COMMONWEALTH DEVELOPMENT CORPORATION – 10 April 2002
Dr Julian Lewis: This is the first time that a so-called Westminster Hall debate has been held anywhere other than Westminster Hall. As we all know, it is because of the arrangements for the lying-in-state of the late Queen Mother. It is therefore appropriate that the subject of our first debate since Parliament has resumed is non-partisan and concerns the goodwill of people in prosperous countries towards those in poor countries.
I shall begin the debate on a local note. The Hampshire Scout Expeditions has been engaged in an expedition to climb Mount Kilimanjaro. Within the past few days, on their way back, the scouts visited poor villages in Tanzania in order to engage in developmental projects and put something back into the country in return for their adventure. The spirit behind that generous contribution was similar to the spirit in which the 1945-50 Attlee Labour Government set up the Colonial Development Corporation, which subsequently became the Commonwealth Development Corporation.
The raison d'être behind the corporation was to boost investment for development in some of the world's poorest countries. When the legislation for the part-privatisation of the CDC was debated in the House in 1999, the wish to make it work enjoyed cross-party support, but there was considerable concern that it might not succeed. On 17 June 1999, when the Bill was first debated in Committee, my hon. Friend the Member for South-West Devon (Gary Streeter), the then shadow Secretary of State for International Development, sounded the clearest possible warning when he said that
"the new CDC may be the worst of all worlds: it will attract little interest from the private sector and will therefore be undersold, but will be moved away from its developmental objectives over the next few years by shareholder pressure. – [Official Report, Standing Committee D, 19 June 1999; c. 4.]
Ms Diane Abbott (Hackney, North and Stoke Newington): I sat in on that debate in 1999. Labour Members were assured that the new arrangements would not alter the CDC's traditional developmental role by one jot or tittle. That is the basis on which we voted for the Bill.
Dr Lewis: The hon. Lady is absolutely right and that was the basis on which the Opposition did not vote against the Bill. However, fears were expressed that the consequences that I have outlined might follow if the arrangements did not work.
Looking back at the record of the proceedings in Committee, two views were expressed about the Bill. The original idea was to have a body that would fill the gap in poorer colonies which were unlikely to attract private investors. I am trying to be as fair as I can by saying that the Government's intention was to convert that body into a bridge between private investors, who might not usually invest in those countries, and the developing countries themselves. However, Bowen Wells, the distinguished former Chairman of the Select Committee on International Development, expressed the view that one purpose of the part-privatisation of the CDC was to reduce competition with the Department for International Development for Treasury funds. The 1999 legislation made it possible to borrow funds from the private sector as well. Unfortunately, the price of doing that seems to be an unacceptable sacrifice of the Department's developmental aid.
The Minister will be aware of the exhaustive examination carried out by The Times and published on 2 February 2002. I shall rely on a considerable amount of that material in the remainder of my remarks. The article quoted a senior policy adviser at Oxfam, Tricia Feeny, who said:
"A lot of [CDC’s] African investments are in things like shopping malls stuffed with imported luxury goods, which cater to the wealthy elite or expatriate community. These have a neutral or even negative impact for the poor."
In other words, she saw a change in the focus and emphasis on the traditional way in which the CDC had invested in developing countries.
During the debates in Committee in 1999, the hon. Member for Richmond Park (Dr Jenny Tonge) expressed great concern that the business principles and investment policy of the CDC were not sufficiently strongly bound into the Bill. Similarly, my hon. Friend the Member for Chesham and Amersham (Cheryl Gillan) pointed out that the first attempt at a public-private partnership by the new Labour Government involved a 50 year-old organisation with £1.2 billion worth of investments in more than 400 businesses in 54 countries.
Sadly, the numbers involved are beginning to shrink. In answers to written parliamentary questions tabled by the Shadow Secretary of State, my hon. Friend the Member for Meriden (Caroline Spelman), the Government admitted last month that the CDC investment in sub-Saharan Africa had declined from £73 million, £72 million and £74 million in 1997, 1998 and 1999 respectively, to only £56 million in 2000. For example, investment in Malawi and Uganda had ceased entirely and it seemed no coincidence that the CDC offices had shut down in both countries since 1999.
A written answer from DIFD on 19 March 2002 also confirmed the closure of other CDC offices in Peru, Trinidad, Jamaica, Bangladesh, the Philippines and Fiji. Although the part-privatisation has not yet been carried through, the strategy of the new administration appears to be preparatory to completion of the process. The CDC, or, to give it its new identity, CDC Capital Partners, has been jettisoning long-term agricultural investments that traditionally yield returns of 6 to 8 percent in favour of funding banks, shopping centres and energy firms that offer much higher rates of return.
Such a process was entirely to be anticipated. The Government assured us that the safeguards would be sufficient, but were they effective enough to stop the process once it had started to roll forward? Conservative Members think that the signs are distinctly discouraging. CDC staff numbers have been cut by some 35 percent, although it must be said that rewards for those who remain have markedly improved at director and chief executive levels. I believe that the Chief Executive receives a package worth £250,000 for his three-day week.
Before PPP, the CDC was subject to a detailed framework of scrutiny, including quinquennial reviews by relevant Departments' representatives under the chairmanship of a representative of DFID. Now, however, the situation is very different. The Government say that they have put sufficient safeguards in the new Bill to ensure the new organisation's accountability, without the need for the sort of parliamentary scrutiny that the Conservatives urged in 1999, when the Bill was enacted.
