§ Lord Chesham: My Lords, I beg to move that the Bill be now read a second time.
I take a great deal of pleasure in coming before your Lordships' House today to discuss the CDC Bill. It is a sensible and necessary measure which will enable the CDC to continue to fulfil its fundamental purpose in new ways, better adapted to present day needs in so many of the developing countries of the world and most particularly in Africa.
The CDC is well known to Members of this House. It has many friends here with personal experience of its operations overseas. To other noble Lords it is welcome as a valuable and well-respected development finance institution. Its role, established by statute, is to contribute to the economic development of poorer countries. The CDC has successfully been playing that part since 1948, and, although the developing world looks very different now, nearly 50 years on, anything that the CDC does today and in the future must still contribute to that single purpose. It is, I believe, important to be clear on this point. The CDC is the main instrument within Britain's overseas aid programme in promoting private-sector development in enhancing productive capacity, a central aim of the UK aid programme.
Perhaps I may at this point pay tribute to the excellent leadership provided by the Chairman of the CDC, the noble Earl, Lord Cairns, and by other members of the CDC. While speaking of CDC members I should like to say how sad we were to learn of the untimely death on 30th May of Ian Carruthers, Professor of Agrarian Development at Wye College. His energy, enthusiasm and clarity of vision will be greatly missed by the CDC and, indeed, by the Overseas Development Administration, with which he had a long association.
The CDC has its roots in the Commonwealth, and Commonwealth countries still remain at the heart of its operations. Nineteen of its 24 overseas offices are located in these countries, utilising the advantages of a common second language, legal and commercial systems based on UK law, education and other links. In 1995, 38 of the 50 countries in which the CDC operated were in the Commonwealth. These countries attracted 67 per cent. of the CDC's new investments and have 71 per cent. of the total portfolio.
Those strong links are directly relevant to the role which the CDC has been asked to play in the Commonwealth Private Investment Initiative, of which 1960 I shall say more later. But, since 1969, the CDC has, with ministerial approval, gradually and appropriately expanded its activities outside the Commonwealth, focusing on new countries on the basis of development need.
Looking to the future, the CDC's country coverage is not set to alter dramatically. There are, for example, no plans or intentions to divert activity into middle income countries or eastern Europe. The corporation has already ceased to make new investments in the richer countries in Asia, such as Singapore, Malaysia and Hong Kong. The CDC will continue to focus on poor countries with a development need it can fill, drawing on its traditional experience and expertise. Over the next few years the CDC is expecting to continue to increase its new investments in Africa.
The CDC brings tangible benefits to the lives of local people and its contribution is growing. Overall, in 1995 new investments were at a record high of £276 million, an increase of 15 per cent. on the previous year. The CDC has also comfortably beaten the strategic targets set in the 1993 Quinquennial Review. Ninety per cent. of board approvals for new investments were in the poorest countries, against a target of 70 per cent. Forty-seven per cent. of these—or £153 million—were in sub-Saharan Africa. Forty-seven per cent. of approvals were in the form of equity, or quasi equity, against the target of 25 per cent. Against the target of 8 per cent. return on capital employed the corporation actually achieved 9 per cent. in 1995.
Sectorally, the CDC expects to give increasing importance to private infrastructure projects, important to wider development goals such as telecommunications and power, industrial materials, manufacturing and financial markets. The priority areas for its new managed businesses are forestry, rubber, aquaculture, arable crops, sugar production and processing, power generation and cement. Many of those businesses will build on the CDC's traditional strength in the agriculture sector and will add value to its investments for the benefit of host countries. By such means as these, the CDC will continue to be responsive to the changing needs in developing countries and will match its new projects to those needs.
The CDC recycles returns on its capital investments into new businesses. Just last month it announced the sale of the BAL Plantation in East Malaysia for about £100 million equivalent. That provides a good example of selling mature investments to local interests to raise funds for reinvestment in other development projects world-wide. As this House well knows, however, the CDC is not in business to make a quick or easy profit. It is not a passive investor. CDC is there to add value to enterprises, usually by providing longer term finance than is available on the commercial markets; by improving the design and structuring of investment proposals; by contributing management expertise; and by moderating risk in countries which normally attract only a small proportion of private flows. Between 1992 and 1994 the CDC invested 50 per cent. of its investments in sub-Saharan Africa and South Asia, compared with only 2 and 4 per cent. respectively of total private sector flows going to those regions.
