, and it entirely misses the point of our involvement in it.
I do not argue for a moment that we should not try to derive advantage, if it is legitimately there, for our own country and our own people from our overseas trade. However, to imagine that the purpose of our aid is simply to tie as much as possible to companies resident in this country is wrong, and is likely to lead to numerous mistakes. Regrettably, that trend has been increasing.
Let me make a final point which I regard as being of considerable importance—something for which we in this country must argue much more clearly. There is no doubt that a few people outside take a considerable interest in the subject of aid. They keep me on my toes in my constituency, and I am sure that all other hon. Members are frequently lobbied by their constituents on aid matters.
Alas, support for the aid programme generally among electors is not strong. In particular, one hears the siren calls of protectionism in some industries to protect them from what they would regard as subsidised sales into Britain from countries such as Bangladesh or Pakistan.
I speak with some feeling on that matter because I represent part of Northamptonshire which has been part of the boot and shoe industry, in which many thousands of people have been engaged down the years. They have found that imported shoes, frequently, but not always, from the Third world, are much cheaper than those manufactured in Northamptonshire.
I have to face constituents, not just in the boot and shoe industry but in the textile and clothing industries, and so on, who complain that they are being undercut by cheap 175 imports. I try to tell them as clearly as I can that we have a choice. Let me single out one prominent and important, although not exclusive, example—Bangladesh.
We either enable trade to grow between Britain and Bangladesh so that it can acquire some economic stability, perhaps even a modicum of prosperity, from what it can sell to Britain, or subsidise it from beginning to end. All that Bangladesh is able to offer us is its manufactured goods—clothes, shoes or whatever—and if that is the cheap product of their cheap labour, we should be willing to accept those goods, offered in good faith. We must tell the British people that we either accept them, even though they are cheaper than those produced by our industries, or the money that we shall have to spend on feeding that country's people will be much greater. In other words, there is a knock-on effect to everything, which is not clearly enough understood in Britain.
It is important that the Northamptonshire shoemakers should concentrate on quality products that cannot be produced in countries such as Bangladesh, rather than chase the mirage of imagining they will be able to produce goods more cheaply than is possible in the primitive low-wage economies in the East. The same applies to the textile industry. It is important that we should get across to our people the message that protectionism against the poorest in the world is a fatally flawed policy which we must resist in all circumstances.
I have inevitably taken some time to canvass issues that may be slightly wider than the narrow provisions of the Bill and that has followed some of what other hon. Members have said. None of the wider aspects that I have highlighted in the aid debate should diminish my welcome to the Bill, but I want to ask two questions which I hope that my hon. Friend the Minister will be able to take some time—who knows, perhaps quite a long time—to reply to.
Will the effect of the Bill be confined to what we traditionally regard as the Third world, or will it be extended to some of those areas which have tended to be excluded from aid provisions but in which it may become politically increasingly important for us to invest? I take the point rightly and forcefully made by the hon. Member for Eccles that it is wrong that our aid should go to countries such as Hong Kong, Singapore and South Korea—the newly industrialised countries. Often they offer the most attractive markets for private industry to invest in, and investment will continue because of that, but it is important that our aid should be concentrated in those areas which have not enjoyed the industrial take-off that has occurred in some areas of the Pacific rim.
Some countries have been devastated by the political and military events of the past decade. All or nearly all of the economic aspects of Lebanon, a formerly prosperous country, have been ruined as a result of its political developments and its people are increasingly impoverished and in need of our sympathetic help to enable them to recover from the recent calamities.
Almost every day we hear from our newspapers how serious the crisis is in many countries of Eastern Europe. Those have been excluded from our aid budgets in the past and, for the most part, we have been content to leave them well alone. However, we know that, not just in Romania and Yugoslavia, but in Poland and Czechoslovakia, matters are becoming ever grimmer.
With new opportunities arising out of the policies of the Soviet Union, we may—it is too early to say—not go 176 down the path that has been followed in the Russian empire of Eastern Europe in the generations since the second world war. If we are to have glasnost not only in the Soviet Union but in Eastern Europe, which may be the case, I hope that we shall be able to play our part in enabling those other peoples of Europe to enjoy at least the opportunities for progress and expansion which those of us who are lucky enough to live in Western Europe have been able to enjoy in the generations since the second world war. I hope that my hon. Friend will find a moment or two to comment on those aspects when he replies.
That is enough from me. I welcome the Bill and I wish it a speedy progress through the House.
