Select Committee on Foreign Affairs Minutes of Evidence


Examination of witness (Questions 20-39)

TUESDAY 24 APRIL 2001

VISCOUNT WEIR

Chairman

  20. May I welcome you again, Viscount Weir, on behalf of the Committee. You come with a most impressive track record in business. Essentially, the Committee would like to learn from your long experience. Perhaps you would tell us how you have seen the Foreign Office evolve from the time when in the 1960s when it was waking up to the need to become more linked with the United Kingdom plc. What has been your experience over that period? Where are we now? What things would you like to see being done which are not being done currently?
  (Viscount Weir) I have been involved for quite a while in engineering companies. For 44 years now I have worked with two companies. I am still working in the industry. I have been in companies which are either major exporters or carry out major contracts overseas. Both the companies I have been with also have a considerable number of operating subsidiaries overseas. With Weirs I was for 27 years the chief executive or chairman or, at times, both. In the last five years, I have been chairman of Balfour Beatty. I have also seen it from a kind of general, industrial point of view rather than just an individual company, sharp end perspective. I was with the Committee for Middle East Trade a number of years ago. I have twice been the president of BEMA which is an organisation that represents the electrical manufacturing industry. I had two years as the chairman of British Water which represents the companies that supply the water industry either as consultants or contractors or equipment makers and indeed also those parts of the water companies which invest overseas. I am at the moment vice-president of the China-Britain Business Council and I am also chairman of an informal organisation called Major British Exporters, our members being really most of the larger companies who carry out either big contracts overseas or are involved, like Rolls Royce who is one of our members, in major, individual export contracts. Although I have been rather flatteringly described in this thing where it says "evidence from experts", I would not pose as one at all. I hope I can give you some sort of insight on the only contact I have really ever had with the Foreign Office, apart from having a few friends there. My contact has really been at the interface between trade and business overseas and the Foreign Office. During the many years I have been involved in engineering, I was from a fairly early stage back in the 1960s involved personally in negotiating and carrying out big contracts abroad, a lot of the time in the Middle East but since then in the Far East and so on. To get back more to the point of your question, in more recent times there was a general criticism that the Foreign Office—and particularly the embassies abroad—tended too much to traditional diplomacy in foreign relations rather than supporting the national interest in trade terms. I happen to think from my own experience that that criticism was a somewhat exaggerated and somewhat misplaced one. Even going back to the sixties, what I found working with embassies abroad was how extraordinarily supportive they were, even at a time when they were not being told by government that you must make more of your effort on the commercial front. I always found they were very helpful then, although I suppose I would say that they are, if anything, more helpful now. I give you a very small example. Just by coincidence, this very weekend on the Saturday not only my own company today, Balfour Beatty, but Weirs where I was previously until I retired were partners in a big venture in the Arab Emirates and we got ourselves in a quite serious muddle. We had to put a tender for a very big project in this last Saturday and our partner who was supposed to supply the power plant dropped out earlier in the week. He practically double crossed us. I will not say who they were. It was very important that, because the tender we put in was not as it should have been, we should get the reasons why this had happened across at a very high level with the government in Abu Dhabi and what we were doing about it. I rang our ambassador there on Saturday morning, Mr Nixon. I explained the situation to him. It was a quite complicated one to just spring on somebody. One hour later, he rang me back at home in Scotland. He said, "I happen to know the chap who matters in this. I have spoken to him and I think you are not dead yet. I will talk to you again later this week" when people would have been to see him and so on. You could not get a better service than that. I have had many other examples in the past, some of them not helping one positively on some contract but actually giving one something much more valuable, which is advice not to do something. We were saved in Iran at the time of the Shah by Sir Michael Orlebat who was there at the time. He persuaded me not to take a big contract we were being offered at a vast price because he said, "Do not worry about what everyone says officially. You can be damned sure the Shah is going to be out." We were saved from some awful situation.

