THE COLONIAL DEVELOPMENT CORPORATION

HL Deb 13 June 1951 vol 172 cc38-50

2.49 p.m.

LORD RENNELL rose to call attention to the Colonial Development Corporation; and to move for Papers. The noble Lord said: My Lords, the Colonial, Development Corporation was set up with the support of all Parties in another place and in your Lordships' House. We believed that it would fill a need and could contribute a great deal to Colonial development, especially on lines which were not entirely suitable for either private enterprise, on the one hand, or the Colonial Governments, on the other. In moving this Motion in your Lordships' House to-day, it is my intention rather to take stock of what has been done and what is contained in the Report which has recently been published, than to criticise individual schemes. Some individual schemes will be singled out for mention, but more as examples of a particular point than as a criticism of the operations of the Corporation as a whole.

This is the first year in which such an approach is possible, owing to the fact that last year the Report was so preliminary as to make it almost impossible to have a complete view of what had been done. I think the first impression which the Report gives (with the details that it contains of some fifty schemes which are under way) is of the lack of theme or policy in the decisions which have been taken to adopt or forward these schemes. In my part of London. I think it would be fair to say that a concern with as many and as diverse schemes as this ought to have as its title "Assorted Investments, Limited," rather than the Colonial Development Corporation. In less reverent surroundings I have heard it described as "Tropical Allsorts." The first impression which is left ineffaceably on me is that a very large number of people, with rather wildcat schemes, seem to have been able to secure hearings and, in many cases, get their schemes adopted. A great many other schemes are of obvious benefit, both to the Colonies in which they have been started and to the Colonial Empire generally, and about them I shall have something to say later.

Of the schemes which leave the first of those two impressions, I should like to single out first of all one which seems to me especially peculiar, in that it does not fit into any conception of Colonial development policy that I can visualise—I refer to the Bahamas Development undertaking. It has an authorised capital expenditure of a little over £1,000,000, and includes the management of a country club, a grocery store and the effort generally to promote tourist development. It will not be unknown to your Lordships that tourist development in the Bahamas is very adequately financed at the moment by private persons, both in this country and in the United States, and there does not appear to me to be a prima facie case for the provision of public money on that scale. The development which is required in the Bahamas may possibly include the growing of more vegetables and food, to obviate imports from the United States, but I do not see how a country club, a grocery store and eleven houses fit into that scheme. When I refer to persons who put up schemes, I should like, parenthetically, to say that by "persons" I mean also local Governments, because it will be well known to many of your Lordships who have travelled in the Colonial Empire that local Governments are often among the worst offenders in putting up schemes in which they expect other people to invest their money, but in which they have no intention of investing any of their own funds. The cure for that would seem to me to reside in the adoption of one point of policy—namely, that where schemes are put up by Colonial Governments the Colonial Governments themselves should be required to find a part of the capital and to participate.

Among other wildcat schemes is one for the promotion of shark fishing by, I understand, some Poles in the Bight of Benin, for which a ship and equipment to the value of some £300,000 has been provided. I believe that the enterprise, if, indeed, it has not been stopped altogether, is now being turned over to catching crayfish and tunny. There are two other particular schemes to which I also wish to draw attention, and which seem to me to fall right outside the range of what I, at any rate, feel ought to be the scope of the Colonial Development Corporation. They are two gold-mining enterprises, one of them in British Guiana and the other—the Macalder-Nyanza Mines—in Kenya. There is an even more surprising project which is described on page 35 of the Report—the Kiabakari and Kitario Investigation. It is true that here only a small sum of money has been spent by the Corporation in prospecting for gold. I think it has been the experience of everybody in your Lordships' House that where there is gold in what looks like paying or workable amounts private enterprise has never been lacking to develop it. I can see no possible reason for Government participation in what is notoriously a highly technical and extremely speculative type of mining.