Let us examine the supposed safeguards. First, the Government will retain a 25 percent share in the CDC. However, a 25 percent share will not prevent changes in the investment policy and thus constitute a worthwhile safeguard.
The second safeguard is that DFID will be able to appoint two directors to the CDC board. However, two people do not constitute a majority so, on their own, they will be unable to protect the development focus.
Thirdly, whereas the Conservatives supported the statement of business principles that accompanied the 1999 Bill, there was nothing remarkable in that statement that other multinational companies could not adopt. By itself, the statement is a worthless safeguard for protecting the CDC's developmental role.
Fourthly, the memorandum and articles of association give no general protection to the role of development in the workings of the CDC. They simply state that there should be a focus on investment that benefits poor countries. That is too vague to be a sufficient safeguard. They also state that the CDC must adhere to the statement of investment policy – the sixth safeguard, which I shall discuss in a moment.
The fifth safeguard is the golden share. Article 51 of the memorandum and articles of association states that there shall be no change in the investment policy without the consent of the holder of the golden share. We welcomed that at the time, but as we argued then, the investment policy itself was already flawed.
The sixth supposed safeguard is the statement of investment policy. We also argued at the time that that statement was far from sufficient to entrench development. It sets minimum levels of investment in poor countries, but it does not prevent a future CDC which wanted to increase its return on investment from investing only in the top-listed blue chip companies of poor countries. It does not specify how many companies the CDC must invest in or the type of company. Two or three minor provisions prohibit it from investing in certain types of company, but it can invest in any high-performance, high-yield company, regardless of whether it benefits the local economy or creates jobs. The CDC's activities could move in a sufficiently undesirable direction to contradict its original aims, without triggering a situation in which the Government could use their golden share.
In its examination, The Times claimed that the CDC's £80 million profit in 1999 had become a £41 million loss the following year. Ernest Mtamboh, a development economist who worked for the CDC for eight years, until he was made redundant recently, was quoted as predicting:
"Over the next 18 months, CDC plans to sell all its agri-business interests in Zambia ... The long-term investments are going to be dumped in favour of short-term investments with a higher return ... The employees won't know what's hit them. Jobs will be lost, productivity will fall, and the good labour practices and social responsibility that were the hallmarks of the CDC will go out of the window."
At the end of the Committee stage in 1999, my hon. Friend the Member for South-West Devon moved a new clause that would have strengthened significantly Parliament's ability to scrutinise the strategy and policy of the CDC. It would have sent a strict and stern message to those running the part-privatised CDC that we were looking over their shoulder, as it stated:
"The Corporation shall at the end of each complete financial year after the day appointed under section 3(3) make a report to the Secretary of State on its investments during that twelve month period and on its policy on future investments."
It would have further provided that the Secretary of State should, as soon as practicable, lay such a report before Parliament.
My hon. Friend said at the time:
"The amendment is designed to bring back CDC's investment policy and decisions to the House of Commons once a year so that we may look over the Secretary of State's shoulder five or 10 years down the road. It constitutes another pressure on shareholders and directors in future: they will know that the House of Commons will consider decisions, and may debate them." – [Official Report, Standing Committee D, 22 June 1999; c. 105.]
The response of the Secretary of State for International Development was that it was sufficient that the Department for International Development would produce an annual report every year, which Parliament could debate. However, in general, the annual report has not been debated in Parliament and, in any case, it addresses a range of the Department's activities and does not concentrate on the CDC in detail.
The most recent DFID annual reports allocated very little space to the CDC. The 1999 and 2000 reports each allocated only three paragraphs to the CDC, which discussed the progress made towards the PPP. The paragraphs contained only the most vague information on the investment strategy being pursued by the CDC, despite the changes in its investment policy. They contained no information about the implication of those changes on development in poor countries. The 2001 DFID report contained only a single, solitary paragraph on CDC Capital Partners that repeated almost verbatim what was said the previous year.
Despite the critical tone that I have had to adopt while addressing this worrying situation, we are trying today to give the Government an opportunity to reconsider their undoubtedly sincere initial belief that they had made sufficiently strong arrangements to safeguard the original intention of the Commonwealth Development Corporation. The CDC enjoys total support among all parties today, as it has under successive Governments since its establishment in 1948.
I shall conclude with a constructive suggestion, which is perhaps not for me, nor the Minister, to make. As the Chairman of the Select Committee on International Development is present, let me air the possibility that the way in which the part-privatisation of the CDC is developing is a worrying trend that seems to confirm the worries of hon. Members of all parties that were expressed when the Bill was enacted.
Tony Baldry (Banbury): We are inviting the CDC to talk to us in June.
Dr Lewis: I am delighted to hear that. In the light of that invitation I hope that my hon. Friend will decide that it would be suitable for the Select Committee to investigate fully and report on how the process is evolving.
I am glad to have secured the debate. I apologise to the Minister if I have sounded like a Jeremiah; I am sure that he will do his best to dispel the gloom. I hope that he will accept the sincerity with which the Opposition are putting their case. We do so not because we should like to say that we told the Government so, but because we wish to ensure that when the CDC is fully and finally privatised we can say that we told the Government so and that they listened, and as a result we gained the best and not the worst of both worlds.
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[NOTE: For THE TIMES’s account of the Government’s subsequent change of policy on the CDC, click here.]
 In his response, the Under-secretary of State (Hilary Benn) pointed out that The Times had been incorrect in reporting that the CDC’s Chief Executive worked only three days per week.