Future of CDC

Lord Bruce of Bennachie Excerpts

Thursday 14th July 2011 Westminster Hall

[Malcolm Bruce (Gordon) (LD)]

I am glad to have the opportunity to open this debate on the future of CDC, and I appreciate the fact that the Secretary of State for International Development has undertaken to respond to it.

CDC is a remarkably important part of our development armoury and it is likely to undergo substantial changes in the coming years, as our Committee recommended in its report. I need not detain hon. Members long by saying that CDC—originally the Colonial Development Corporation, subsequently the Commonwealth Development Corporation, and now just the CDC—is the Government’s development finance institution and the fourth largest in the world. On its own terms, it has been a success, in the sense that it has grown its assets from £1.2 billion to £2.7 billion since 2004. In 2009, which is the last year for which I have figures, it contributed £222 million towards the UK’s official overseas development assistance.

From a personal point of view, I would say that CDC has done well in terms of what it was asked to do, but it needs to do more and differently, and that is certainly the recommendation of the Committee’s report. The Government have reviewed CDC. The Secretary of State said to me that as a fund of funds it is fine, but it needs to be something more—I agree. Indeed, it has been my view for a number of years that CDC is too distant from the Department for International Development and that its full potential for helping to achieve private sector growth and development in our priority areas has not been realised. I welcome the Secretary of State’s statement that he wants CDC to be

“more pro-poor focused than any other development finance institution, doing the hardest things in the hardest places.”

If I may say so, that quote is characteristic of him.

I have often said that the International Development Committee is not the overseas aid Committee. If we are to provide sustainable development that will lift poor people out of poverty and keep them out, we must strengthen the private sector’s ability to support them. As a fund of funds, CDC has levered additional finance, and there is clearly a role for that to continue—indeed, that will probably be its predominant role—but we have suggested that CDC should consider whether it can, for example, attract more capital from diaspora funds. Diaspora finance far outweighs our overseas development assistance to many developing countries, but it is fair to acknowledge that, understandably, much of that money goes back to the families and communities from which the diaspora has come. However, the Committee took the view that there must be scope for a significant part of that finance to be channelled into wealth-focused, pro-poor development funds. We certainly believe that a well-targeted, well-managed fund could unlock a lot more for pro-poor development.

[Anas Sarwar (Glasgow Central) (Lab)]

As a fellow member of the Committee, I praise the Chair and his draft, which we accepted without any amendments. He rightly says that diaspora communities want to invest in their mother countries. One example is the Pakistani community, which invests heavily in Pakistan. However, one regular problem is that the investments are risky and do not give the returns sought. If CDC reformed itself to appeal to diaspora communities, that could lead to much more effective aid and development in their countries.

[Malcolm Bruce]

I thank the hon. Gentleman for that intervention. CDC opens up the opportunity to do a lot of things differently in the future that could unlock funding from a variety of different sources. That will be a mark of its success.

We also recommend that CDC should try to invest funds where private capital otherwise might not go—or not on a scale or on terms that would meet the needs of the poor. There is plenty of evidence throughout the world that some market opportunities do not always attract adequate investment because they are regarded as unfashionable or remote, or because their benefits are counter-intuitive. One example from the not-too-distant past, and from quite close to home for me, is the Highlands and Islands Development Board. An interesting thing about the board is that it invested in its heyday in stimulating new companies and initiatives across the highlands and islands region.

I remember the chairman of the board giving evidence to a Select Committee. When he was asked what return the board made on its investment, how many losses and bad debts it had and how that compared with the private sector, he answered, in summary, “Actually, our rate of return and bad debt is almost exactly the same as in the private sector.” That prompted the question, “Well, why do we need you, then?” and he answered, “Because the private sector wouldn’t go where we went.” That is classically the case with CDC. It will and can go to places where investment might not otherwise be made, but where genuinely positive economic returns can be secured. [Interruption.] I am glad that my hon. Friend the Member for East Surrey (Mr Gyimah) has found his right place in the Chamber. I hope that he might catch your eye in due course, Mr Walker.

It is right that a development finance initiative such as CDC should have, in addition to such priorities, an investment code that meets the Department’s environmental, social and governance standards. That code should be used not as a barrier to attracting funds, but as a means of effectively certifying the quality of investment and attracting money from investors who want to meet certain high standards. There are examples of ethical investment funds in the UK. People with such investments want to invest their money in ways that have particularly beneficial social outcomes. I am certain that people will want to invest in ways that deliver benefits to the poor, but they will also want to know that it is being done in a businesslike and commercial way—not through a charity, but through an organisation designed to create sustainable economic development.