Finally, there is one project which calls for particular comment as being again quite out of the range of what a sensible business of this nature would indulge in, and that is the Tanganyika Coalfields Investigation, also referred to on page 35 of the Report. This project, in which some £330,000 is at stake, is due, according to the Report, to the Tanganyika Government having asked the Corporation to investigate the coal resources of the territory. This involves geological mapping, diamond drilling and shallow underground workings. By no stretch of imagination can the Colonial Development Corporation be considered to be technically equipped to conduct a mineral investigation into a highly technical field like coal. On the other hand, there are a number of large public corporations—public in the sense that they are owned by the public, and not by the Government—which have had generations of experience in investigating and developing coal propositions. One of those corporations, the name of which is a household word in this country, has been used by Colonial Governments and by Dominion Governments to investigate coal resources overseas. They have probably the finest collection of experts in that particular field that it is possible to find anywhere in the world. I ask your Lordships to think for yourselves what must be the result on a young Corporation like this when they are called upon to collect material for an investigation, which is not even a development, on behalf of another Government. It seems inevitable that they will always be inclined to get the cast-off experts, and will then not have their own experience on which to fall back in order to verify the judgments passed on to them by those experts.

On the question of the policy of the Corporation and what they have done and are going to do, it seems to me from this Report that there is no clear theme. The various parts of the Colonial Empire have different requirements. Take a simple example—the problem in the West Indies is essentially that of over-population. The best and quickest method of absorbing populations is by the institution of secondary industries, by the creation of concerns which will process and adapt the products of the West Indies and utilise the maximum amount of manpower for the purpose. Africa, East and West, equally requiring secondary industries, does not suffer like other Colonies from this problem of over-population as a whole. There are over-populated areas, of course, but that is not the problem. It therefore follows that a different policy of development is required for the projects adopted by the Corporation in Africa from those, for instance, in the West Indies; and the same applies to the Far East. There does not seem to me to have been any decision taken in guiding thought in this matter, and that is a course which for one, should like to see adopted in the future.

I next come to method. The first and most important thing that strikes one in reading through the Report is the size of the Corporation's activities. Out of fifty schemes referred to in the index on page 3, only seventeen have an authorised capital expenditure below £200,000 and only six below £100,000, while over thirteen have authorised capitals of over £1,000,000—or fourteen, if the Gambia scheme, with a capitalisation of £900,000, is included. It is a remarkable fact that one of the smallest schemes, in the promotion of which private enterprise partners have been enlisted with the Corporation, is the Malayan Cocoa Scheme—the scheme in which the Corporation's two partners are Cadbury's and Harrisons & Crosfield. In that case there is a very small capitalisation. Does it not occur to one that, with two eminent commercial partners in a venture, a little pressure might have been put on the Corporation not to overcapitalise? An experimental scheme should start with very small beginnings rather than that one should "weigh in" with £1,000,000 before anyone knows whether the scheme will work or not Possibly the judgment of these commercial firms had a good deal to do with If it had been possible for commercial firms to come into a number of other schemes, I think it would have been found that the capitals authorised from public money would not have been quite so generous.

That brings me to a closely related point, and that is the extraordinary absence throughout of any indication of these schemes being started by means of a pilot plant, or by experiment. Instead, the Corporation adopt a scheme and go straight into it to the full extent, in many cases without even a proper investigation of the circumstances. Two notorious examples of the lack of investigation are found in the Tanganyika Roadways project and in the Gambia Egg project—perhaps just as remarkable, if not more so. Here an interesting point arises. During a debate in another place the right honourable gentleman the Secretary of State for the Colonies was asked a direct question. With your Lordships' leave, I should like to quote from the OFFICIAL REPORT. He was asked: Was there any effort made at the outset to satisfy the Board that these crops could be grown on that soil, because that is really the gravamen of the whole position? The Secretary of State replied—perhaps not very completely at this point: I have said that the mission that went out was composed of the American, to whom reference has been made and who himself had been for several year; a poultry breeder on a large scale, and an accountant, and that they made a report… The Minister was pressed then to answer that part of the question which dealt with the suitability of the soil. He replied a little later—again rather indirectly: I would say that the project was started at a time when there was no experience of mechanical farming or of rotational cropping in the Gambia. He said that a soil scientist was sent out about a year earlier (that is, about a year before March, 1950), whereas it was in July, 1948, that the Corporation submitted to the Secretary of Stale an application for sanction for £500,000 for clearing the bush to grow crops.

There is another perhaps rather ominous point contained in the Report—I hope it is not going to be difficult, or a quibble, but the wording is as I say, ominous. It is on page 28. In dealing with the Chilanga cement project, which we understand will shortly be producing, the Report says that one kiln was under construction throughout 1950. The company's £1,000,000 capital was found to be inadequate, and to instal a second kiln further capital of £700,000 was required of which the Corporation were to subscribe £525,000. Then the next paragraph of the Report says: It has now been decided to defer orders for the second kiln until adequate limestone deposits have been proved—as they probably will be. Is it conceivable that anybody should even consider ordering a second kiln—perhaps even the first kiln—until adequate supplies of limestone had been proved? I hope it is all right, but it sounds ominous; it sounds a most unbusinesslike way of proceeding.