1961 The CDC's activities have an important catalytic effect. In 1995 a total of £1.7 billion was committed alongside CDC's commitments in developing countries to produce a ratio of 1:6 of CDC's funds to those of other investors. By supporting commercially viable and developmentally sound businesses, CDC promotes growth which adds to the economic development of poor countries.
Against that background of success we might ask why CDC needs the new powers contained in the Bill we are considering today. Your Lordships will recall the Private Member's Bill introduced last year by my noble friend Lord Trefgarne. It contained proposals essentially the same as those in the Bill today: to remove constraints on CDC which prevent its more active participation in sustainable development overseas. Those proposals met with support in this House, but regrettably, failed to make progress in another place. I am pleased to say they have now come back with its full support.
These new powers are particularly relevant to enable the CDC to be fully involved in the Commonwealth Private Investment Initiative, which I mentioned earlier and in which it has agreed to take a leading role as fund manager. The CPII was warmly endorsed by Commonwealth Heads of Government meeting in Auckland last year. The initiative has the potential to benefit poorer Commonwealth countries by generating and using investment funds provided by other member states.
It is expected that the first phase of the initiative—the Commonwealth Africa Investment Fund—will be launched in July and should be ready to start investing at the time of the Commonwealth Finance Ministers meeting later this year. The fund will focus on sub-Saharan Africa, with an initial capital target of 75 million dollars, of which the corporation will provide 25 million dollars. As the initiative gains momentum, the CDC intends to bring in other institutional investors from the major financial centres of the world, thus mobilising long-term private sector funds not otherwise available to sub-Saharan Africa. The fund is attracting an excellent response from governments and government agencies in South East Asia and Southern Africa. Prominent representatives from the international business and financial sectors have agreed to serve as independent directors.
But, to play its full part and to make the maximum use of its unique experience and network of offices in Africa, the CDC must have powers to assist with rehabilitation and restructuring. These, together with finance for the start-up and expansion of businesses in a wide range of sectors, will be the focus of the fund's activities. At present CDC is empowered to promote or expand new or existing enterprises, but it must have the same powers as its co-investors if the long-term development of this important Commonwealth initiative is not to be put in jeopardy.
I have explained that at present the CDC is empowered to promote or expand new or existing enterprises. This means, of course, that CDC funds are 1962 applied primarily to creating new or additional assets or capacity. This is, and will remain, central to the CDC's work, but it undoubtedly significantly limits the corporation in assisting host governments and major businesses which wish to divest themselves of enterprises, where change of ownership is a necessary preliminary step to regeneration. In many cases, it is the change of ownership and consequential changes of management which are vital to transforming the enterprise for the benefit of the economy. More and more governments in the developing world are seeking help in regenerating under-performing businesses, whose future they perceive would be more successful in the private sector.
In the past, the CDC has been unable to participate in a number of worthwhile enterprises in Southern Africa because they would involve reorganisation rather than immediate expansion. Clause 1 of the Bill addresses this need and would allow the CDC to play its full part in the development process.
The constraints imposed on the CDC by the existing legislation also hinder it in assisting in the development of effective money and capital markets in developing countries. The development of these markets is essential if business is to have access to finance and savers are to have ready access to investment opportunities. They are important for the efficient allocation of funds into productive investments and to promote economic growth. The CDC is able to set up and manage investment funds to assist small and medium sized enterprises. It has been doing this increasingly in Africa, but it is unable, for example, to invest in country or sector funds part of whose portfolio is in quoted securities, although such funds and their management encourage the development of capital markets and the formation of stock or securities exchanges or dealings mechanisms.
The powers contained in this Bill would enable the CDC to carry out these activities and to be placed in a position similar to that of the International Finance Corporation and other development institutions. There is no inconsistency here between giving the CDC the ability to promote successful funds which will attract private capital and its traditional activities. Both are necessary if the CDC is to continue with its "hands on" approach to investment, which, as we have seen, brings real benefit to poor countries.