One problem with and criticism of a fund of funds is that, by definition, it creates long lines of communication and limited direct control. Many transactions are happening at a long remove. Given that it is a development finance institution, it is therefore necessary, first of all, to ensure that the impact is properly assessed and measured. We have called on the Government to ensure that that is done more effectively than in the past. A proper assessment should be made of what jobs were created, whether they were quality, permanent jobs, and whether those jobs were adequately paid. That is the essence of sustainability as well as of the pro-poor benefit of the investment. The same applies to transparency. People need to know where the money is being invested and whether it is being invested in appropriate things with which people feel comfortable. They need the assurance that the primary outcome is benefiting poor people.

That point raised a debate in the Committee about what people should be paid. It is somewhat embarrassing that the CDC has suffered criticism for that in the past. Given that its primary purpose is to help the poorest people in the world, high rates of remuneration and bonuses for its executives create an uncomfortable anomaly that needs to be addressed.

[Mr Sam Gyimah (East Surrey) (Con)]

Does the right hon. Gentleman agree that it is not just about the absolute level of salaries and bonuses, but about the time horizon within which they are paid? If we are to do serious development work or to make investments with a development impact, people should be thinking about the long term, rather than about short-term gains.

[Malcolm Bruce]

I absolutely agree. My view is that that is a good criterion for every form of investment, but especially in this context.

The Committee received interesting evidence on remuneration, which we debated. The standard response on CDC has been, “It has been set up as a market-based model competing for funds in the marketplace, so we have to pay people market-based salaries.” I am not saying that there is no connection between those things, but we received significant evidence that there were people who would be prepared to work for considerably less than the market rate, although not necessarily for peanuts, given that, in the peak year, the chief executive’s package totalled £1 million, which included a salary of several hundred thousand pounds. However, there are people who will work not for £20 a week, but perhaps for £50,000, £100,000 or £150,000 a year, on the grounds that they have an opportunity to give something back from their own career by contributing their experience at a time when they do not need the money. We asked the Government to look at that. I appreciate that that can create tensions, but as long as the process is done openly, the model would draw some of the sting out of the criticism that has been levelled in the past.

Similarly, the Committee had an interesting discussion about the use and role of tax havens. We recognised that things were not as simple as we had thought when we started to look into the situation. The argument for their use is that they create financial efficiency that attracts more money than would otherwise be the case, and that that does not, in fact, mean that taxes are not being paid. Unattached—orphan—money that was not directly related to a particular geographical area or activity could be reinvested in the fund and, in effect, the tax not paid on the tax haven funds represented money available for reinvestment. The Norwegian development finance institution recently took a policy decision to pull out of tax havens, and doing so dramatically reduced the attraction of additional finance. Our view is that we should look at the situation clearly. There should be transparency and institutions should always pay taxes appropriately and properly, but we have asked the Government to consider whether they should provide a rule about the correct role of tax havens. To be frank, the Committee did not feel that there was enough authoritative evidence to make a definitive recommendation.

[Anas Sarwar]

In the spirit of transparency, does the right hon. Gentleman agree that it might be a good idea for the Government to consider whether they should request that CDC publishes what taxes it pays and what profits it makes for every country it works in?

[Malcolm Bruce]

Absolutely, and I obviously hope the Secretary of State can give us that assurance.

In a sense, the organisation needs to be a trailblazer for what an investment model in developing countries ought to be, and a role model not only for other DFIs, but for the well-intentioned private sector. We have concluded that there is scope for clarification at the very least and for the maximum transparency.

We were as shocked as the Secretary of State that despite the sale of Actis, the fund manager, for £373,000 and the fact that the Government were apparently entitled to 80% of the proceeds, not a penny had been paid by the time the Committee took evidence. I know that he was anxious to vent his spleen about that when he gave evidence to us. I do not know whether he will be able to give any indication today of whether the Government can sell their share and, if they do so, whether we will get a fair rate of return—after all, that will be reinvested for the benefit of poor people.