Surely the right way to develop in the Colonies, where private enterprise is not willing, in the first instance, to come in, is to start with the small schemes; with the innumerable schemes that require £50,000, £60,000, £70,000 or £100,000, amounts which can be written off without disastrous losses if, in the process of development, the schemes do not appear likely to pay. In schemes where local Governments are interested in seeing a certain piece of development done, they should be brought in and placed at financial risk, in order to ensure that they also can contribute outside advice, additional to that which the experts of the Corporation have given. Can any of your Lordships name or think of any great development which has started without a pilot plant, which has started without trying to turn the laboratory experiment into a commercial producing concern, without in the first place having a full-scale try-out? I know of none. When I look back on some of the great pieces of industrial production in this country which have led the way here, I notice that it has often taken years of quasi-or semi-commercial production with a pilot plant before the difficulties and the troubles of a scheme have been eliminated.

My third point is on the financial policy adopted. It is quite clear now that, in the two years or so of their existence, the Colonial Development Corporation have committed themselves to direct investment and management. With one or two minor exceptions, they are now respon- sible for managing and directing fifty assorted enterprises, for which they naturally require experts, and for which they have built up their overhead staffs, both in London and locally. I do not know of any other attempt, in business or anywhere else, by one body of people to manage fifty assorted enterprises. Where great concerns have gone out of their original field—where, for instance, a coalmining company have left the digging of coal for the making of bricks—there has been a gradual process of development. I know of no concern that has started on a coal mine and has proceeded to buy a string of grocery stores by way of an investment, and has felt competent to manage both. In my opinion, it is not possible for any body of people to try to manage the affairs of fifty miscellaneous concerns with as wide a range and scope as those mentioned in this Report.

What is the alternative? Frankly, the alternative is what I thought—and what I feel a great many of your Lordships thought—the Corporation were going to do; namely, to provide finance where private finance was not available, to keep an eye on things if their money was invested, but not to try to manage and direct. As your Lordships know, it has been said commonly in the Army that a general commanding troops cannot command more than two or three units. That is why there are brigades, divisions, corps, armies and groups of armies. That it is impossible to command and run more than two units may be a slightly narrow view; even an extension to five or ten may be possible. But what about fifty? How can any board, in their daily or weekly meetings, even with a large body of experts at their service, give time to following, even as laymen, a plantation industry in Malaya and a country club in the Bahamas?

The answer to that organisational problem probably lies in regional devolution—not regional in the sense of continental only, but regional in the sense of, say, two or three regions in Africa—and in treating the Corporation more as a holding company for the activities of local concerns which, I conceive, may in the not far distant future get down to local concerns in the individual Colonies, dealing with two or three projects in each Colony. The conception of direct ownership and direct management is one which must inevitably lead to mismanagement and extravagance, which in turn must lead to a growth in, and not a reduction of, the present overheads of £400,000 a year. The fact of the matter is that the Corporation have in their own mind got thoroughly mixed up between two or three different ways of proceeding. They could have been a financing Corporation and financed projects (I will come back to that point in a minute); they could have been a sort of trust company, to hold investments and not to be concerned with the management of the undertakings; or they could have gone only into a certain type of project, where they could get a sufficiently limited number of experts to keep down their overheads. They have not chosen any of those three ways. On the other hand, they have chosen the way of direct ownership and direct management.

I should like to draw a little on what experience I have in the financing of projects in industry. My firm have been in this business for a very long time, and have been responsible for financing enterprises over a very large field, both in this country and overseas, with both long-term and short-term money. At no time have we ever considered that we were competent to take part either in the management or in the direction of any of the enterprises that we have been responsible for financing. They are completely different trades. If any of us were to set himself up as an expert in any one of the trades or concerns in which we are interested, it would be better that he should get out of the business quickly; otherwise he would begin to think that he knew a little more than was good for him, whereas, in fact, he would know very much less than art expert. The point is that a concern can provide money for financial development in a vast range of subjects in industry and in commerce, provided that one remembers that the provision of finance is one thing and running the enterprise is a totally different thing, and that they must never be mixed up together.