§ Mr. John Bowis (Battersea)
I am happy to follow my hon. Friends and it is no wish of mine to upset the spirit of unity which seemed to be created early in the debate by the hon. Members for Eccles (Miss Lestor) on behalf of the Labour party and for Inverness, Nairn and Lochaber (Sir R. Johnston) on behalf of the Liberal party, who seem to have been rather left to it by their hon. Friends. Perhaps we can tempt those one or two who step in from time to time and sit on the edge of the green Benches to contribute. I am sure that those hon. Members would appreciate some support.
Let me restore the balance immediately by referring to the comment made by my hon. Friend the Member for Crawley (Mr. Soames) about the hon. Member for Eccles. For understandable reasons relating to her predecessor, he regretted her arrival from Eccles, but it would be churlish not to acknowledge her real concern for and the genuine contribution that she has made to this subject over the years. I remember that well, as a member for the focus committee of the Royal Commonwealth Society. The contribution that she made today bears out that concern. My hon. Friend the Minister has shown no less a concern in the debate. I am sure that what he said was valued by all hon. Members.
These wretched initials have already been referred to. Whenever I heard my hon. Friend the Minister referring to "this meagre initiative" I thought that he was being unduly modest. Perhaps we could suggest to him that he takes up the matter with his international chums, so that they either change the combination of initials or do what happens in places such as NATO and put them into French so that they are switched round. I shall not translate into French now, but they might come up with something like BIGMA—which might be a more satisfactory combination to preach to the uncoverted.
§ Mr. Chris Patten
My hon. Friend has made a perfectly understandable point. If, in future, we made the "MI" rhyme with pie or sky, that would get around the difficulty to which he has referred.
§ Mr. Bowis
Whatever the Minister wants, so long as he does not call it MIG anything, which has other connotations.
This is a pioneering scheme, and I pay tribute to my hon. Friend's work on it and, through him, to the people who created it. He rightly referred to the Venice conference where is started, which was an example of the best work of an international conference. All too often we perceive conferences as rows about South Africa and so on, whether they are to do with the Commonwealth or other 177 international issues. Sometimes, however, good comes of their work and that is a tribute to the countries and Ministers concerned. It is a tribute too, to the civil servants behind the Ministers of the various countries, who go to considerable lengths to create the schemes for us and make them work. I hope that my hon. Friend will accept my tribute for this welcome measure on behalf of his colleagues and Department.
This is a good scheme, and I certainly welcome it. Almost everyone else who has spoken today seems to have been round the world in the past few weeks or months. Almost invariably, they start by saying, "When I was in Timbuctoo." I have not been anywhere as exotic as that, but I have been to Wandsworth, which is no less exciting a place, even if its connection with the Bill may seem slightly remote.
When we examine the problem of overseas aid, we must try to take our constituencies and electors with us on it and related subjects. Often politicians must give a lead to their constituencies to pressurise Ministers, Governments and countries to do more for the developing countries of the world. That is not always as difficult as we might sometimes think. Our electors, as taxpayers, are right to want a balanced use of taxpayers' money and Government action. They look to Governments to provide a proper balance, and often tell one that what they want first is a solution to the problems at home. Of course there are real problems in our cities and urban areas that need solution, but I do not believe that constituents are blind to the needs of the world. They have a conscience about the world's problems, and we can guide the development of their consciences so that they understand the issues.
Whenever pictures of disasters around the world are shown on television, there is an immediate and genuine concern among the people of this country that something should be done. That is now happening again with the starvation problems in Africa. That is the sort of thing about which people have genuine and immediate feelings, which they convey to their politicians. Work to solve starvation is understood, because it is dealt with in headline stories.
Although this initiative is not an immediate response to starvation headline stories, people will welcome it because they sit back and ask themselves why these countries have problems today. The answer is, because they could not solve them yesterday. How can we help them to solve problems today so that they become less acute tomorrow? When people think about that, they understand the initiatives that are needed worldwide to bring together this sort of initiative with direct and indirect aid from Governments.
This measure ties in well with initiatives that the Government have taken in other areas, such as those for the sub-Sahara and the problems of Third-world debt. To enable the developing countries to overcome their problems, we, as a world community, must help them to develop their own economies. The Bill goes some way towards achieving that aim. There must be a combination of Government and voluntary sector aid with investment from private industry. The figures from this country, when aid from those three areas is counted together, are impressive. A partnership of all three is needed. When that partnership works well, it succeeds.
178 I welcome the all-party support that has already been given to this measure. However, I could not help noticing the enthusiasm of the hon. Member for Eccles for the schemes in the Bill to protect British investors from the threats of nationalisation—I think they call it expropriation abroad. Perhaps the hon. Lady and her hon. Friends will go on one day to protect investors from a similar threat at home. It is good that they recognise that our investors should be protected from that threat abroad.
