Commonwealth Development Corporation Bill

Lord Bruce of Bennachie Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 9th February 2017 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, I am very pleased to follow the noble Lord, Lord Boateng, and I agree with much of what he said. I draw the House’s attention to my entry in the register of Members’ interests. I have a particular interest because when I chaired the International Development Committee in the House of Commons, we carried out an inquiry published in 2011, before the change in strategy. The noble Lord anticipated some criticisms of the Labour Government, which I did not want to make too forcefully, but he was right that the corporation was being looked at for privatisation. Douglas Alexander got it focused more on poverty but it really took Andrew Mitchell and a wholesale review to come to a strategic change.

One recommendation in our report was to split the fund. The Government did not agree, but did split the corporation’s objectives from being just a fund of funds to separating funds and direct investment and going back to some of the traditions of the early days of the CDC when it invested directly in companies and enterprises, not just through funds. That has obviously had an impact over the last few years and is becoming a more significant part of the portfolio, but it is still very small. I hope that the new strategy will help to explain how we can achieve more of that and find ways to fill the market failures in those gaps to make the transformation. The reality is that I do not believe that any country has significantly lifted its people out of poverty without having a vibrant private sector. The role of development finance funds of the CDC’s kind is extremely important in helping that to happen.

My noble friend Lady Northover identified a number of concerns, which I hope that the Minister will directly address. There have been reservations expressed that we are going for a quadrupling, and then a further doubling, when we do not have a strategy nor yet a clear indication of how that money will be spent. The Minister rightly says that there is a huge demand for a huge amount of money; the question is how much of that would be more appropriately met by an organisation such as CDC, as opposed to the wider market. Given the sort of criticisms that the sector currently faces, the Government need to be careful about putting substantial additional funds into CDC—although I would not put it in these terms—without being absolutely clear that there will be proper accountability, proper results and a proper strategy. If they are not, they will find the sort of heat that they have experienced in the popular press being turned on them for exactly this. It would be extremely unfortunate if that were to happen and we must make sure that it does not.

The reality is that we need to invest in projects that are riskier and offer a poorer return, because those are precisely the projects that the private sector, and by definition the market, will not address. The CDC has shown that they are there and can generate a return. The question is whether there will really be £12 billion of that kind of investment available over the next few years.

The Secretary of State has said that she wants the focus of UK aid to be on trade and investment. That is a kind of mantra across the Government, who are desperate to demonstrate that we can get agreements on trade and investment. But there is a consensus in this House, which I hope is not under challenge, that our aid and development focus should be on poverty reduction. That is our fundamental objective. The noble Lord, Lord Boateng, mentioned the importance of creating jobs and livelihoods. Quite terrifyingly, the forecast of job requirements in Africa alone is not in the millions or even the tens of millions. Hundreds of millions of jobs will have to be found in a relatively short time, which is really quite a scary thought because, if those jobs cannot be found, there will be an awful lot of idle hands looking for something to do—and I fear that those things may not always be positive and constructive. There is no doubt at all that we need to do that.

The other thing I will talk about is the mix of our aid budget and focus, because this is a big increase in one particular component of DfID’s spending. The Minister gave me a reply earlier this week relating to the Government’s humanitarian response. He said that our spend over the last three years has gone from £826 million to £1,266 million—that is, from 12% of total ODA to 17%. Everybody understands why that has happened and there is clear public support for that. Nevertheless that is an increasing proportion of the budget which, by definition, is not available for other aspects of development spending. There have been indications of cutbacks in some development programmes, partly because of that pressure.

The second thing is that the depreciation in the value of the pound—on average 20%—means that the purchasing power of our aid budget has been correspondingly reduced and so there is less scope. Those people who seem to think, because of our commitment of 0.7%, that somehow DfID and our development budget is awash with funds are not really facing up to the pressures of impending famines as well as of traditional development.

There is a clear synergy between the role of development and the role of private sector investment. Clearly investors, whether they are indigenous to a country or outside it or in partnership, benefit from having an educated, healthy workforce and decent infrastructure investment. The two things fit together. Indeed, one of the reasons that many enterprises are reluctant to invest in developing countries is a lack of those things, coupled with problems of governance and corruption that make them difficult places to do business. If the CDC and development can work together to make that environment more conducive, the private sector will be able to take more of the burden on itself and help to address the development needs. We can look to countries such as China, India and Vietnam that have demonstrated how that kind of partnership can lift millions of people out of poverty over a relatively short period of time.

There is a clear need to ensure that extra money going into the CDC is not at the expense of development programmes. I completely agree that the objective in the end is for countries to have the capacity and the resources to run their own services and be free of aid, but we should not cut off that aid prematurely before they have actually established that degree of viability. That would be a point of concern for me. I know it is unpredictable but it would be helpful if the Government and DfID gave us a little bit more guidance on their strategic objectives in terms of how much they feel is reasonable for humanitarian support, how much is going into development and how much is going into the private sector. It would help us to get a clearer idea of the strategy behind it.

Just as a general comment, the people in the sector whom I meet, whether they work for private contractors, NGOs or organisations generally working with development, feel very beleaguered at the moment. They feel under sustained attack—not all of it justified or even accurate—not only from the popular press but also from the more serious media with an inadequately robust response and defence from DfID as well as across the Government. Much more can be done to explain how transformational UK aid is and how effective we are at delivering real results, giving people the good-news stories that are out there of how, thanks to our intervention and the partnerships we build both from our own expertise and that of the country we are operating in, we are helping to make a real difference.

People who say aid does not work are simply ignoring the facts. We have reduced poverty, we have massively delivered on health objectives, we have got more children into education and we are beginning to raise the quality of these services. We have set ourselves an ambition of ending absolute poverty by 2030—no mean commitment—and to do that we will have to maintain our level of commitment but we also have to explain it much more fully and clearly.

Therefore, while the CDC has a role to play, its changed focus over the past five or six years makes it better equipped to spend more fully. I still have reservations about whether there are enough of the right kind of projects to absorb this extra spending, and I would be interested to see the strategies around how that could be done. I support what we are trying to do, but it is important that we show how the CDC fits in with the strategy of development, humanitarian response, building resilience and capacity and helping, as the second-largest bilateral donor in the world, to lead the way to end absolute poverty by 2030. This has to be a contribution to that.