The third change proposed in Clause 1 of this Bill relates to consultancies not linked to the provision of finance or management services by the CDC—referred to as "dry" consultancies. There are occasions when the corporation is asked to provide such services in areas where it has specialist expertise arising from its core activities. At present, it has to refuse unless the consultancy forms part of a project in which the CDC already has an interest or is expected to participate. We see no reason to maintain that restriction. The CDC will not normally compete for contracts with the private sector; nor does it intend to develop an extensive consultancy capacity. Rather it will use its specialist skills for the benefit of others on a full cost recovery basis.
1963 The CDC works closely with its sponsor department, the Overseas Development Administration, to ensure that all its activities contribute to the UK's development objectives. Key operational targets were set in the context of the 1993 Quinquennial Review and I have illustrated the ways in which the CDC is most successfully achieving them. Its performance is regularly monitored and reviewed. The CDC will remain a public sector body, operating within the strategic framework of controls agreed with Ministers. The CDC's board is fully committed to its fundamental purpose and will continue on that path. We should, however, recognise that change can be beneficial and is sometimes necessary to ensure future success.
We should empower the CDC to extend and adapt its activities carefully and logically in response to the changing needs of poor countries, which will remain the focus of its investments.
The Bill will assist the CDC to continue its fine work, which I know commands support among all parties. It enjoyed a swift unopposed passage in another place. I hope that it will receive enthusiastic support here. I commend the Bill to the House.
Moved, That the Bill be now read a second time.— (Lord Chesham.)
§ 11.21 a.m.
§ Lord JuddMy Lords, I thank the Minister for his explanation of the purposes of the Bill. At the outset, I should like to associate this side of the House fully with what the noble Lord said about Professor Ian Carruthers. He will be sorely missed and leave a gap which it will be difficult to fill.
Let us at least start today by being positive. We welcome any opportunity to discuss the CDC because it enables us, once again, to put on record our appreciation of its largely very practical and constructive contribution to overseas development. It enables us to celebrate the dedicated service of those who have so effectively worked for it in the field and the loyal back-up by their colleagues in London.
Its hands-on, practical, front-line work has usually been outstanding, bringing expertise and management skills, to which the Minister referred, to build up the real, tangible economy—the wealth generating, job creating dimensions—of the countries in which it operates. That tradition of nitty-gritty engagement is the backbone of the enviable reputation won by the CDC over many years and it is one on which we should all help and encourage the CDC to build. The tradition must never—I repeat, never—become sidelined by the attractions of armchair financial wizardry. Its role must not be seduced into becoming just another merchant bank.
However, having said that, we all recognise the vital part to be played by private investment in development. The imaginative new Commonwealth Private Investment Initiative—and I fully endorse everything that the Minister said—is a timely illustration of this. If the CDC can help to bring investment funds to countries, programmes and projects where such funds would otherwise be lacking, that is something to be 1964 firmly encouraged; as, indeed, is appropriate assistance in the general development of the private sector and financial services when and if that is genuinely additional.
What worries us is the apparent confusion between the CDC and the ODA. That was well illustrated by the introduction of two Bills in quick succession last year. First, there was the Government's own Bill which, if the policy had been properly considered together with the CDC, should surely have covered all the essential points. But, no sooner had that Bill been passed than we were confronted by the Private Member's Bill—the Commonwealth Development Corporation (No. 2) Bill—originating in this House and sponsored by the noble Lord, Lord Trefgarne, on which we were frantically lobbied by the CDC, which told us that it was absolutely essential—I emphasise the word "essential"—to the future of the corporation, a view to which the Government lent their full support. With the greatest possible respect to all concerned, that was, frankly, extraordinary. How could an essential element have just been overlooked in the preparation of the Government's own Bill? We have never had a convincing answer. The saga continues, inevitably, to breed considerable anxiety about just how firm or clear-headed the stewardship of this distinguished corporation really is—a stewardship which depends upon the best possible working relationship between the ODA and the CDC. The anxiety is accentuated when, with genuine respect for the noble Lord with whom I personally greatly enjoy dealing across the Floor of the House, the Minister herself is not here to handle her own Bill. How far, we must ask ourselves, has the noble Baroness really focused on those important matters?