I should welcome clarification of one or two of the Bill's provisions. Frequently, the problems that firms that are investing abroad face are not caused by the country in which they are investing. The world is an interlinked community, and sometimes, the actions of the citizens or state in a neighbouring country to that in which a firm is investing can cause problems. Will the Bill cover risks incurred by a firm due to the neighbours of the country in which it is investing, or will there be endless problems of litigation and arbitration to sort such problems out? If there are endless anythings, as we all know too well from Export Credits Guarantee Department problems, the small company can go to the wall here while it waits for claims to be sorted out.
Will special encouragement be given under the scheme to smaller firms? We need to do more to encourage small firms to invest abroad. They often have the expertise that goes well in a small developing country and the goods that that country wants. Will smaller firms in partnership with local firms be given special consideration? That is a good way of bringing together the world's communities—by bringing together the small firms of the world, and getting them to solve its problems. Will encouragement be given to small firms in this country that are run by ethnic minorities to invest in these countries? Often, such firms have cultural links with the countries concerned, and they should be encouraged and pushed in the direction of the developing nations.
Can I be given some reassurance about what happens when a company is registered in more than one country? I think that the Minister said that, until Britain had signed the agreement, British firms would not be protected. After we have signed the agreement, will British firms with partners in countries that have not signed the agreement face a complication or is there a straightforward way of ensuring that those firms are protected?
The hon. Member for Eccles spoke about Bhopal. I do not want to speak about that case but to ask whether the taxpayer will be protected in claims against a British firm that gets into problems because of negligence and malpractice in another country. It is quite right that we should protect our firms around the world when they are conducting business efficiently, honestly and ethically, but if a firm is guilty of malpractice can we be assured that the British taxpayer will not have to pick up the tab for what would be, in effect, a criminal charge? I hope that I can be reassured about that.
I hope that in allocating funds and in encouraging people to go to other parts of the world, certain areas will be highlighted. Other hon. Members have touched on this. It is important that the poorest countries receive assistance first and that firms are encouraged to go there rather than to the rapidly developing countries in the Third world. It is important to encourage training schemes, because training and communications, such as roads, and irrigation schemes are important for developing countries. If we can encourage such schemes, in a short time those 179 countries will become self-sufficient and we can work with them as genuine partners in the world economic community.
Above all, I welcome this Bill because all too often when looking at world problems the British, the French, the Italians, the Americans and other countries tend to look at their own zones of interest. We concentrate on the Commonwealth, the French on their former colonies and the Americans on what they see as their areas of interest. We look at the world as a whole all too infrequently. Perhaps coming into the European Community has helped us to understand the Francophone countries more than we used to, but many parts of the world are still largely untouched by British interests and support.
This Bill helps us to look at the whole world as a community. If in looking at world problems and in identifying the world's less fortunate members this Bill goes some way towards encouraging us all to work together and to help the people of the developing countries to solve their own problems and to become developed, it will make a contribution that we can welcome not only today but in many years when we look back to this debate.
§ Mr. Richard Alexander (Newark)
It is a pleasure to follow the thoughtful speech by my hon. Friend the Member for Battersea (Mr. Bowis). In the course of my speech I shall take up a couple of the points that he made. My first impression of the debate is that there is no representative here from the SDP. I remember being challenged by that party and its supporters at a general election joint meeting. They told us that we were not doing enough and they pretended to occupy the high moral ground on overseas aid. However, a representative from that party is not here for this debate.
I welcome the Bill. Today and on many other occasions my hon. Friend the Minister has explained the significant amount of overseas aid that Britain gives in various ways. It is a vast amount and only four other major industrialised countries do better. Of course, quality rather than quantity must be the main consideration. There is no great point in merely being able to recite statistics about how much aid we or other countries give, unless that aid is closely geared to quality and infrastructure. Aid from Britain is highly prized abroad for the development of Third-world countries.
Our official aid is complemented by considerable private investment from British businesses. The total flow from official and private sources is significant and exceeds the 1 per cent, gross national product target of the United Nations. The Overseas Development Administration administers all our relief and I know that it is very concerned to see aid reach the poorest communities. If the poorest countries are to receive real help rather than temporary palliatives, they should get aid to establish infrastructure that will enable them to provide the services that their people need.
