§ The Secretary of State for International Development (Clare Short)The purpose of the public-private partnership for CDC is to maximise the creation and long-term growth of viable businesses in poorer developing countries, by making responsible investments and mobilising private capital alongside public funds. These objectives have remained constant since the 1997 and 2000 White Papers on International Development. CDC has made good progress in implementing the Investment Policy agreed in 1999, raising private finance and co-financing for investments in poorer countries, and introducing private sector 37WS disciplines. This has been achieved in some of the most difficult markets and economic conditions for many years.
In order to support CDC's progress and the mobilisation of increased private investment in poorer developing countries, I have recently approved two further proposals. Firstly, CDC's business will focus more sharply on regions (South Asia and Africa) and on sectors (power, Small and Medium Enterprises, and infrastructure) that are priorities for DFID and the achievement of the Millennium Development Goals. Following a review commissioned by the Board earlier this year, CDC is already implementing a new business plan approved by its Board, focusing on these areas. Secondly, CDC will be reorganised, separating into two corporate entities and a family of Funds:-
an Investment Company (the existing CDC, with some amendments to its Articles), which would continue to own the cash and investment assets of CDC and its subsidiaries. The Investment Company will remain wholly-owned by the Government during the reorganisation, and will be responsible for ensuring that HMG's capital adheres to CDC's Investment Policy.a new Management Company will be formed during 2003, subject to regulatory and other procedures being completed. The Management Company will raise and invest capital from the Investment Company, other Development Finance Institutions and private investors, following responsible business principles and providing leadership and supervision of a family of Funds.The initial Funds will include Funds for Africa, South Asia, the power sector and the SME sector. Each Fund will be managed by a dedicated fund management subsidiary of the Management Company. The new Funds will be run on a commercial basis that attracts capital from private investors and Development Finance Institutions, to meet the Governments objective of increasing investment in poorer developing countries.The structure of a management company and a family of Funds is an accepted norm in the international fund management industry. The advantages of adopting this structure in CDC are as follows. 38WS
Each Fund would have its own focus and investment strategy, target rate of return, risk profile and other characteristics. Potential private investors will be able to identify Funds that fit into their own investment strategies. The structure also enables specialised managers to be allocated to each Fund, and for incentives to be directly linked to individual Fund performance.Under current management arrangements, there is no competition for the management of CDC's capital. In the medium term, the Investment Company will be able to procure investment management services on a competitive basis, and to invest in Funds launched by other companies as well as by the Management Company. The reorganisation will therefore lead to a more competitive market for the management of investments in poorer developing countries.The Government have concluded that, under current market conditions, we cannot obtain value for money from a sale of shares in CDC Group pic as currently constituted. We are currently exploring with our advisers an appropriate corporate and shareholding structure for the Management Company and its subsidiaries, including the possible participation of private institutions and employees. In the long term, it is possible that equity in the Investment Company could also be offered for sale, when the right conditions obtain.The Investment Policy will remain broadly unchanged. The CDC Universe will apply to both the Investment Company and the Management Company, as will the responsible business principles. The requirements that 70 per cent, of investments should be for poorer developing countries, and 50 per cent, for sub-Saharan Africa and South Asia, will apply to the Investment Company's capital but not to third party capital. The 50 per cent, target for sub-Saharan Africa and South Asia will no longer be an "aim", but will be placed on the same mandatory basis over five-year rolling periods as the 70 per cent, target.
I have informed the Select Committee of these proposals, which I believe will enable CDC to mobilise increased investment in the poorer developing countries, and make a stronger contribution to our goal of eliminating poverty.