HL Deb 28 November 1985 vol 468 cc981-91

3.35 p.m.

The Minister of State, Foreign and Commonwealth Office (Baroness Young)

My Lords, I beg to move that the Bill be now read a second time.

This Bill extends the powers of the Commonwealth Development Corporation so as to enable it to arrange for both borrowing and lending overseas on a more flexible basis by means of a wholly-owned subsidiary. At present, under the Commonwealth Development Corporation Act 1978, as amended in 1982, any subsidiary of the corporation established overseas may carry on its borrowing and investing activities only in one country. This is inhibiting, for fairly obvious reasons. Moreover, it is impossible under present legislation for subsidiaries of the corporation to lend money to financial institutions which would in turn lend, as many of the best of these institutions do, to more than one country.

The Bill would overcome these difficulties and would enable the corporation to set up a subsidiary to borrow in foreign currency for investing abroad; in doing so no additional burden would be put on the total of our own public expenditure. All borrowings by the wholly-owned subsidiary would be subject to the approval of the Secretary of State, with the consent of the Treasury, and could be supported by his guarantees. Borrowing by the corporation itself is guaranteed by the Treasury. We are also taking the opportunity of this proposed legislation to give enabling powers to the Secretary of State to provide grants to the corporation as well as loans.

The Commonwealth Development Corporation, or CDC as it is normally called, has made a major contribution to British efforts through both aid and investment to increase the prosperity of developing countries. The corporation is a public sector institution and a statutory body which invests on a sound and businesslike basis and seeks a fair return on the money it invests. Indeed, it often invests in projects which attract the support of private sector finance, whether it be from this country, from other industrialised countries, or from the country in which the project is situated. Your Lordships will know that one of the aims of the Government is not only to provide an efficient and sustained overseas aid programme, but also to encourage private sector investment in developing countries. The CDC's activities are very much in line with these objectives.

But the CDC is not just another financial institution. Over the years it has built up a very deserved reputation for sensitivity to the needs of developing countries, knowledge of their particular circumstances and economic potential and interest in the development of their human resources. It is no coincidence that of the 482 employees working for the CDC, 298 are working abroad.

The CDC has financed pioneering developments in a number of places. For example, in Swaziland it promoted the first irrigation project in that country and also the first commercial forestry. In Vanuatu it has invested in the development of a cocoa estate which includes a factory processing the produce of nearby small farmers. It has, indeed, done a great deal to assist the smallholder. In Kenya the Tea Development Authority, for which the CDC provided financial support, embraces the products of more than 150,000 small farmers; and in Africa it has pioneered the whole concept of nucleus estates. These are estates growing cash crops for centralised processing and marketing; the workers on them also grow food for themselves and for local consumption. In that continent the CDC has investments in nine nucleus estates, and 33,000 smallholders are involved in them.

In particular, the CDC has for a long time given very valuable assistance to the training and management of projects with which it is associated—both agricultural projects and those needing technical support. The aim of overseas development must be to assist developing countries to strengthen their own economies and provide their own skills and effective management. The CDC's record here is exceptionally good.

The CDC also accepts as one of its major responsibilities the provision of finance to projects in poorer countries and, in particular, to projects dealing with agriculture and renewable natural resources. Some of these projects would not easily attract private sector finance from those who are looking simply for a quick profit. A few figures might be helpful. In 1984 57 per cent. of the CDC's new commitments were to renewable natural resources projects, and 74 per cent. to poorer developing countries. To give a proper measure of the size of the CDC's operations, new commitments in 1984 totalled £101.4 million and total disbursements in that year £109.4 million. This is a very substantial programme.

This year, when the problems in African countries have been so much in all our minds, it is particularly interesting to note that the CDC has a long and fruitful association with Africa. For example, of 31 projects to which it made new commitments in 1984, 16 were in Africa. The CDC is particularly concerned with the problem of food in Africa, which we all recognise needs a long-term solution, even more than immediate injections of relief. The corporation has promoted substantial projects for food for local consumption in Africa and it manages a number of these projects. An outstanding achievement of the CDC in Africa is the foundation and continued management of an international agricultural centre in Swaziland, which aims to develop the abilities of nationals of developing countries to plan and run agricultural ventures including irrigation projects. This is a very important area, as recent events have so tragically shown.