From time to time in my post bag and in this Chamber I hear the cry, "If Europe has so many food surpluses, why does it not just give food away?" I am not sure that that is the sort of long-term aid that poorer countries really need. If we took that course it could have a variety of unfortunate ill effects. The main one is related to the fact that virtually all those countries are trying to promote and build up their own agriculture and infrastructure. If we give food and similar items to those countries as a matter 180 of policy and do it over a longish term, we will by definition undermine the agriculture of those countries and the people will become dependent on agriculture in the donating countries. It is perhaps a difficult and harsh decision to decide not to give food to poorer countries, but in the long run it is the only course that will ensure stability in the countries that need our aid.
As I said, our aid can take many forms and does not involve merely giving away free food. I take issue with my hon. Friend the Member for Battersea who complained in the nicest possible way that, although he had been in the House since June, no one had sent him abroad. I am sure that after his participation in this debate he will receive many invitations. One of the great advantages of those of us who have had the opportunity to go abroad, especially to poorer countries, is that we can see what can be done and where aid can best be given.
Last year I was fortunate and honoured to be invited to lead a delegation to Gabon, which is a French-speaking country. It is a Third-world country in receipt of overseas aid. Its main concern was that it wanted more aid, and one accepts that concern. The delegation was an all-party one and in the course of our visit it became clear that there were other concerns. The first was that Gabon would like to have closer contact with Britain, the British Government and the British people. That is the other point about which I take issue with my hon. Friend the Member for Battersea.
It is not correct to assume that, because countries are in the French sphere of influence, we should leave France to do the work and to make the contacts. That is not for purely selfish reasons, but because those countries wish to have closer contacts with Britain—clearly, they are happy to have British overseas aid—and they wish British businesses to compete more effectively for projects in their countries. I welcome that attitude by the Government of Gabon.
Even though Gabon welcomes assistance, certain difficulties are experienced by British business men that are not experienced by French business men. The French Government seem to be much more able to underwrite feasibility studies in Gabon, and possibly also in other Francophone countries; that enables businesses to get off the ground. I am told that our Government is poor at that and that business men have to take their courage in both hands and go out, spend money, and just see what transpires. That may be an honourable thing to do, but it is unfair competition when British businesses have that initial hurdle to overcome.
French business men are able to compete on much more favourable terms because in those overseas countries where we are supposed to be providing aid, the French Government allow much more competitive rates of interest. For example, I have been told that 15-year loans at 2 or 3 per cent, interest are not uncommon. That makes it difficult to invest in overseas countries where aid is needed. It is difficult for business men to say that they should go to that country and compete when they do not know whether the Government are behind them. If the Government do not encourage business men in those ways, they will look for softer markets.
British business men also believe that they do not gel the help from the Export Credit Guarantees Department that they should. I accept that I am only repeating hearsay., but I have been told that, particularly in Gabon, firms have difficulty in finding out precisely what guarantees 181 they may be offered and at what rates. In the Balinga iron ore mining project, a joint project with French business men, British business men have to work in the dark because they do not know what they will get at the end of the day or the terms under which the project will operate. That is unsatisfactory, and I hope that when considering our attitude towards overseas aid and what can be done in some of the donee countries, my hon. Friend will consider that.
In Francophone Africa, where we are trying to involve business men in overseas aid projects, some of our business men do not trouble to learn the language of the country in which they are running their businesses. It is discourteous to send business men to a country in which they are trying to invest if they do not speak the language. Language assistance, with French in particular, for potential exporters would be welcome and useful if we are to encourage our business men to take their rightful part in the infrastructure of the Third world that we all want to see. I commend the Bill to the House.
§ Mr. Tony Baldry (Banbury)
It is imperative that we always recall that we are part of an international community, that we are part of one world and that we are all interdependent. It is in the interests of the developed world to see the Third world develop, not only for sensible, humanitarian reasons but so that developed countries will have additional countries with which to trade. The legislation that we are considering simply reinforces the fact that we are part of one world, encourages the flow of investment for productive purposes among member countries, in particular among developing countries, and supplements the activities of the World Bank in reconstruction, development and international finance. It must increasingly make sense that there is a growing recognition that many of the problems that we now face require more than the resources of a nation state to resolve. They require international action. Nowhere is that more evident than in assistance to the Third world so that it can resolve its own difficulties.
I have a recurring nightmare that I am standing in the fields of Korem and that, as far as the eye can see—it is difficult to think of an area near Westminster that is as large, but one could think of perhaps four or five football pitches—are people who have come to Korem because they are starving, and children are literally dying in front of my eyes. I, and I imagine other hon. Members, thought that that nightmare was over many years ago and that, because of the concern of the international community, it would not recur. However, the international community has not been able to resolve that problem.