I know that the noble Baroness gets restless when I call for a comprehensive, strategic statement of the Government's overseas development policy as a whole—ideally, a White Paper. She cannot conceal her irritation that we are not prepared to make do with the fundamental expenditure review, her senior management review, her NGO review, her annual reports, her Chatham House speeches and the rest. But this Bill is another very good example. We have a lot of tails wagging or, too often, drooping in the sphere of overseas development; what we and the public cannot discern is the dog—if, indeed, in terms of strategic and comprehensive policy, the dog is there at all. The CDC is undoubtedly an indispensable instrument, but to measure its effectiveness, and what most needs to be done to maintain and enhance that effectiveness, we need to see how it fits into the strategy as a whole—just as we similarly need to see with the non-governmental organisations and other significant elements of the aid programme.
In the event, last year, after a great deal of probing in this House and the other place, not everyone in the other place was sufficiently convinced, and the Commonwealth Development Corporation (No. 2) Bill fell. Now we have another Bill—this time sponsored by the Government—which very much reflects its ill fated predecessor. Let me repeat: the fact that the Government 1965 themselves are introducing it again as an essential measure underlines all the anxieties. How on earth did they forget this essential in the first place?
The Bill has been well debated in the other place. The noble Lord will have read the debate; indeed, in fairness, he has today dealt with some of the issues then raised in his characteristically full and courteous way. But some issues remain central and I should like to put them again to the noble Lord so that he has an opportunity to deal with them fully in his response.
First, are the indications, to which I referred, of a breakdown in the close relationship between the ODA and the CDC, indicative of failing government commitment? Is not the absence of the Minister herself today significant? How central does the CDC remain to the Government's overseas development strategy as a whole—always supposing that there is such a strategy? Will the CDC really remain in the public sector? I noted what the Minister said about the importance of being ready for change when change is necessary. Alternatively, is it being abandoned by default, if not by positive conviction, to the private sector? We look to the noble Lord to give categorical answers to those questions.
Secondly, we have been told that the powers in the Bill are required to enable the CDC to play a full part in the Commonwealth Private Investment Initiative—something that we all want to see; indeed, we understand that the CDC only sought new powers in relation to its role in this Commonwealth initiative. Why then do we now have a Bill before the House which provides for new powers for the CDC in all its operations? What specific operations beyond a part in the Commonwealth initiative do the Government intend to facilitate?
Thirdly, in that context, in addition to specifying exactly what operations the new powers in the Bill are intended to make possible, can the noble Lord enlighten us on how extensively it is envisaged that those powers will be used? Last February, the office of my honourable friend in the other place, Joan Lestor, was officially informed that:
CDC might well set its own internal limits on the proportion of its investments to be in accordance with the proposed new powers".But in the deliberations in the other place, the junior Minister, Mr. Jeremy Hanley, indicated that the powers would be much wider, relating to all CDC activities.There is a great difference between specific, ad hoc powers and open-ended powers. This difference relates to the fears that CDC may be on the road to turning itself into a merchant bank juicily ripe for takeover by one of the institutions of the kind of which a number of its board members have so much experience. What is the Government's position? Can the noble Lord leave us in no doubt about this? Currently, the CDC has to apply to the Government for a licence to operate in non-commonwealth countries. Could not a similar process be adopted with regard to the new powers? We still have not heard how the Government and the CDC will ensure that the benefits of the Bill are concentrated on those in greatest need and are not increasingly 1966 diverted just to where the returns are greater. Effectiveness in meeting greatest need must surely be the guiding principle.
Fourthly, of course we recognise CDC's desire to improve private investment flows into Africa—we applaud it—and we very much sympathise with the frustrations under existing Treasury constraints; but, even if the new powers in this Bill could help in CDC's continued search to find the finance for new projects, there will still be a huge gap between possibilities and funds. Can the noble Lord tell us whether this Bill is the end of the legislative road or whether we are likely to see another CDC Bill in the near future to extend the powers of CDC to borrow on the private market? Have discussions perhaps already taken place with this in mind?
Fifthly, given that new CDC investment is largely funded from old and existing projects, does the noble Lord agree that there is a case for ensuring that a healthy balance is struck between reinvestment in those countries with an existing relationship with CDC and any new partners? Does he not also agree that it would be unfair to syphon off surpluses from countries which have generated them into countries where the need is not so desperate? How will the Government ensure that this does not happen?