There is, therefore, a very good reason to provide the CDC with concessional loans for the aid programme, as we do and propose to continue to do. But this is not the only source of finance on which the CDC can draw. Since it is an investor in a wide variety of sound projects, its activities naturally generate substantial repayments and returns. In addition, the CDC has borrowed money at normal rates from the National Loans Fund. The main purpose of the present Bill is to widen the scope of the CDC's borrowing by allowing a wholly-owned subsidiary to borrow for investment abroad. With these various sources of finance, we envisage that the corporation will be able to sustain a sizeable investment programme.

I now turn to the Bill itself. The main proposals are in Clause 1, which makes various amendments to the Commonwealth Development Corporation Act 1978. I should like to mention briefly what would be the effect of various subsections. Subsection (2)(a) would allow the corporation to carry on undertakings in overseas countries and to promote or expand new or existing enterprises in those overseas countries. It would also enable funds provided by the CDC to regional bodies to be used in countries other than those where particular bodies are incorporated.

Subsection (2)(b) would allow the corporation to establish a wholly-owned subsidiary which, on its own behalf, may give financial assistance to other bodies, as well as assisting the corporation to achieve its objectives. This subsidiary could borrow money for investment in projects. We intend that the borrowing would be in foreign currency. I should point out that since the subsidiary will be wholly owned by the corporation, there is no question of its pursuing policies of which the corporation does not approve. Subsection (2)(c) would allow the CDC, if necessary, to give assistance to such a subsidiary financially and in other ways, so that it might in turn assist other bodies or persons to carry out certain of the CDC's objectives.

Subsection (3) ensures that the borrowing of the new wholly-owned subsidiary, like the borrowing of the CDC itself, should be subject as to amount, source and terms to the approval of the Secretary of State for Foreign and Commonwealth Affairs, given with the consent of the Treasury. Subsection (4) empowers the Secretary of State, with the consent of the Treasury, to make grants to the CDC. This is essentially an enabling measure. Before grants were provided there would be careful discussion and consultation with the board and management of the CDC. The possibilities we have discussed with the CDC include using grants to enable them to undertake specific activities which are sometimes difficult to justify on purely commercial grounds such as the provision of certain kinds of technical co-operation for projects in which the corporation is involved. Use of grants on a wider basis to fund the corporation's mainstream activities would need to be considered with special care as it could affect the way the corporation is regarded by its overseas partners.

Subsection (5) allows the Secretary of State to guarantee borrowings made by a subsidiary of the CDC. This should enable the subsidiary to borrow abroad at rates from½ per cent. to 1 per cent. lower than would otherwise be possible—a substantial advantage. We do not envisage that the wholly-owned subsidiary of such a prudently managed organisation as the CDC would invest in such a way as to necessitate calling on these guarantees, but this subsection and subsection (6) ensure that the Secretary of State could ask the CDC to repay any sums called upon. The subsections also ensure that Parliament is properly informed of any transactions.

This is a short Bill and a technical one, but it is a Bill that will enable the corporation to continue and strengthen its activities, which have brought a higher standard of living to many people, the majority of them very poor, in many different countries in the world. I congratulate the chairman—the noble Lord, Lord Kindersley—the board of the CDC, its new general manager and its highly professional and devoted staff on their record, and wish them continuing success. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Baroness Young.)

3.47 p.m.

Lord Oram

My Lords, the House will be grateful to the noble Baroness for introducing the Bill in such a clear way and for explaining it to us. As she has said, it is a short technical Bill, and so far as we on this side of the House are concerned it is a welcome and uncontroversial Bill. But it gives us an opportunity to comment upon the work of the corporation, and I was glad that the noble Baroness took advantage of that opportunity to describe some of the work that CDC does.