We have not managed to help parts of Africa stop fighting each other. I am bitterly depressed that there seems to be no movement in Ethiopia between Eritrea and Tigre to even begin to resolve their difficulties. I am depressed that some countries within the developing world seem to have the attitude that in moments of difficulty they can look to the international community for assistance and otherwise simply ignore the good advice and recommendations of the international community. That must be so with Ethiopia, where 80 per cent, of State investment in agriculture still goes into inefficiently run State collective 182 farms that produce only 10 per cent, of the nation's food, while little is done to encourage peasant farmers to grow more food for themselves.
The Bill laudably and commendably sets an international framework in place but also demands mutual contract. We should play an important role. I am delighted that the aid programme in Britain is now set to increase in real terms from £1,235 million this financial year to £ 1,420 million in 1990–91. That means an extra £70 million of aid next year; £ 140 million extra the year after, and £ 185 million extra in 1990–91. That is excellent news.
We must play our part in trying to eradicate poverty. However, that demands and expects a response from other countries. It demands a reciprocal contract which shows that they have obligations to the international community to resolve their difficulties and problems. From many countries in Africa, it demands a greater commitment to resolving boundary and other disputes without recourse to force of arms and the massive spending that that involves. Indeed, much of the cash crop in Ethiopia goes to Russia to pay for arms. It also demands a greater commitment to resolve disputes without recourse to arms, because inevitably that results in massive numbers of refugees. The number of refugees in the world in general and in Africa and parts of Asia in particular is growing year by year. Refugees are not only human tragedies, but cause massive dislocation to the economies of the countries which give them shelter and refuge.
§ Mr. Ian McCartney (Makerfield)
I am interested in the theory that the hon. Gentleman is propounding in a genuine manner, especially in relation to what is happening in Eritrea. However, will he recognise the tragedy in southern Africa and the destabilisation of Mozambique, Namibia and Angola and the incursion of the South Africans and South African-backed regimes? That has meant massive famines and a dislocation of agriculture, industry and transportation and also genocide in southern parts of Mozambique and the murder of innocent children. All that is happening as a result of South African-backed arms and little or nothing has been said or done by this Government to influence the role of South Africa in the destabilisation of the southern part of that massive continent.
§ Mr. Baldry
I understand the hon. Gentleman's sentiment. For two years I had the privilege to be the Parliamentary Private Secretary to my right hon. Friend the Member for Wallasey (Mrs. Chalker), the Minister of State, Foreign and Commonwealth Office. She has a particular responsibility for southern Africa. I cannot think of anyone who has worked harder than my right hon. Friend to bring purpose and resolve to eliminate apartheid and therefore bring justice to South Africa.
Wherever the force of arms is used to resolve difficulties, it leads to dislocation, refugees and the entrenchment of poverty. While we must have a commitment to play our part, other nations must also play theirs. Countries such as Ethiopia should not look blindly to the assistance of the international community in times of difficulty and ignore the best advice of the rest of the international community at any other time.
African countries such as Zaire, which have released enterprise and encouraged initiative, are doing well and improving their economic prospects. If the international community as a whole can work together with those 183 countries, there is no reason why such nations should continue to go backwards. There is no reason why Africa should be locked into a declining spiral of poverty, famine, disease, pestilence, war and the horror stories which I have witnessed before, which we saw in 1984 and which inevitably will occur again. We should never see those horrors happen again, but they will. They are recurring not because of the failure of the West or the developed world to respond to the needs of Ethiopia, but because no progress has been made to resolve the fundamental internal problems of Ethiopia which are controlled by Ethiopia itself.
I very much hope that the House and the country will continue to make the elimination of poverty and hunger in the world one of their foremost objectives. That presupposes the need for the international community to co-operate to help developing countries to create and develop their own infrastructures and encourage their industries and economies to grow. That is a duty for us all.
Like my hon. Friend the Member for Battersea (Mr. Bowis), I do not believe that there is any shortage of good will or support for that duty among our constituents. People in this country want to see the rest of the world develop. We often underestimate the desire in this country to see a world free of hunger where the developing countries are seen to be growing positively, with prospering economies. There must be a mutual contract. We can play our part, but other countries must play their part. There must not be a simple one-sided contract.
I commend the Bill to the House. I particularly commend the work of my hon. Friend the Minister for Overseas Development in ensuring that those issues are high on the political agenda. Let no one think that those moves can be only one-sided and that it is simply a matter of the developed world giving to the Third world. Both have an important role to play; they are mutually dependent. Unless both sides are prepared to be involved in such a contract, the contract is worthless.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
This has been a well informed and extremely thoughtful debate. Once again, I was impressed by the usually well orchestrated orgy of congratulations from the Conservative Benches for the Minister. However, for once there has been some reason for that congratulation, and I must say that that is not often the case. That does not mean to say that no questions need to be asked about some aspects of the Bill, and I want to pick up some of the points that have been made this afternoon.