Perhaps the Committee’s most significant recommendation was that the investment model for CDC should be changed. I know that the Government have not entirely accepted our recommendations, but I think that they acknowledge the strength of their principle and the spirit. We recognise that the fund of funds model could unlock a substantial amount and that it does attract investment. Particularly if the report’s recommendations are taken on board, that could be focused in a way that gives real, sustainable, long-term benefits to poor people in poor countries.

We felt that some of the money needed to go into more direct, riskier and more pro-poor investment. That means not that it should be thrown away or invested irresponsibly, but that lower rates of return should be acceptable or that a mix of grants and loans should be applied. We suggested the name “CDC Frontier” to indicate that the body would be operating slightly more experimentally.

One point about our recommendation of having two separate businesses was that because the fund of funds has been very successful at attracting and unlocking substantial extra funding—it has provided very good leverage—we were concerned that a more risk-associated set of investments in the same fund might frighten off some investors who have contributed. I hope that the Secretary of State will reassure us and that his response shows that he has taken our concern on board. As long as the Department and the way in which CDC is established are able to reassure those people, the Committee will be content if our specific model is not adopted. I hope that the Secretary of State understands that the proposal was not a gimmick, but a genuine attempt to ensure that we had the balance of the changing nature of the business right and that we did not have a higher-risk aspect undermining the area with a proven track record.

The Committee felt that there should be some agreement on the sort of sectors within which CDC should operate, but the Government did not entirely accept that recommendation. I appreciate the reason behind the absence of the hon. Member for Stafford (Jeremy Lefroy). He is a valued member of our Committee and has real expertise in agricultural development in east Africa. He was rightly exercised by the view that most countries in which we have the greatest commitment to pro-poor development are rural, and agricultural productivity is a major cause of poverty. The Committee accepts that the world is changing. We have produced a report on urban poverty and increasing urbanisation, so we do not see development as something that happens just in remote parts of rural Africa, which is sometimes the public image. However, it is true that in both the sub-continent and Africa, a high proportion of the poorest people depend on agriculture for their livelihoods, yet the productivity of agriculture is frankly abysmal in many cases.

When the Committee recently visited east Africa, some of us spent a night in a village in the heart of rural Burundi—

[Richard Burden (Birmingham, Northfield) (Lab)]

rose—

[Malcolm Bruce]

I will not take any interventions on that point. There is an internal issue in the Committee.

In Burundi, we witnessed for ourselves some of the poorest of the planet’s poor people struggling. I was going to say that they were on the edge, but they were beyond the edge—they were not operating at survival levels. If it were not for the intervention of non-governmental organisations, I do not think that they would have survived. It was estimated that their per-capita income was 20p a day. Apart from very basic and poor living conditions—no electricity, one tap for 4,000 people and pit latrines, although not for everybody—we saw exhausted soil, diseased plants and minimal yields that were inadequate even for self-sufficient farming, never mind cash-cropping.

The hon. Member for Stafford, as someone who knew a little more about agriculture than other Committee members, said that it should be possible to perform a soil analysis, to work out nutritional benefits and to advise on disease-resistant plants, and possibly to increase the yield of the agricultural holdings by up to eight to 10 times. That would be a massive return, so we felt that CDC should be part of the process of tackling that problem. We would like to think that it would consider investing in improving agricultural outputs in such poor countries.

[Pauline Latham (Mid Derbyshire) (Con)]

Is it not true that CDC could help not only with productivity and increasing yield, but by working with farmers with very small plots of land to enable them to join together as a co-operative, because that would give them a greater income overall? When the Committee went to India, we saw a diversity of products compared with the sorts of crops grown in Burundi, Rwanda and, indeed, the Democratic Republic of the Congo. It would be better if people could diversify and have larger plots so that they can make more money, which would come back to CDC and benefit all those incredibly poor people we saw when we stayed in Burundi.

[Malcolm Bruce]

I certainly agree that we want a partnership that looks at the best way of optimising and maximising production from which the community can benefit. I know that the Government have said that they are unwilling to direct CDC into particular sectors, but I hope that the Secretary of State will indicate that he will also not be telling it not to go into particular sectors. I hope that the Government will listen to the Committee’s view that CDC should try to explore such an area because that approach would give it an expertise that would be beneficial and could be replicated elsewhere.