Sixthly, in previous deliberations CDC has stressed that, because it spearheads investment in countries which other investment organisations ignore, it has no natural competitors. This Bill rather changes all that. What do the Government think will be the likely impact on the way CDC operates, reflected in the skills of its staff and the way it determines its market focus?
With too many aid programmes across the world—not least our own—faltering and declining, there is a temptation these days to talk up private investment flows. Private investment is never a substitute for sound and generous aid programmes designed to bring people into the real economy, and the noble Lord, I know, would not want to suggest otherwise. But private investment flows obviously have a dynamic and critically important part to play in sustained development. However, we all have to face the reality—as the Minister has perhaps indicated—that they do not flow to the poor countries of South Asia or sub-Saharan Africa. They go largely to a group of middle income countries in East Asia and Latin America. In 1994, 90 per cent. of private investment went to just 10 developing countries. Private flows to sub-Saharan Africa are minute and the World Bank has recorded that from 1992 to 1994 only 1 per cent. of private capital flows went to the most indebted countries. By contrast, and to its considerable credit, the CDC informs me that—I quote from a letter of 11th June last—
CDC's portfolio is now heavily skewed towards poorer and therefore the most high risk investment environments. In broad terms, using a per capita income of less than 1,400 dollars in 1994 prices as the definition of a poorer country, 70 per cent. of our investments and commitments are in countries that do not pass that threshold, as compared with 38 per cent. for the IFC and around 50 per cent. for other European DFIs. Small economies (of total GNP of less than 25 billion dollars) account for 59 per cent. of our portfolio as compared with 16 per cent. for IFC".1967 That is not bad. And of course, in 1994–95, CDC new business investments in sub-Saharan Africa increased from £41 million to £154 million. Furthermore, the corporation's investments are medium to long term and offer greatly needed economic stability. I assure the House that the incoming Labour Government will be fully behind CDC in enhancing its well managed, carefully directed and impressively focused private investment.If there remains a doubt that the CDC, with the powers proposed in this Bill, could drift away from a development focused operation to a more orthodox investment bank approach, one way to put minds more at rest would be to increase the number of board members with a strong development background. Why do the Government not do that? At present the board is, frankly, overloaded with bankers. Some have said it is chock-a-block with bankers.
The noble Earl, Lord Cairns, the chair of CDC, has written to my honourable friend in the other place, Joan Lestor, taking her to task—perhaps just a little indignantly—for referring to the CDC as wanting to churn its assets. He insists that all CDC is seeking to do is to maximise the development input of inevitably limited resources. He argues that this may well involve actively seeking to disinvest where the development impact has been completed. We welcome this reassurance. We hope the noble Lord can give convincing answers to the questions I have raised today. For our part we shall then not just acquiesce in the Bill but give it our positive support.
§ 11.36 a.m.
§ Lord RedesdaleMy Lords, I support this Bill for a second time. I do not believe there is a great deal of difference between this Bill and the Bill which the noble Lord, Lord Trefgarne, brought forward in the previous Session. However, the wording is slightly different.
I am glad that the Government have found parliamentary time to bring forward this Bill again as it is an important Bill. I hope that it will pass through all its stages. I was quite surprised that the Private Member's Bill of the noble Lord, Lord Trefgarne, which received so much support on a previous occasion, should have failed in the Commons. However, I understand that there was a degree of apprehension that the ugly word "privatisation"—the noble Lord, Lord Judd, has a view on that—had raised its head. Perhaps the Minister can give us an open and plain assurance that it is the Government's intention that the CDC should remain totally in the public sector. I think that would put all our minds at rest.
I believe that the CDC's success and strength rely on the fact that it is part of the public sector and is so closely associated with the Overseas Development Administration. The activities of the CDC were coherently described by the Minister. Therefore I need not cover them again. However, I wish to pick up a point that he made; namely, that one of the underlying factors of the Commonwealth Development Corporation is its role in private investment. On that issue I have a divergence of opinion with the noble Lord, Lord Judd.
1968 I believe that private investment is vital for successful emerging economies. I believe that it is a vital component of that success. Aid should be the first step but private investment is far more important for a country to be successful.