It is a particular pleasure for me as a member of the Labour party foreign affairs team to support my hon. Friend the Member for Eccles (Miss Lestor). She played such a distinguished role in her previous time in this House and is now the distinguished Member for Eccles and the Labour party spokesman on development. Her record in the One World organisation and her activities recently in Africa show her profound knowledge and experience in this matter. I am pleased to support her today.
The Minister took us through the Bill clause by clause in the second part of his speech. Perhaps he is not expecting too long a Committee stage. Nevertheless, I will take up his challenge and try to deal with some of his points.
As my hon. Friend the Member for Eccles said, the Opposition support the establishment of the Multilateral 184 Investment Guarantee Agency. I use the full title, as the hon. Member for Broxtowe (Mr. Lester) prefers it to the "meagre" acronym. However, we support it only as part of the measures necessary to stimulate growth in the developing countries. We welcome the Government's recognition of yet another area in which market forces work to the detriment and not to the advantage of orderly progress. We are glad that in this sector, if not in others, the Government support intervention to affect the decisions of multinational corporations.
However, questions must be asked, and I was pleased that, among others, the hon. Member for Battersea (Mr. Bowis) asked them. What guarantees are there for the host countries against, for example, low wages in multinational companies, against dangerous workplaces and safety problems in the workplace? My hon. Friend the Member for Eccles rightly mentioned negligence at Bhopal. What guarantees are there about the closure of plants, which suddenly creates havoc and problems far greater than those that existed before the plant was set up by the multinational? It is not only in developing countries that we have experienced those problems; we have experienced them particularly in Scotland—some people might think that it is a developing country. What guarantees are there with regard to transfer pricing?
Sadly, attempts to establish codes of conduct for foreign investment have been resisted by the major industrialised countries. In the 1970s, a little progress was made in establishing guiding principles to govern multinational investment. The Organisation for Economic Co-operation and Development prepared a set of guidelines, but they have no legal force. In the Common Market we had the Vredeling proposals, and similar negotiations to establish a United Nations code of conduct have been bogged down by argument about the seemingly unenforceable legal status of the codes.
While MIGA is a good, timely and appropriate initiative, it is disappointing that more progress on offering guarantees to developing countries has not been made. In the long run, more transparent and legally enforceable principles to govern foreign investment will be required. While regulation and control of multinationals might seem unfashionable to Conservative Members, it would build confidence between the investor and the host country, which in the long term would be to the advantage of both.
The hon. Member for Crawley (Mr. Soames) seemed to misunderstand the position when he said that private companies have had a bad deal. Some countries have been ripped off by multinationals, so it works both ways. The developing countries need some protection.
§ Sir Russell Johnston
The hon. Gentleman keeps talking about multinationals. With regard to the size of the funds that we are considering, are we talking about the activities of multinationals?
§ Mr. Foulkes
That may be the case with regard to the size of the fund. It is important, when talking about a general principle and a fund that can expand, to deal with that aspect.
My second question for the Minister concerns fraud. Those of us who study the European Community closely —it is not a most enthralling occupation, but, as I know to my cost; the hon. Member for Corby (Mr. Powell) has a particular passion for it—are aware that some 185 international funds have a tendency to be exploitable and open to fraud. The scheme is designed to assist investment from overseas. Article 13(c) of the convention allows investment by local persons and organisations to be covered as long as the money comes from outside the host country. Thus, there is potential for fraud.
I shall give an example that might help the Minister. Suppose Senor A has a bank account in the Cayman Islands, which is a pleasant place to go and a popular place to have a bank account to salt away this kind of money. Suppose he invests his money in a factory but General B, who may just happen to be his brother-in-law, commandeers the factory for army use. General B gets a free factory and Senor A gets his bank account replenished, courtesy of MIGA. Will MIGA be able to deal with it? Will it have the staff resources to detect that fraud? That may seem a far-fetched example, but if one considers the operation of not only the funds in the European Community but other international funds, one can foresee that arising.
My third question for the Minister is prompted by the remarks of the hon. Member for Inverness, Nairn and Lochaber, about the size of the fund. Exactly how much is the British contribution? The hon. Member for Inverness, Nairn and Lochaber said that it was about $10 million, but perhaps the Minister will confirm that. My question is not about the size of the fund but about where the budget for it will come from. I hope that it will not come out of the Overseas Development Administration budget and that it will not lead to a decrease in bilateral or multilateral aid.