As I see it, this Bill is yet another step in the development of the powers of the CDC in keeping with the changing needs of developing countries and of the expanding role of the corporation as the years go by. It brings to my mind an earlier Bill, for which I had some responsibility in another place, which gave the corporation powers to operate in overseas countries which were not members of the Commonwealth. As I understand it, this new Bill gives powers to enable the corporation to escape from the inhibiting effect of national boundaries. I can well imagine that in the practical day-to-day operations this flexibility will help the corporation in a very practical way.

This linking of business enterprises across national boundaries is very much in keeping with a general trend that one can detect and which is becoming more and more in evidence as the years go by. In trade and in technical assistance under-developed countries are increasingly able to help one another and not be solely dependent for aid and technical assistance on the developed world. The addition to the operations which is envisaged in Clause 1 can be seen as one aspect of the growing collaboration among third world countries.

I wonder whether, when she comes to reply to the debate, the noble Baroness could give the House an example or two of the kind of project which Clause 1 would facilitate. I can readily see the general principle as being acceptable; but I should appreciate having a rather more concrete idea of what would be the kind of project which would be facilitated.

On earlier occasions I have made clear my view that the work of the Commonwealth Development Corporation is one of the great success stories of developing the economies of under-developed countries. I have had the privilege of seeing the work of the corporation in the field in various countries. For a short while I had the privilege of serving on its board. From those experiences I have every confidence in supporting the increased powers which this Bill provides to the corporation. I have also in successive, more general debates on developing countries made clear my own views about the kind of development that one seeks to encourage. Broadly, I would sum up those views as being the need for a greater emphasis on agriculture and on rural development, and the use of grass roots organisations capable of serving the needs of the peasants in the fields.

It was with that background and those ideas in mind that I read the last annual report of the Commonwealth Development Corporation. I am glad to see that both the chairman in his report, and the general manager in his, gave prominence to those priorities to which I have sought to give some emphasis in the past.

I recall that five years ago the CDC was given certain guidelines offered to it by the Overseas Development Administration. It was suggested that the corporation should place emphasis on helping poorer countries; and that it should give priority to investing in projects concerned with the renewal of natural resources. The noble Baroness quite rightly pointed to evidence that the corporation has been following those guidelines. Indeed, the chairman in his report makes specific reference to those guidelines and claims that they have been faithfully followed. The report further on gives clear evidence that that is so. For example, I was glad to read that in 1984 the poorer countries received no less than 82 per cent. of the £109 million to which the noble Baroness referred as being the disbursements from the CDC in that year. I have read elsewhere that there has been an emphasis on its work in helping small farmers. That to my mind is a particularly important aspect of development policy and I believe that the example set by the corporation in these matters could well be followed by other development agencies.

I particularly admire the work under the heading of nucleus estates because it is those projects which I think are distinctive as being put into operation by the CDC. It has always seemed to me that the nucleus estate is an effective means of combining the provision of central support services with a maximum of independent operation by the peasant smallholder. It seems to me a very practical way of getting the best of both worlds. But in connection with the nucleus estates, I was sorry to read in the report that the establishment of a nucleus estate and smallholder oil-palm project in the Philippines has not proceeded. This is disappointing. The reason given in the report is that there was a lack of local government funds for a road to lead to the proposed estate, but I am wondering whether there were not political difficulties as well, about which we read in earlier years, which had something to do with the postponement or non-fulfilment of that project.

I hope that the necessary lessons have been learned from the CDC's experience in the Philippines, not least that when a project is envisaged the very fullest regard should always be had to the sensitivities of the local populations. It seems to me that possibly in the case of the Philippines that regard was lacking.