§ Lord RedesdaleI am glad to note that the noble Lord, Lord Judd, agrees with me on that. The area of the world that has failed so badly to attract private investment is the sub-Saharan African region. Therefore I welcome the Commonwealth African Fund most wholeheartedly. It is good to note that the CDC is investing 47 per cent. of its new investment in sub-Saharan Africa. It is worth noting that the headquarters of that fund will be situated in Zimbabwe. It is a brave move to site the headquarters there rather than in South Africa, which might have been considered by some as the logical choice. Zimbabwe is one of the countries which is trying hard at the moment to attract private investment.
Obviously the CDC will act as seed capital to try to attract private investment. After the recent democratisation in many countries in sub-Saharan Africa and the subsequent changes in economic practice, the financial conditions are now right for private investment. The conditions were not right a few years back. There has been mention that the CDC acts in a range of countries, some more prosperous than others. I have to support that for a number of reasons. Countries which are not particularly prosperous can act as a benchmark for the CDC because they have poorer and richer areas. I believe that the CDC needs a range of countries in which to spread its risk base so that it is seen as a credible organisation.
I was interested to note from briefing that Cuba is one of the countries in which the CDC operates at present. Does the ill thought out Helms-Burton legislation affect the CDC in any way? In recent briefing on the CDC it was put across with some strength that this is a necessary and worthwhile piece of legislation that needs enactment as soon as possible. I had the impression that there should be no hindrance; indeed, that the length of the speeches should be cut down so that the Bill can be enacted as soon as possible. We on these Benches hope that it will be.
§ 11.41 a.m.
§ Lord ReaMy Lords, I shall say only a few words. It is Friday, and my noble friends Lord Judd and Lord Redesdale have between them made all the important points relating to the Bill.
I have a strong sense of déjà vu because the Government did not have a proper CDC Bill last year but only an inadequate half sort of a Bill followed by an afterthought. As the two preceding speakers said, my friends in another place felt that that was the wrong way to introduce legislation and, not being certain why it had been done in that way, knocked the afterthought emanating from this House down with a feather. Usually it is the Government who do that with Private Members' Bills which go through all their stages in your 1969 Lordships' House. I speak with experience: my Private Member's Bill regulating junior doctors' hours fell in another place with the one word, "Object", from a Government Whip.
In a few sentences perhaps I may emphasise my noble friends' questions to the Minister and add one or two of my own. For instance, how central does the CDC remain to the Government's overall overseas development strategy? Will the CDC definitely remain in the public sector? What operations beyond playing a full role in the Commonwealth private investment initiative and the Commonwealth Africa Investment Fund—both of which we greatly welcome—does the Bill facilitate? How extensively will the new powers conferred by the Bill be used? There is a fear, for example—it was mentioned by my noble friend—that the CDC may be turning into a merchant bank rather than a hands-on development agency. Does the Bill confer all the powers needed in the foreseeable future to enable CDC to borrow on the private market?
Will surpluses earned by CDC enterprises be reinvested in the countries that generate them; or, as some people fear, will they be syphoned off to more profitable countries, leaving poorer and probably less profitable countries less well endowed? Does the Bill change the emphasis of CDC from a development agency operating in a unique way, helping to spearhead investment in difficult territory, into a financial agency? Will the current staff, for example, be supplanted by staff with financial rather than development expertise?
Will the organisation, in other words, still be a pioneer group opening the way for further investment, as is needed in today's conditions, where bilateral and multilateral official development assistance is becoming hard to come by? This really is the supplementary question that I put to the noble Lord at Question Time yesterday. As my noble friend has implied, the lack of infrastructure, both material in the form of power, communications and transport and social or human in the form of education, water supply, housing and health facilities, has been a factor discouraging investment in sub-Saharan Africa, not to mention the terrible conflict and lack of political stability in many countries over the past decade or two. Things look a little better now, with peace coming to Angola, Mozambique, Ethiopia and Eritrea, but there is still trouble afoot in the Sudan, Sierra Leone and Liberia; and Nigeria is certainly in need of a great deal of reform and change.