My fourth question concerns the commercial operations that the fund will be able to support. Article 13 of the convention limits the guarantees to those operating "on a commercial basis." Will the Minister explain what that means? For example, are co-operatives, which are an important method of ensuring an appropriate level of development in some of the poorer developing countries, deemed to be operating "on a commercial basis"? Will they be available for assistance from MIGA? What about the trading arms of non-governmental organisations that involve themselves in these operations?
My final question—the Minister mentioned this in his introductory remarks but he did not clarify the position —relates to the Channel Islands and the Isle of Man. Article 66 covers territorial applications. It says that it applies toall territories under the jurisdiction of a member"—the United Kingdom—including the territories for whose international relations a member is responsible, except those which are excluded by such member"—in other words, the United Kingdom—by written notice".That obviously brings in the Channel Islands and the Isle of Man.
Clause 9 requires an Order in Council, which is the usual method by which we deal with these matters, to extend it to the Channel Islands or any colony. It is strange to see the word "colony" in a British Government Bill. I did not think that we used that word any more. If the Minister consulted his colleagues in the Foreign Office, he might discover that a better formulation is "dependent territory".
186 Will the Government start with a blanket exclusion, which would stop these sham covert companies that are set up in the Channel Islands and Isle of Man benefiting from this convention? I hope that they will be excluded, because it could affect our companies and some of those of the independent territories. There are many other examples about which we could ask, but it may be more appropriate to leave some of them for the Committee stage.
I hope that such funds will not be able to establish, support or encourage the establishment of any arms factories. Again, we might explore that matter in Committee. I am sure that even some Conservative Members wish to explore the role of the South African Government, if they ratify the convention, in the operation of the agency.
I reinforce what my hon. Friend said. The most positive way of ensuring the safety of any commercial company's investment in the Third world is by making sure that the people are healthy and well-fed, that they have job opportunities with reasonable wages and conditions of service and that there are vibrant democracies in such countries. That is what Opposition Members are principally working towards. Until that is achieved, we shall need agencies such as MIGA. On that basis, the Bill has our general support, but we look forward to the day when we see healthy, vibrant democracies and economies in the developing world, so that such an agency is no longer necessary.
§ Mr. Chris Patten
By leave of the House, I shall reply to the debate.
The hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes)—I have wanted to say that for many years—promised us a lively and lengthy consideration of the Bill in Committee. It is conceivable that we shall not need to timetable our proceedings, but I shall look forward to many detailed discussions with him at a later stage about Senor A, General B and the rest of the happy family whom he described.
The hon. Member for Eccles (Miss Lestor) led the debate for the Opposition with an interesting speech. I am sorry that she and I do not have more opportunities such as this to trouble the scorers. She referred to the financial prospects for the developing world and, with some justification, said that, in many cases, they are rather gloomy. She condemned the fall in foreign direct investment as an ungainly retreat. I must say—it follows what my hon. Friend the Member for Crawley (Mr. Soames) said—that I recently heard, with some appreciation, the Finance Minister of one developing country rather wistfully say that the foreign investment bird is an interesting, if rather predictable, creature; it does not care to land where it is likely to be shot at. That piece of folk wisdom is much more widely appreciated in developing countries than perhaps was the case a few years ago.
I am delighted that so many developing countries are running their economies in ways that encourage rather than discourage foreign private investment. When I visit developing countries, I am regularly asked to do what I can to stimulate private investment and to help in the development of the private sectors of recipient countries. I am sure that the hon. Member for Carrick, Cumnock and Doon Valley would be active on behalf of his constituents were they involved in such a case. I am often asked by hon. 187 Members to take up with the Governments in developing countries the issue of blocked remittances from British companies that have invested in such countries and might be keener to do so again were they not encountering difficulties in getting some of their investment profits out of the countries involved. I am also encouraged regularly to interest the Commonwealth Development Corporation in investments in aid recipient countries. That admirable institution, whose value is well recognised in the House, has played and continues to play an extremely important role in the development of the economies of aid recipient countries.
The hon. Member for Eccles referred to the United Nations aid target and the target for official flows. It is rare that people talk about the other Pearson target, the target for official and private flows. I am delighted that, under this Administration, we have surpassed that target in every year but one. Last year—1986—the figure was 1.34 per cent. I agree with what the hon. Lady said about the importance of ensuring that the social impact of structural adjustment programmes is taken into proper account when they are designed. As she knows, we have been advocating that matter in the World Bank and other multilateral institutions and have taken to heart the arguments that were put forward by Dr. Richard Jolly and others. Dr. Jolly's work in this respect was referred to by my hon. Friend the Member for Fylde (Mr. Jack).