In the report by the general manager he stresses the economic plight of the poorest developing countries largely due to the drought, a subject which has been a matter of debate on many occasions in this House. In particular, the general manager points to the debt problem which is arising in the extremely stressful circumstances that the developing countries now face. It is a debt problem made worse by the high international interest rates. In that connection, I am hoping that the powers provided in the Bill to make grants in addition to loans will be of some assistance in helping to alleviate the debt problem. I suppose from what the noble Baroness said that it is not envisaged that this power will be used to any major extent but it is at least pointing, as I see it, in the right direction because it must happen very often that a project emerges which is highly desirable on developmental grounds but cannot be justified financially because of the burden of interest charges and capital repayment obligations. I can, I hope, well see that the power to make grants will enable the CDC in specific cases to overcome that problem.

It is not only the quality of the work which the CDC does which is impressive. It is important too in quantitative terms. The CDC's disbursements last year were £109 million. That is something like one-tenth of the size of the disbursements of the Overseas Development Administration all told. This figure of £109 million was as much as had been achieved by the CDC in the two preceding years, a very commendable development. Moreover, as I have indicated, it is my view that the money which the CDC disburses provides soundly-based projects calculated for the maximum benefit to the economies of the countries in which the corporation operates. I would just venture this comment. I only wish that the whole British aid programme was expanding at the same rate as the CDC's programme seems to be expanding and with the same degree of effectiveness.

I have no hesitation whatever in welcoming this Bill on behalf of my noble friends. It gives new powers to an organisation which has used its previous powers in the most responsible and effective way. I am confident that this Bill will enable it to continue with its excellent work.

3.59 p.m.

Lord Walston

My Lords, at the outset may I declare an interest in the CDC, however remote, having been closely associated with the organisation until some three years ago and still retaining a very great admiration and affection for it.

It is, as the noble Baroness and the noble Lord, Lord Oram, said, a first-class organisation which has done, and is still doing, and will continue to do, a first-class job for this country and, above all, for the developing countries in which it operates. One matter which is perhaps not sufficiently realised when talking about the CDC is the fact that everything which it does is long-lasting; its effects continue long after the project has perhaps been forgotten and may well have passed out of any control of the CDC. Therefore, it is not simply a "one off' operation; it is of lasting benefit to those countries in which it operates.

Like the noble Baroness, I should like to pay tribute to those who are responsible for the CDC. I begin with its founding father, that great man the noble Lord, Lord Reith, who was the chairman who really put the CDC on the map. I also pay tribute to the noble Lord, Lord Howick—another very great and impressive man. The present chairman, the noble Lord, Lord Kindersley, is their worthy successor. However, it is not only the chairmen to whom we should pay tribute. As the noble Baroness has pointed out, we should also pay tribute to the general managers—Sir William Rendell, Sir Peter Meinertzhagen and now Mr. John Eccles. They are all people well worthy of their very important position and of the great tradition which they carry on.

However, it does not stop there. We must remember all those who work for the CDC both in London and overseas, because it is upon them that a great deal of responsibility lies. These people must not only be experts in their subject, be it agriculture or whatever else, and they must not only be sound businessmen who can understand balance sheets and ensure that the operation is profitable from a financial point of view: they must also be leaders of men, able to inspire and encourage their own staff, whether they be expatriate staff or staff from the country in which they operate—and sometimes conditions are not all that easy. However, perhaps most important of all they must be people who have a real political flair and a nose for politics—people who can understand the politics of the county in which they operate and the important issues and the motivations, and who know those people who are likely to take control, those who will be helpful allies and those who should be treated with caution. In that respect the CDC is enormously fortunate in the staff which it has throughout the whole of the area—one could almost say the whole of the world—in which it operates.

As the noble Baroness has said, it is big business. It is purely commercial, but its commercial aspect grows bigger and bigger every year. The noble Lord, Lord Oram, gave your Lordships some figures, and I shall give a few more. By the end of this year the total investment of the CDC and the commitments into which it has entered will be approaching £1 billion—a very substantial figure in any context. Every year the CDC pays the interest that is due on its borrowings from the Government, it pays the interest that is due on its commercial borrowings—its more recent ones—and it repays the capital as it becomes due. It pays income tax in the countries in which it operates and it also pays income tax in this country. On top of all that it has substantial surpluses-which every year are reinvested and carry on the good work.