Although today might not be the appropriate time for the Secretary of State to comment on this, he will be aware of the engagement that we have all had in our development programme in India. He has set a target of 50% for the level of Indian overseas development assistance going into private sector development by the end of 2014-15. For absolute clarity, I should say that the Committee did not dissent from that as a principle, but we were concerned about whether the mechanisms existed, or would exist, to achieve that figure. It will be interesting to see the role of CDC and equivalent partners in relation to that, particularly because the Government of India have made it clear that they are not keen on the UK Government’s aid programme being used to subsidise private sector investment.

To return to the example I cited with regard to the Highlands and Islands Development Board, there were projects in the states that we went to—Bihar and Andhra Pradesh—that probably would yield a return, but are unable to attract investment because they are off the sexy horizon of where people want to invest in India. It is possible for the Secretary of State’s objectives to be achieved, but the revamped CDC and the equivalent model may have to be worked up to a point where that can deliver. That is not possible at present and, to be fair, the Secretary of State has not said that it should happen as of today. However, a lot needs to be done in the next three or four years if that is to be delivered.

I can summarise things with a slightly personal view. I have been Chair of the Committee for six years, including throughout the previous Parliament. As I have said before, the creation of DFID was a considerable achievement of which the previous Labour Government had every justification to be proud. I have no hesitation in saying that. However, after that length of time and with a new Government in office, it is also right and proper to review, reprioritise and reassess.

Until recently, DFID was not comfortable with the role of interacting with the private sector. What people in DFID do in development terms is brilliant and world class. Indeed, I am not criticising the people involved because they did what they were asked to do. However, whenever there was a discussion about private sector co-operation and partnership, there was a tendency to say, “Well, that’s what CDC does. We’ll park that and get on with our development job.” In future, there needs to be more of a mingling of the two. When one role is more risky, complicated and difficult, there is always a worry that it could compromise the other. I understand those concerns, but the relationship between the Department and CDC as it changes needs to be slightly more hands on. There needs to be more parallel working between CDC in country and DFID programmes in country, and a greater understanding about them between the two.

My final example about that comes from a briefing the Committee enjoyed—my hon. Friend the Member for Mid Derbyshire (Pauline Latham) was there in Aberdeen—from the Wood Family Trust, which I hope will give evidence to us in the autumn on a different inquiry. The trust was engaged in a project in east Africa on making markets work for the poor. It is a private family foundation, and it started off by saying, “We’re going to give the money we’ve made”—predominately out of the oil and gas industry—“and put it into development in Africa, because that’s about putting something back. We’re business people and we’ll do the business thing.” Indeed, that was precisely what it was doing. However, it rapidly realised that it could not do what it wanted without being in partnership with the public sector. It is interesting to note that the public sector needs to partner the private sector and the reverse is also true. It is the working together that delivers the best results.

I commend to the Secretary of State the fact that, when the Committee is visiting any bilateral partner in the future, we are likely to get a briefing about what is happening between the development programme and CDC in that country. We have not had that in the past—CDC has almost been a different organisation.

I commend our report to hon. Members. I am very grateful to the Secretary of State for attending the debate and, indeed, for his constructive response to the report. I look forward to him updating us because I am aware that since our report was published, things have moved on a bit with regard to initiatives to revamp and reinvigorate CDC. The Committee is very much looking forward to hearing about that.

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[Caroline Lucas (Brighton, Pavilion) (Green)]

I am grateful for the opportunity to speak in the debate, particularly because I am not a member of the International Development Committee, although I follow its work closely. I welcome the Committee’s report on CDC, which has operated in the shadows for too long and which is increasingly a subject of public concern.

I am pleased to note that the issue of compliance by CDC fund managers with the Department for International Development-sponsored CDC investment code has been raised in the report, because it is an important issue. I have followed the issue at first hand after one of my constituents, Mr Dotun Oloko, came to see me about the investments of two CDC-backed funds in Nigeria, Ethos and Emerging Capital Partners. Mr Oloko’s concerns have been set out in written evidence received by the Committee, so I will not detail them here. Suffice to say that Nigeria’s Economic and Financial Crimes Commission reports that four of the companies in which CDC-backed funds have been invested are fronts for laundering money. That money is said to have been corruptly obtained by James Ibori, the ex-Governor of Nigeria’s Delta state. Mr Ibori, who has previously been convicted twice in the UK, is on trial here again, this time for alleged money-laundering offences involving CDC investee companies.

CDC’s investment in such companies raises many concerns. As hon. Members will recall, CDC’s investment code requires that all businesses in which CDC’s capital is invested must

“comply with all applicable laws and international standards intended to prevent bribery and financial crime.”