Can the noble Lord amplify his Answer to me yesterday by saying how private finance in, for instance, the Commonwealth private finance initiative can be attracted to assist in human development as well as in the material aspects of infrastructure building in which the CDC has been involved up to now? Those are also important in attracting inward investment, as the tiger economies have shown so well.
In conclusion, I wish to echo the all-party praise that has been given to the work of the CDC over 48 years and welcome the Bill, as long as it allows the CDC to expand in the excellent way that it has done. We wish the Bill well, but we shall be watching carefully.
§ 11.47 a.m.
§ Lord CheshamMy Lords, I am grateful to those who have spoken today on this short but important Bill. A number of points have been raised which I shall endeavour to answer. I thank the noble Lord, Lord Judd, for providing a copy of his questions just before the start of the debate, and the noble Lord, Lord Redesdale, for advising me of his intended question on Cuba. I am in a perfect position to answer that, thanks to his talking to me last night.
I am not sure that I can take everything in exactly the same order as the noble Lord, Lord Judd, asked the questions. However, I believe that I can cover virtually every point he raised. If I miss anything, I shall write to him. However, I hope that I shall be able to satisfy him.
One of the major themes undoubtedly was the continuing public ownership of the CDC. Following the last quinquennial review, it was confirmed to the House in May 1994 that the CDC was being retained in the public sector. This remains the Government's intention. The present position—the public corporation run by the board within a framework of targets agreed with Ministers—is the right one. The characteristics which have contributed to the CDC's success—the ability to attract co-investors, freedom to work in the poorest countries, freedom to work at the margins of risk ventures—owe much to the security of being in the public sector.
The CDC has a distinctive role within the UK aid development programme and as such is obviously very important with the ODA. The suggestions that there was a rift between the ODA and the CDC are certainly untrue. There is continuing co-operation between the two bodies.
The CDC acts as a catalyst to private sector investment and shows others how to invest profitably in poor countries. This will be the great role in sub-Saharan Africa where it can show, through the Africa Fund, that investments can genuinely and sensibly be made in sub-Saharan Africa. It has an enormously important role in that, which will be supported by the Commonwealth. It will not just be CDC funds; other Commonwealth funds will go into it as well. It is an exciting initiative and we, and I am sure the whole House, wish it well.
The CDC has a mandate to pursue those investments which the private sector regards as on the margin of acceptable risk. Public sector status is valuable to the CDC in its dealings with the governments of the counties in which it operates. There is no hidden agenda behind the Bill; it does not affect the reasons for retaining CDC in the public sector. The Bill is simply intended to allow the CDC to better play its role as the main instrument of the aid programme assisting the private sector in developing countries.
The noble Lord, Lord Judd, asked how extensively the new powers would be used. We have agreed with the CDC that there should be limits to the use made of the new powers, both to reorganise and rehabilitate businesses and to promote capital in financial markets. These limits will be considered in the context of CDC's existing strategic targets, which will continue to apply. We have no wish to be too prescriptive at this stage as 1971 it would defeat the purpose of the Bill, but we expect new activities to form only a minority of board approvals each year and they will be kept under regular review.
We do not believe that there is a need for a White Paper on aid, as the noble Lord, Lord Judd, will be surprised to hear. Our aid policy is regularly debated in detail in both Houses. The fundamental expenditure review set out clearly the future direction of British aid policy.
The fundamental operating principle of the CDC is additionality. It is not investing where no value is added by the CDC. That will continue to apply to investments facilitated by the new powers. So the fear that it could just become a quasi-merchant bank are groundless. The targets and aims are exactly the same. This is to make it more able effectively to carry out its traditional aims and targets.
There was mention of the composition of the board of the CDC. The chairman and members have wide experience of service in finance and development. We believe that they are well qualified to lead the CDC. A sub-committee on development issues has been established, comprising the chairman, Sir William Ryrie and Professor Faber. The late Professor Carruthers was also a member. We recognise the importance of maintaining a balanced board. Following the untimely death of Professor Carruthers, we agree that it will be important to bring in new members with experience in the development field.
§ Lord JuddMy Lords, I am grateful to the Minister for giving way. He is giving a helpful reply which will enable us to be positive in our support for the Bill. However, he has just said something which I find difficult to swallow: that the CDC has committed its consideration of development issues to a sub-committee. That is exactly our anxiety: the whole corporation should be about development. This new financial initiative should be to support that, not to dominate the processes of the CDC.