As the noble Baroness has pointed out, this Bill will, in a modest way, help the CDC in the very fine work that it is doing. However, I should like to ask the noble Baroness a question. She has mentioned the matter already in passing, but I should like to press her a little more closely as to why there is the provision in Clause 1(4) as regards making grants available to the corporation. There is the old saying, "Don't look a gift horse in the mouth. If you are offered a grant you should take it with both hands and be grateful for it". There is also the story—and I do not want to impute any evil motives to the noble Baroness—of the Trojan Horse. While it does not do you much good to look a Trojan Horse in the mouth, you have to look at it in other places extremely carefully. I personally can see no need for this provision whatever. I do not see that it will have any effect as regards making the CDC more commercial and more successful. Indeed, I consider that it may possibly hinder its activities.

As has been said—and I have said it myself—the CDC is a commercial concern; it is not geared to aid-giving. If it becomes an agent of the Overseas Development Administration by handing out grants on its behalf, its character will alter and it will need entirely different types of people. I hope that the noble Baroness can assure the House that there is no intention whatever of it being used in that way. Such a course could also have an adverse effect on the relationship of the CDC with its clients and its partners overseas. Hitherto it has been solely a business relationship, and everybody knows it. There has to be a prospectus, a good balance sheet and good commercial business management. However, if the CDC were thought, however unjustly, to be associated with aid-giving and not solely with investment, the relationship with the governments in those countries in which it operates would undoubtedly change. There is the risk that some of those governments would expect from the CDC not investment but straightforward aid.

It seems to me rather surprising that the Government—particularly this Government, with their very great emphasis on the need for commercial management—should attempt in any way to graft aid-giving on to a commercial operation. Therefore, here again I hope that the noble Baroness may set my fears at rest.

Also, if grants are to be made rather than commercial or soft loans, there is the danger of increasing bureaucratic interference. Hitherto the CDC has operated very happily with the officials in the Overseas Development Administration. The relationship is exemplary. However, once the CDC becomes involved in aid then surely there is the risk that officials would have more say in its displacement, and its commercial autonomy may be eroded.

I do not wish to sound an unduly discordant note in my remarks because in my view the Bill is useful and will, in general, help the CDC to continue to perform its valuable functions. However, there are doubts which have come to my mind and I hope that the noble Baroness will be able to allay them when she comes to reply to the debate. Apart from that, I welcome the Bill and wish it well.

4.9 p.m.

Lord Seebohm

My Lords, my own interest in this particular Bill, which I welcome very much, is that for many years I was a director and for some time chairman of the Barclays Overseas Development Corporation and we worked very closely with the CDC, but very much in its shadow, and were involved in joint projects with it. I formed a very high opinion of its efficiency, which has been proved over the years to be quite correct.

However, there are just one or two matters in the Bill which have made me stumble a bit. First, the opening sentence of the Explanatory and Financial Memorandum refers to the purpose of the Bill as being: to enable the Secretary of State to make grants to the Corporation;"— that is all right— and to enable him to impose restrictions on, and give guarantees in respect of, borrowings by the Corporation's subsidiaries". I stumbled over that because the word "restrictions" worried me in case there is to be some reduction in the complete freedom of action of the CDC in managing its financial affairs, which it has always done extraordinarily well. This is evidenced by the figures in the last balance sheet which show that it has accumulated over £100 million of free reserves and added no less than £9 million to them last year. In the tricky atmosphere in which it has to operate this is a highly commendable record.

Secondly, in Clause 1(4), which the noble Lord, Lord Walston. spoke about, until the noble Baroness explained the position I did not understand quite what the grants meant. I had hoped that it did not mean that the whole policy of funding was to be changed, with more restrictions on the activities of the corporation. I find myself disagreeing entirely with what the noble Lord, Lord Walston, has said. I believe that the method regarding grants for these doubtful advances and investments, of which I have had so much experience in my life, is really equivalent to putting up equity. There is no equity in this company at all, except its own free reserves. If this is what is meant by these grants, I welcome them. Finally, as the chairman and the general manager of the company are listening to this debate I should like to congratulate them on a splendid record and wish them all the best for the future.