Under these rules, companies with links to a politically exposed person, such as Mr Ibori, his relatives and close associates, should have been subject to an enhanced due diligence process. Why did the funds fail to pick up on these links, even after they had been brought before a Nigerian court and were widely publicised in print and in the electronic media? A simple internet search would have revealed the details of corruption associated with these CDC investee companies.

I also want to know whether procedures were in place, both within the funds and within CDC, to ensure compliance with money laundering laws in the UK, the US, Jersey, South Africa and Mauritius—all countries where the funds and CDC are variously registered. For example, here in the UK, the Money Laundering Regulations 2003 require CDC to implement procedures to forestall and prevent money laundering. If, as the evidence from this case suggests, CDC has failed in that respect, will there now be a broader review of CDC’s portfolio with regard to money laundering risks?

My constituent Mr Oloko’s own investigations revealed another stunning fact: a discrepancy of several million pounds between the amount one of CDC-backed funds claims was paid for its investment in a Nigerian fertiliser company, and what was actually received for the shares in Nigeria. The fertiliser company is reported—alleged—to be a front for Mr Ibori. Yet this appears to have gone unnoticed by CDC and, once it was informed, unreported too. In future, will CDC be required to report such information, if there are reasonable grounds to suspect that a crime has been committed?

There are other causes for concern. CDC continues to be an investor in a bank whose director has been jailed and in other indicted investee companies. Those companies include one where a former chief executive officer is facing criminal charges in Nigeria as well as civil action in the UK, and another which Private Eye magazine has accused of tax evasion and corruption. DFID’s response has been equally worrying. When concerns were raised, did it seek further information from Mr Oloko? No, it did not. Did it bring in independent investigators? No, it did not. All it has done is to ask the funds and CDC—the very institutions whose actions need investigation—to give assurances that no wrongdoing occurred. That is not sufficient to reassure the public.

A key question, still to be answered, is whether CDC passed on the information that it received from Mr Oloko to the police, as required under the Proceeds of Crime Act 2002. We do not know, because CDC refuses to say. When I met the director of the Serious Fraud Office earlier this year, he told me that he learned about the concerns directly from my constituent, Mr Oloko.

CDC’s Nigerian investments are not the only causes for concern. CDC also invested in funds that have backed companies accused of human rights abuses, such as Anvil Mining, and of profiting at the expense of the poor. For example, in Uganda the CDC-backed power distributor Umeme has hiked electricity prices to the point where many poorer Ugandans have been forced to steal electricity from the grid; Umeme’s manager is reported to have called for their execution.

DFID officials have argued that the measure of CDC’s contribution to relieving poverty is the profitability of the companies backed by its funds, which is not a serious argument. While investment is certainly needed to relieve poverty, it is both simplistic and irrational to assume that any investment, even if conditioned by environmental and social safeguards, automatically translates into positive impacts on poverty reduction simply because that investment generates growth.

Before I was elected to this House, I worked for Oxfam for more than 10 years. I have seen some of these development questions at first hand. Many of the funds in which CDC invests make extensive use of tax havens. I listened with interest to the right hon. Member for Gordon (Malcolm Bruce) on the complications and issues around tax havens, which is a matter of concern. Those funds are using tax havens, and although the right hon. Gentleman explained that that is not always to avoid paying taxes, it still raises concerns.

[Malcolm Bruce]

I want to reassure the hon. Lady that we share those concerns. We did not dispel them; we just felt that the matter was more complicated than we had appreciated. In a wider inquiry, we did not have time to come to a definitive conclusion. The concerns exist and we need assurances, but she should accept the danger that investment may be driven away if the matter is handled wrongly.

[Caroline Lucas]

I hope that the issue can be looked at in greater detail. I appreciate that it is complex, but none the less there are real causes for concern.

The Government have acknowledged many of the concerns about CDC. I am encouraged that that has strengthened CDC’s environmental, social and governance procedures. CDC is also committed to introducing new development impact indicators and to developing new investment instruments, so that it no longer operates exclusively as a fund-of-funds investor. By 2015, 20% of its investments will be loans and 20% of them will be direct equity investments. However, that still leaves 60% of its investments being delivered through private equity funds. I question whether such turbo-charged profit seekers are always the appropriate development finance vehicles. Indeed, fund managers themselves are sceptical about the compatibility of the fund-of-funds approach with DFID’s development objectives, particularly in addressing poverty.

