COMMONWEALTH DEVELOPMENT CORPORATION (Hansard, 3 May 1994)

§ Baroness Chalker of Wallasey

The Government's response to the report on the Commonwealth Development Corporation (CDC) by the Monopolies and Mergers Commission was reported to the House on 25th March 1993 (colsWA 22–23). A Quinquennial Review of CDC has also been completed. Copies of the review report have been placed in the Library of the House. The Government have endorsed its conclusions and recommendations.

CDC makes an important and distinctive contribution to Britain's overseas development programme. Its primary role is to promote productive investment in the private sector and to support privatisation programmes. It will continue to concentrate its new investments on the poorest countries, where financial markets are undeveloped and private sector capital is still scarce. Its strong asset base and returns from previous investments now allow it to finance future growth in new investments at a lower cost to the British aid 62WA programme. In 1993 CDC's investments and commitments increased to over £1.6 billion; £217 million of gross new investments were made, an increase of 24 per cent. on 1992. Over the next five years, a rising level of internally generated resources, and a limited programme of other borrowing on concessional terms starting with a £25 million loan approved by the European Investment Bank on 22nd March 1994 is expected to allow further increases in the annual level of investment.

As previously announced, the Government have decided to retain CDC in the public sector. As a consequence, no fundamental changes are proposed in CDC's capital structure at present. However, to allow for the planned expansion of activities, the Government intend, subject to Parliamentary time, to legislate to increase the ceiling on CDC's outstanding borrowing power. It is also proposed that new legislation should include powers to enable the Government to waive interest payable by CDC on aid programme loans. As an interim measure from 1st April 1994 the Government have reduced the interest rate on these loans to 0.75 per cent.

The Government have agreed new targets with CDC. At least 70 per cent. of board approvals for new investments each year will be in the poorest countries. CDC will focus on countries which are important to Britain, and at least 80 per cent. of board approvals for new investments each year should be for private sector projects. CDC will aim to invest the remainder only in support of privatisation strategy. This continues the significent shift in emphasis from public to private sector investment which CDC has been pursuing for some years. The Government also intend to consider with CDC how best to associate its work more closely with other aspects of the British aid programme.

By 1996 25 per cent. of approvals should be in the form of equity or quasi-equity; and CDC's catalytic role in attracting additional private foreign investment and local capital should be enhanced.

The target rate of return on capital employed will be 8 per cent. nominal for the next two to three years and will be reviewed thereafter. CDC's administrative efficiency, which was praised by the Monopolies and Mergers Commission, will continue to be further improved. For 1994, the ratio of gross operating costs to year end investments and commitments will be 1.15 per cent. A review of this target for later years is to be completed before the end of 1994.