  21. Was Tony Parsons giving the same view at that time?
  (Viscount Weir) Tony Parsons gave exactly the same view.

Sir John Stanley

  22. The Foreign Office's mission statement which is in their own report, the object of our study at the moment, states, "We shall make maximum use of our overseas Posts to promote trade abroad and boost jobs at home ...". From your opening remarks, it appears you think that the Foreign Office is doing the maximum. Is that actually the case? Do you have any suggestions that you would like to make to the Committee as to how the Foreign Office might be able to do more? Obviously, your experience is governed by the particular countries you have been operating in but do you feel that we have a sufficient number of posts in the bigger countries, in places like China, Russia and Latin America? Do you feel that in the posts we have people with the requisite commercial experience and background? Are there any improvements that you would like to suggest to us?
  (Viscount Weir) There are a number. You used the words at the beginning, "Are we doing the maximum?" We can all say one can always do better. To try and answer you, I think there are some areas where we definitely should have a stronger presence. I will give you one example: some of the former CIS states. All right, it is early days and there are still some of them in a most confused way—places like Kazakhstan and so on. These are inherently extremely rich countries. They have enormous resources unexploited which offer opportunities not only for British companies to invest in those things but also the opportunity for export business. It is a slow and tough process in those sorts of countries because the standard of government administration is not one we are familiar with at home. I do think that we have somewhat missed an opportunity. It is not too late but my understanding is—I do not know whether I am right or not—that the Foreign Office was a bit strained for resources to set up proper coverage of those countries. It would seem to me that that would be an excellent long term investment.

  23. Some of us have been to Kazakhstan and indeed most of the Committee have been to different parts of the CIS in this Parliament. You particularly highlighted Kazakhstan. Are there any of the other CIS states that you would highlight as being in need of greater resources?
  (Viscount Weir) If I had my choice, I would have us represented right across the piece. I would have much more representation than we have at the moment. I just gave Kazakhstan as an example. My company happen to be building a road there at the moment which we will start again now the weather is better. We have worked in Azerbeijan and so on. All that area I would like to see covered in general more strongly than it is at the moment. There is another area which I am not tremendously familiar with, as I am in some other places. I always have had the feeling that although we have been well represented always in Mexico, South America is a market that Britain has never really got to grips with in the way in which it ought to have. I know we are doing a very big job at Balfour Beatty at the moment in Brazil. We are doing an extension of the Sao Paulo network underground. However, in order to do it, we have had to do it out of Germany, from our subsidiary there in Munich, because only from there can we get the financial backing and the financial terms which we are not able to get here from ECGD or government agencies but we can get from German quasi-state banks giving low rates of interest and so on. Of course, if you have operations abroad as we do, you have to sometimes say, "We would like to do it out of home but it is not very practical" and you do it from America, Germany or wherever. You have to be pragmatic about it. South America in general, for some reason, we do not see as an area we have got to grips with.

  Sir John Stanley: On that point, are you able to give us an indication of what the interest differential was between the ECGD rates that were being offered and the—

  Chairman: Hermes?

Sir John Stanley

  24. I do not think it was Hermes. You did not say "Hermes".
  (Viscount Weir) The project is supported by Hermes as the German export credit insurance agency, but the financing for the Brazilians has come from an organisation called KFW which the Germans of course pretend is not a state bank because that is against OECD rules. In fact it is because it is owned by the different Landesbanks in Germany. If you like, it is municipally owned rather than federally owned, but it is no less of a state lending institution. We could not have bid for it from here. We have others in China and other places where unfortunately it is the same situation.

Sir David Madel

  25. On the question of bringing people straight from industry into an ambassadorial role to help trade and investment, that has been hinted at. Do you think that is something that we really must go for now?
  (Viscount Weir) I have a preference myself on that. The history of bringing people from industry into government I do not think has really been as successful as people at first sight would think it ought to be. There are exceptions of course. I think it would probably be rather more helpful—and I think we ought to do something of this kind—to second people. I had experience at Weirs. We were asked by the Secretary of State for Scotland if we would take a senior civil servant of his who was on the industry side as a non-executive director for three years on our board. That worked out very well from both directions, as a matter of fact. Obviously, if we were discussing anything to do with government business, he walked out of the room and had a cup of tea, but it was I think very valuable to him and certainly it was very valuable to and appreciated by us. If that works as far as the Department of Industry and has helped the people there, I am not sure something of that kind might not be helpful to ambassadors because when they then go into a post they know much better what the problems of the companies are. They understand much better the way industry and so on thinks. Having said that, most of our ambassadors I have found to be extremely intelligent people who pick up the reality of commercial situations extremely quickly. It says a lot for the process of selection and training of them. One has come across some outstandingly intelligent and brilliant people in it.

  26. You think there is a South American gap, as far as we are concerned, on exports and knowledge. That is why I asked the question whether you think that, as that is such a hugely expanding market, there is not a special case for bringing people straight from industry into those posts.
  (Viscount Weir) I am not dismissing your suggestion at all. Maybe there is a part way there by way of giving people in the diplomatic service a bit more exposure to industry but that is not to say that there is not considerable merit in your suggestion. The trouble is to find the people. If you say, "We will get somebody from industry", of course sometimes you can get somebody from industry but you get somebody who they do not want. One sees people go to various government bodies from the City when you know perfectly well they were less successful merchant bankers of such and such a house. There have been a few examples of that which some of us could recount but it is very difficult to get somebody who really understands and who is in an active role to give it up and do that. It is very difficult for the company who are asked to release people. Trade Partners UK have this business of getting people seconded from industry as promoters. They got one or two very good people but really key people companies are very unwilling to let go.