§ Lord CheshamMost companies have sub-committees to determine certain areas. It is essential that the most expert in development should consider the proposals before they are put to the whole board. That is a sound management strategy.
The next question I wish to address was from the noble Lord, Lord Judd, on the diversion of resources to less deserving countries. There is nothing in the Bill that changes the spread of countries in which the CDC works. Rather, the provisions will enable the CDC to respond more effectively to the changing needs of those countries in which it operates. We look to the CDC to take a clear view on where it is best placed to deploy its particular skills and have the most impact. It is important not to spread the financial and management resources too thinly.
The main driver of CDC's country coverage is a 70 per cent. target for poor countries, as it should be, given CDC's development role. This target has not changed. CDC is not planning to divert activity to middle income countries; on the contrary, as I mentioned in my opening 1972 speech, it is no longer making new investments in countries such as Malaysia, Singapore and Hong Kong but is extending its activities in pre-emerging countries. That is very much what the noble Lord, Lord Judd, would like to see and it is happening.
The noble Lord said that the Bill went beyond the CPII. The CPII gives an excellent example of where the CDC would use its new powers to good effect. There is no reason to limit it by preventing it from investing directly in other projects involving reconstructions which are covered in the Bill. It should not be purely for the CPII.
As regards further legislation, it would be wrong to rule out any further legislation for the CDC at any time in the future. I understand that at present the CDC is not seeking more changes, but it would be totally wrong to say that there will never be any requirement for a change in the legislation. I do not believe that the noble Lord, Lord Judd, would like me to make that commitment anyway.
Reverting to the ODA/CDC situation, there is a regular dialogue between the ODA and the CDC. There is a well-established system to review the CDC's performance and agree with Ministers strategic targets for the future. It is an on-going process and there should be no fears.
I am not quite sure whether I am going back into history, but since the Bill last year was mentioned, I wish to make two points on it. The Government introduced a Bill addressing an immediate need by CDC to increase its borrowing limits. These were approaching their ceiling and were likely to have a detrimental effect on future investment plans. The Bill also allowed past and future government loans to CDC to be made interest-free, thus giving CDC more funds to recycle as investments. Unopposed, the Bill made swift progress.
At the same time, consideration was being given to widening CDC's powers of investment. These could not be included in the original government Bill which had progressed beyond the point where additional measures could be added within the Long Title of the Bill. That is why my noble friend Lord Trefgarne introduced a Private Member's Bill which successfully passed through this House but was opposed in the other place. In recognition of the importance of these extended powers and the urgency, given the role of CDC in CPII, the Government have now introduced a further Bill.
The noble Lord, Lord Rea, mentioned the CDC having the power to borrow in private markets. The CDC has normal powers of borrowing under the 1986 Act.
I now turn to Cuba, with a little history. Following a request from the corporation, ministerial approval was given to operate in Cuba in July 1995. We hope that this will pave the way for further British investment in support of economic reform. An operating agreement on behalf of CDC was signed by the Minister for Science and Technology during a visit to Cuba in September 1995. In accordance with the strategic target 1973 set out in the quinquennial review, CDC will aim to give priority to projects in the private sector. Priority sectors are: mining, financial services, agriculture and industry.
So far as the Helms-Burton legislation is concerned, it remains the policy of Her Majesty's Government to maintain normal trading relations with Cuba. The US embargo against Cuba is primarily a bilateral matter for the two governments concerned. We have made our concern about the Helms-Burton legislation clear both bilaterally and in multilateral fora. We believe that the best way to encourage economic and political reform in Cuba is to maintain constructive dialogue as a means of encouraging reform and democracy there. CDC has a part to play in that.
The CDC is an expert in the business of development. I hope that I have covered all the points that noble Lords raised. In this debate the CDC was deservedly praised on all sides of the House. Our purpose here today is to ensure that the CDC has the necessary powers to continue with its important work in promoting sustainable economic development in poor countries. The Government are confident that the CDC will use these powers prudently and effectively both in the context of the Commonwealth private investment initiative and more widely.
Let us give the CDC the tools it needs. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.