What does the financing of business consist of? It consists of knowing where to go for advice on subjects about which you yourself do not know; that is the first and most fundamental principle. But if you do seek advice, it is not necessary to hire the expert for life. If you wish to go from your house to the station you do not go and buy a motor car, you hire a taxi; when you have got to the station you pay off the taxi, and when you get to the other end of the railway journey you hire another taxi. That is the secret of financing business, not managing it and directing it. In the two years of their existence the Corporation have committed themselves for £31,000,000, and have actually spent something of the order of £11,000,000. Some of the projects, we know, are failures: no doubt a great many of the projects will be successful. But they will be very much more successful if they are run by people who know their own business in running them, and are not run from London.

It is not too late to revise our ideas on how the Corporation ought to be run. That revision will not cost a great deal of money, even if a number of these projects have to be written off, as some of them will be. I beg His Majesty's Government to consider or reconsider, before it is too late, what the policy of the Corporation ought to be. If they take the view that I take—namely, that it should be concerned with financing enterprises and not with running them—then, before it is too late and before too much money is lost, let us turn it into a purely financing Corporation. I, for one, believe that if that is done the Corporation will have a great deal to contribute in starting enterprises which may be too slow in development and perhaps not remunerative enough in the short run to attract private enterprise, and also not suitable for the local Governments themselves, but which the Corporation can do well and eventually sell or hive off. I cannot believe that, in the long run, the Corporation should retain good enterprises in order to make profits on them to carry the losses on others. I do not believe that in the long run the Corporation ought to be a sucessful investment trust, paying such-and-such dividends on money which they have borrowed from the Treasury. I believe that the Corporation should start enterprises and, where they are successful, sell them—and sell them at a profit if that doctrine is not too shocking to noble Lords opposite. I think they should sell them at as large a profit as they can obtain. They would thus recoup out of those profits, with a big "P," and not out of the dividends received on the earnings made, the losses made on the unsuccessful enterprises.

In my view, the activities of the Corporation up to date, which happily are by no means disastrous and in many cases are very promising, point to one last moral. The time has come, and I believe His Majesty's Government themselves feel that it has come, to take some stock of how publicly-owned corporations are or ought to be administered. The experience of the last five years of nationalised corporations has not been uniformly happy. It is perhaps only an historical coincidence that the only two national corporations which have received the wholehearted support of my noble friends on these Benches and the Opposition generally, are those two corporations which have fallen mostly under public criticism. I hope there is no connection between those two historical events, but of course we did support very warmly the Overseas Food Corporation, and we certainly supported the Colonial Development Corporation. The first was one of the most outrageous financial "flops" in history. There is time to ensure that the Colonial Development Corporation will not follow in that way, but only, I submit, by taking stock now as to what the Corporation ought to do, if necessary revising radically our ideas on its direction and management and its correct participation in enterprises and if it is found that what has been done up to date is wrong, let us agree that it was wrong and not fight about it. If it is wrong, let us change what is wrong and start again before too much money is lost, as I fear it will be if the present policy is continued. My Lords, I beg to move for Papers.

3.28 p.m.

LORD HAILEY

My Lords, my intervention on this debate will be brief, and I fear it will be entirely lacking in any contribution to statements of principle, though I am bound to say that I have been very much struck with the statements of principle which have been enunciated by Lord Rennell. I intervene because in the last two or three months I have had the experience of visiting some of the works and operations which have been undertaken by the Corporation, and my impressions may perhaps be of interest to your Lordships. The first of these was in Swaziland; and I should like to say here how much the people of Swaziland appreciate the effort that has been made by the Corporation. A few years ago, when I last visited that territory, there was a general impression of stagnation, and the intervention of the Corporation has done much to revive there a general spirit of activity and hope.

Now there are two schemes there. The first you will find described on Page 34 of the Report of the Corporation—namely, the Usutu Forests scheme, for which an area of something like 85,000 acres has been taken up and is actually being afforested. Here was one of those cases in which, perhaps, no pilot scheme was necessary because there was close by a scheme that had been run for some time by a commercial firm and, to all appearances run successfully. At all events, the firm had been able to prove that both the land and the climate were admirably suited to the growth of pine.