There are some important lessons to be learned, most notably about the need for proper scrutiny of development projects and for CDC’s investments to be properly monitored on a regular basis. My constituent has looked at a relatively small proportion of CDC-backed funds, but what he has already discovered makes me extremely concerned that there deep-seated problems that needed to be addressed as a matter of urgency.

Profiting from development at the expense of the poor is easy; history is, unfortunately, replete with examples of that. The more difficult challenge is to assist poorer people in designing and developing programmes for their own benefit, rather than that of their financial backers. I very much hope that CDC can rise to that challenge in the future.

Finally, I sincerely apologise for the fact that I cannot be present for the whole debate, although I will be here for some time. I understand that it goes on until 5.30 pm.

[Malcolm Bruce]

It can do.

[Caroline Lucas]

If it does, I cannot be here until then. I hope that the Secretary of State will forgive me, and none the less address some of the issues that I have raised. I will avidly look at his response in Hansard.

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[Rushanara Ali (Bethnal Green and Bow) (Lab)]

It is a pleasure to speak today from the Labour Front Bench about CDC. I thank the Chair of the International Development Committee, the right hon. Member for Gordon (Malcolm Bruce), and the rest of the Committee for their work. It is vital that CDC should play its part in promoting investment in developing countries to promote economic development and poverty alleviation.

In 2009 development finance institutions contributed about $33 billion of new private sector investment in developing countries. The contribution made by institutions such as CDC to developing countries has the potential to make an even more significant impact on economic development and poverty alleviation, as part of the UK’s continuing work in international development. As the right hon. Member for Gordon pointed out, it is vital to build on its work and to focus on areas where improvements can be made. With a mandate to boost economic growth by investing in private sector development and more than £2 billion of planned investment in the next five years, there is, as I have said, a great opportunity.

I want to focus on some of the issues raised by right hon. and hon. Members in the debate. The right hon. Member for Gordon highlighted the importance of CDC’s acting as a fund of funds, and of the need to focus on pro-poor development and the connection between investment and development. Economic growth in its own right will not bring about development if we do not use our investments appropriately, as many hon. Members have pointed out.

[Malcolm Bruce]

The hon. Lady has made an important point. A World Bank report on sub-Saharan Africa will often give an annual figure showing rates of growth that most of Europe would envy, but it does not show that the distribution of that wealth is not helping to alleviate poverty. Wealth by itself is no use, if it does not get to the people who need it.

[Rushanara Ali]

I welcome that comment. As we have seen recently, in many middle-income countries, economic inequality coupled with injustice are a devastating combination and can lead to conflict. Economic development is vital. Growth is vital, but it must go hand in hand with tackling global inequality. We must be mindful of that responsibility in our investments through CDC and in our other investments.

The right hon. Member for Gordon also discussed the linked matter of ethical investment and the need for social outcomes and sustainable economic growth, and other hon. Members have reinforced those points. Historically, while CDC’s role has been important and has often been positive, it has had a mixed history. This is a great opportunity for us to look ahead at how it can play a bigger and more significant role.

My hon. Friend the Member for Birmingham, Northfield (Richard Burden) raised the important question of about 50% of the international development budget to India being channelled through private sector investments. He sought clarification from the Secretary of State whether that figure is accurate and whether that investment will be channelled through CDC or some other route. I will appreciate that being clarified in the Secretary of State’s response.

The hon. Member for Brighton, Pavilion (Caroline Lucas) raised some important issues about compliance with the spirit and letter of international law and about tax, transparency and money laundering laws, among others. She reiterated the role of ethical investment and the need to be mindful of human rights, in particular when investing in mining companies and others. Many organisations have expressed concern about the impact that particular kinds of investment can have and the need for greater care to ensure that such investments are ethical and that human rights violations do not take place.

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[Mr Mitchell]

The hon. Lady is nodding assent, and I will write to her on that basis.

The point I seek to make is that by helping the world’s poorest people to create wealth and build up their own assets, we will help them to pull themselves out of poverty, and become less reliant on aid and more resilient in the face of natural disasters. During her excellent speech, the hon. Member for Bethnal Green and Bow (Rushanara Ali) underlined the point that development finance institutions such as CDC should do more to reduce poverty. I completely agree with her. We need to see the new CDC leading the way and demonstrating how other international financial institutions, including the International Finance Corporation, can set a good example. We are pressing the IFC to do more in lower-income countries and particularly fragile states, and to be more demonstrably pro-poor in middle-income countries. There is no difference of opinion between the Front-Bench spokespeople on that point.