The hon. Lady suggested that Dame Judith Hart was the real author of the Chancellor's debt initiative, which is of course a manifestation of the growing economic strength of this country. That observation stretched historical antecedents a trifle far. I hate to make partisan points on occasions such as this, but we were rather less convincing in taking debt initatives when we were a major debtor than we are now that we are the second largest investor in the world.
In a characteristically thoughtful speech, my hon. Friend the Member for Broxtowe (Mr. Lester) expressed pleasure at the fact that 75 per cent, of our aid programme goes to the poorest countries, but reminded us of the importance of playing a significant role in the discussions that are taking place and will take place next month on providing more assistance for the most debt-distressed countries in Africa. The House knows that we owe a good deal to him and to his colleagues for the all-party report on debt, which was released a few months ago. The Chancellor's debt initiative reflects many of the arguments that are set out in that paper.
My hon. Friend referred also to the enterpreneurial instinct that cannot be eliminated. I agree with him. It seems that Mr. Gorbachev also recognises that proposition.
The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) said that he was sorry that the Bill was not more exciting and that it did not move him to ecstasy. I hope that we were at least able to warm him up gently, even if we did not give him as torrid a time as he would have cared for. He said that he recently returned from Brazil. I am sure that he is delighted that Brazil has been one of the largest recipients of British direct foreign investment in the past few years.
My hon. Friends the Members for Crawley and for Fylde talked about the effectiveness and quality of our aid programme. In particular, my hon. Friend the Member for Fylde referred to his discussions at UNICEF, to which I have already referred. He asked me about the United 188 States of America. The United States of America has supported the establishment of the agency. It signed the MIGA convention on 19 June 1986. The United States Administration are seeking congressional approval of the appropriations that are needed to meet the cash share of their subscription, subject to this—I realise that "subject to this" can cover all sorts of eventualities—the United States is expected soon to ratify the convention.
My hon. Friend the Member for Corby (Mr. Powell) paid a wholly appropriate tribute to my right hon. Friend the Member for Aylesbury (Mr. Raison) and to officials in the ODA. Both tributes are richly deserved. My hon. Friend referred to the importance of non-governmental organisations in our aid and development efforts. He will be pleased that, recently, I was able to announce a 50 per cent, increase in the funds available for the joint funding scheme, which will, of course, help non-governmental organisations such as the ones that he mentioned to play an even more important role in developing countries.
My hon. Friend the Member for Battersea (Mr. Bowis) spoke about the importance of carrying public opinion with us, and I fully endorse that view. He also asked a number of specific questions about the Bill. He asked whether the risks covered by the Multilateral Investment Guarantee Agency included the risk of actions by neighbouring slates of the state in which the investment is made. That was a challenging question to which I am pleased to say I have the answer. In certain circumstances, the risk would be covered. For example, MIGA would cover the loss suffered as a result of military action or civil disturbance.
My hon. Friend also asked, as did the hon. Member for Carrick, Cumnock and Doon Valley, about losses suffered by firms through their own negligence or wrongdoing. My hon. Friend wanted to know whether the taxpayer would have to meet the cost of that negligence. I can assure him that the taxpayer will not have to pay, because the risks are not covered by the convention.
My hon. Friend the Member for Newark (Mr. Alexander) raised a number of points and perhaps I may write to him on them. Among other things, he noted the absence from our debate of the SDP, which may or may not still exist. My hon. Friend the Member for Banbury (Mr. Baldry) referred, not unreasonably, to the situation in Ethiopia being exacerbated by the civil war there. All of us who recall that only three weeks ago a convoy of trucks carrying food was shot up and burned out by members of the Eritrean People's Liberation From, will bear in mind what he said.
This small but immensely valuable Bill has had a warm welcome throughout the House. I am grateful that it has been endorsed, broadly speaking, by the Opposition Front Bench and I am sorry that that warm endorsement was not replicated by Labour Back Benchers, who I am sure had pressing engagements elsewhere. I look forward to further exchanges in Committee about the family mentioned by the hon. Member for Carrick, Cumnock and Doon Valley. I hope that the Bill will have as smooth a passage through Committee—however long that passage may be—as it has received this afternoon.
§ Question put and agreed to.
§ Bill accordingly read a Second time, and committed to a Standing Committee pursuant to Standing Order No. 61 (Committal of Bills.)