4.12 p.m.

Baroness Young

My Lords, we have had a short but useful debate. I should like to thank all those noble Lords who have taken part, in particular the noble Lords, Lord Oram and Lord Walston, for their warm welcome to the Bill, and the noble Lord, Lord Seebohm, for what he has said about the work that has been done by the Commonwealth Development Corporation, especially the nice things said about the noble Lord, Lord Kindersley, and the managing director and the staff. A debate such as this presents us with an opportunity to say in public what we so often think but do not usually get an opportunity to say.

The kind of examples which have been given about the work of the CDC were welcome, and not surprisingly on an occasion such as this we discover not only that the noble Lord, Lord Oram, has served on the CDC board, but I think everyone who has spoken has had some personal connection with the CDC in some way. The debate has ranged over a much wider measure than this rather technical Bill before us. Although the Bill is acknowledged to be a useful measure, it is of course focused on a limited area.

I have been asked a number of questions, and I shall try to deal with them in the order in which they arose. First of all the noble Lord, Lord Oram, asked whether I would give some examples of the kind of project that Clause 1 would facilitate. Perhaps I may give him this particular example. The Commonwealth Development Corporation has provided funds for Shelter Afrique, a Kenya-based organisation which in turn supplies finance for housing activities in a number of countries in the continent of Africa. Because of present legislation CDC has had to confine the use of this finance to Kenya itself. But when the Bill is enacted the CDC could, if it wished, provide finance for Shelter Afrique to support housing developments in other countries. In other words, this is simply an example of how the CDC, with the enabling powers in this Bill, can extend its work in a way that we would all wish.

The noble Lord also raised a point about the Philippines and the development there. It is correct to say that the only reason the CDC has not pursued the possibility of further projects in the Philippines is lack of local finance to provide infrastructure necessary for the development to take place.

Both the noble Lord, Lord Walston, and the noble Lord, Lord Seebohm, focused on the provision about grants. Perhaps I may say to the noble Lord, Lord Walston, that I hope I can set all his fears at rest. Whatever else the CDC may, or may not, do I do not think that anyone wants it to become a Trojan horse anywhere. It certainly is not intended to have the kind of outcome which he suggested might be worrying some people.

On the question of grants the Bill aims to empower the Secretary of State to provide grants as well as loans to the CDC. It might, for example, be useful to provide on a grant basis technical co-operation direct to the CDC for certain projects where the country in which the CDC is operating does not request this help as part of the normal bilateral aid programme. The CDC recognises this. There might, for example, be a case for providing the CDC with funds from the aid programme at terms even more concessional than our present soft loan; that is, on grant terms. Obviously this would give the finance a greater net value over a period, but before such a step was considered we should have to hold most careful consultation with the CDC.

I am delighted to confirm to the noble Lords, Lord Walston and Lord Seebohm, that the Government have no intention of changing the character of the CDC's activities, nor of increasing government control over its activities. The Government are content with the current types of activity undertaken by the CDC and with the current relations between the Overseas Development Administration and the CDC.

I hope that with those remarks I can set at rest the concerns of the noble Lord, Lord Walston, and answer the question asked by the noble Lord, Lord Seebohm, as well as indicate that there is no intention in the Bill of making matters more restrictive. On the contrary, the purpose of the Bill is to enable the CDC to expand its activities in a more effective way where it is shown that one would follow sensibly from the other.

I am glad that the work of the CDC commands such a wide measure of support. It is, indeed, a unique institution in this country, combining, as it does, sound business practice and an enterprising response to the needs of developing countries. This Bill will enable the corporation to continue its excellent work at a time when the developing countries greatly require new investment from both the public and the private sectors as well as management skills. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.