At the heart of the approach that we are discussing is a reformed and revitalised CDC that will be a catalyst for change in the most challenging environments where the transforming power of successful financial investment is most needed. In that context, the previous six months have seen an enormous amount of activity, and if I may, I will remind the Committee of what the Government have been doing. In October 2010, I informed the House of the Government’s decision to reconfigure CDC to boost its development impact, and a public consultation was set up as part of that process. In March this year, the Committee published its report on CDC. The Government responded on 4 May, welcoming that report and agreeing with the vast majority of its recommendations. On 7 June, I reported to the House that the Government and CDC had agreed on and published a new high-level business plan.

In his opening remarks, the Chairman of the International Development Committee stated how important it was that the Department should not be too distant from CDC. He expressed the view that the Department had previously seemed distant, although the two buildings are only about 300 yards apart. I completely agree with the right hon. Gentleman, and we are intent on rectifying that within the important confines that Ministers and civil servants should not pick winners or make decisions on individual investments. They are, however, entitled as the 100% shareholder in CDC to express a clear understanding of the direction in which CDC should be moving. That is what we are doing.

[Malcolm Bruce]

I take the Secretary of State’s point about Ministers, but what about departmental staff and CDC staff who work together, particularly in bilateral areas? Our experience in the past is that CDC is never mentioned during programmes of visits to other countries. I hope that that will not be the case in the future.

[Mr Mitchell]

The right hon. Gentleman is absolutely right. We will, I hope, see secondments between the Department and CDC in the future, and we are intent on promoting much closer involvement, including at country level. When I first visited India, I, too, was struck by the distance between the Department and CDC, although it is fair to say that, such is the quality of the staff that we are fortunate enough to have in India, that is rapidly being rectified. The Chairman of the Select Committee will agree that that is a most important matter.

In the early part of his remarks, the Chairman mentioned the importance that the Committee attached to the role of the diaspora and, in particular, to remittancing and related matters. On page 2 of the Government response to the Committee’s report, we are clear that making intelligent and innovative use of that should be something that we progress, and we have every intention of doing that.

I do not want to waste the valuable opportunity presented by today’s debate by repeating the details that I have already given the House. Instead, I want to remind hon. Members of the broad thrust of the changes that we have made to CDC—changes that reflect the responses to the consultation and many of the comments made in the Committee.

Under its new business plan, CDC will become a pioneering investor—the most pro-poor investor in the world. As members of the Committee made clear, there have been too many examples of CDC behaving like any other emerging market private equity fund. I noticed that on one occasion CDC was the seventh investor in a fund, which does not suggest a great deal of pioneering. What CDC has that the market does not have is the ability to deploy patient capital, which does not require the same returns as are returned by the market. It can take a much longer view. That is one of CDC’s unique selling points, and it is extremely important that it is deployed.

CDC’s focus will be on development impact rather than corporate profitability. It will channel all its new investments into the poorer countries in sub-Saharan Africa and Asia, where more than 70% of the world’s poorest people live. It will become bolder in its approach to innovation and risk, accepting higher financial risks where those are justified by greater development benefits. In other words, as I said, it will be a patient investor.

--- Later in debate ---

[Malcolm Bruce]

I thank the Secretary of State for his full response to the debate and also all hon. Members who have participated. I thank my Committee for its work in producing the report.

I do not wish to detain the Chamber, other than to wish the Secretary of State well in reforming CDC. On behalf of the Committee, we look forward to an early meeting with the new chief executive officer, albeit not necessarily formally. The Committee will be anxious to have an exchange of views with the new CEO and the executive staff so that we can interact in a mutually beneficial way. I hope that the Secretary of State regards that as a perfectly reasonable wish for the Committee. CDC has the potential, together with DFID, to become one of the most innovative pro-poor investment opportunities in developing countries. We very much look forward to seeing that development.

I thank the Secretary of State personally for the energy with which he is driving things forward, for his vision for maintaining the successes and advantages that are built into CDC, and for enabling it to be innovative and flexible in ways that I hope will be of great benefit to poor people throughout the world.

Question put and agreed to.