It is queer that we should have to go to Mexico and the Caribbees to find a pine that will grow best in Africa, but there it is. That scheme will cost in all something like £1,500,000. I think there is every indication that it is being run on sound commercial lines. The Corporation are able, on this occasion, not only to benefit by the experience of their neighbours at Usutu but also to engage a staff that is highly experienced in work of a similar kind in the Union.

The only point one feels a little doubtful about is this. The Corporation have not yet—at all events, they had not when. I visited Usutu early in the winter—made up their minds exactly what use would be made of the forests when developed. There are two schemes under consideration—one that the forests should be used for the production of pulp for making carton and similar board, and the other that they should be used for sawn timber for making fruit boxes and the like. It is unfortunate that we do not know yet which of those two schemes will be adopted. I may add that Swaziland is more interested in the former, because this will probably involve an extension of the railway to Swaziland, to the great benefit of that country which, as yet, has no railway within its borders.

The second of the two schemes in Swaziland is that which you will find described on Page 33 of the Corporation's Report—the irrigation scheme. That is a scheme of a somewhat different character. I am not quite sure why the Corporation went in for it. They have bought a considerable area of land—about 105,000 acres—at a somewhat high price, a price which would not be justified unless the land had command of a good water concession. Part of the scheme is of a very ordinary nature; it is a small ranching scheme which is already being run fairly successfully by the previous proprietors. The second part is the part which is devoted to irrigation. So far as one can see on the spot, the means of irrigation already available are giving good results, particularly in the growth of rice, but the whole thing is in a very experimental stage at the moment, for the Corporation have not yet decided which of the various possible crops will be most profitable. I want only to say that experience in India, Egypt and other parts of the world has shown that when you begin to irrigate land on a large scale for the first time, you frequently get somewhat untoward and unexpected results. I would therefore plead with the Corporation that they should not go in immediately for the second stage of the irrigation scheme, but should hold their hands until they have had a more extended experience of what the land will do. But it is a scheme upon which, think, they cannot lose much, in any case. Even if they had to abandon it at any time, there would be a good many assets left.

I come now to the territories of Bechuanaland. Your Lordships will find that area dealt with on Page 8 of the Report. There most of the Corporation's operations centre upon the construction of a central abattoir at Lobatsi, in Southern Bechuanaland. This is a successor to an older venture of the same kind which did not prove very successful. But such an undertaking is, I think, likely to be valuable, if only because Bechuanaland lives entirely on its export of cattle, and this is always being interrupted by outbreaks of foot and mouth disease, so that its markets in the Union Northern Rhodesia and the Congo are being closed to it. It may be possible to avoid that by the use of the abattoir. But the success of a cold storage factory as large as this, costing nearly £1,000,000, will depend on the success of the Corporation in developing their ranching further north in Bechuanaland. Here they have taken up something like 16,000 square miles of hitherto unoccupied land. The land has practically no inhabitants at all and the Corporation will use it for ranching purposes.

I am sorry to say that when this scheme was first announced, it was very badly dealt with from a Press point of view. They held out great anticipations that here, in this immense area, was a field for the almost indefinite extension of ranching, with enormous benefits to Great Britain, and suggested that we were immediately to receive vast increases in our supplies of beef. That kind of thing is almost impossible. The land is exceedingly poor, as I know will be apparent to your Lordships when I say that even rather optimistic estimates put its carrying capacity at one head for every twenty acres. Let me add that if you are so unfortunate as to encounter one of the periodical droughts that have always beset Bechuanaland, even that estimate will go by the board. However, this is the test of the value of land of that kind. I am glad to see, therefore, that on later advice that they received the Corporation have decided to develop this area over eighteen years. This will give them ample time to gain some experience of the real capacity of the country. If they can succeed in their project of development over eighteen years, then the area wit carry something like 350,000 head. But the Corporation can close it down—and apparently they have calculated that it will be possible to close it down—at the end of five years, with a carrying capacity of something like 75,000 head. The money that is provided in the estimate is for only the next five years.

I know that all those acquainted with conditions in Bechuanaland will be glad that the Corporation have decided on this policy of caution in this respect. There is no ground whatever, I think, for hoping that this project can be either a great success or an early success. In fact, the whole of the Bechuanaland policy of development is somewhat speculative. If it does succeed, well and good. It is speculative, I say, because, if it fails, it will then leave no asset at all behind it. That is the only contribution I wish to make to the debate; some little study of the conditions in these two territories.