Dr Starkey

  27. One of the roles of the Foreign Office is promoting British trade and wealth creation in general but there are other policy objectives, forwarding principles of human rights and environmental sustainability for example. Your company has been involved in one particular project, the Illisu Dam, where those different roles of the Foreign Office have been somewhat in conflict. From that experience, do you think that the Foreign Office gives clear messages to British industry in those circumstances or do you feel you are getting contradictory messages?
  (Viscount Weir) It is not quite as simple as that. It depends very much on your specific position as a company as far as some contracts are concerned. All right, you are directly in the line of fire if you are, say, the main contractor for something. I know this well enough. If they go ahead with the Ilisu Dam, Balfour Beatty in the main is the leader of the civil consortium, although there is quite a number of other companies in it. On the other hand, you can get ones like the Sudan where, although in the case of Weirs we got a large contract for pipeline parts, that was just really as an equipment supplier to a regular customer who was a contractor. You will understand that one is sometimes very much at one remove. You really do not know what the Foreign Office view is, but you are tendering to somebody else who, as main contractor, has no doubt the responsibility as far as these sorts of issues are concerned. I am not pleading here but I do not think people realise quite how difficult a position you can get yourself put into as a main contractor on some of these issues. Frankly, we look on ourselves as being contractors. If you take something like the Ilisu Dam, in no way are we the promoters and in no way are the people who have had the slightest involvement in whether the dam should be built there or wherever. We have plenty enough to do in our lives designing these things and building them. I can understand why it happens but a lot of the criticism which in my view should be directed virtually solely to the promoters—they are the people who should be asked to answer the questions—ends up coming at the likes of ourselves. When you start off at the beginning, getting involved in the beginning of a project of this kind, you really have no idea of what criticisms from NGOs and so on are likely to hit you.

  28. Is not that the sort of thing you might expect to ask the Foreign Office about? That is something that the Foreign Office ought to be aware of as an opinion within a country. You gave the example of Iran at the beginning. You were effectively given political intelligence by the British government which was saying, "The current regime may look as safe as houses but actually it is on its way out." They could equally have said about the Ilisu Dam, "This may look like a dead straightforward project but you need to be aware that there is a lot of opposition on these various grounds."
  (Viscount Weir) To be fair, we were given advice by the Foreign Office, at the beginning when we got involved, and it was very good advice. Of course you have to understand that the roots of this project go back years and years and years. At the time we were given excellent advice from them about how careful we must be, if we were going to bid, to get assurances for the safety of our own people there, because at that time there was still a considerable amount of fighting going on between the Turkish Army and the Kurdish rebels. Our main concern at that time, which the Foreign Office had rightly drawn our attention to, was the safety of our own people, and we got assurances from the Turks that that would be all right. Although there is still much controversy on the Turkish/Kurdish interface, there has been for hundreds of years, there is not actual fighting now, like there was at that time. I do not think we had any idea at that time what the people like, you know, the human rights organisations, and so on, and how strong a reaction they would take. I am not sure that the Foreign Office really could have given us any better advice than the conclusions that we came to ourselves as to what the likely reaction by NGOs and pressure groups would be on the subject. I cannot see how they could.

Mr Rowlands

  29. Just a supplementary that seems to follow from what you said, that your job is hard enough, to design the thing and construct it, does your company and other companies like this of your size and character have an ethical dimension to your business?
  (Viscount Weir) Yes, we do. We have very specifically stated policies on the environment, obviously on things like safety and on business ethics as well. On business ethics we observe the principles of the universal declaration of human rights. There are some countries where the situation is so bad that we would in no circumstances be prepared to do business there at all, maybe with the exception, for instance, if we were asked do something like build a hospital, which was aid funded I think we could scratch our heads and say, "It is a horrible country, everything is wrong with it but perhaps morally we better build a hospital", it is a theoretical example, I have never had a case like that. Equally we have countries where you cannot say that the human rights situation is totally satisfactory but you can say that matters in these countries are improving. I think it is a pragmatic view that you are more likely to have sustained improvement if you have an engagement with countries like that. I think you have to take an objective view on each case on its merits. The principle we do operate on is that we are not going to do something where we will benefit from breaches in human rights.

Chairman

  30. Thank you.
  (Viscount Weir) That is the best we have been able to come up. Incidentally, we were greatly helped in doing it by talking to Amnesty International and saying, "What do you think in the real world?" Because one of the difficulties is that some of the critics, although one respects their view, I do not think they are sometimes as familiar with the realities of the world as some of us nearer the coal face are.

Mr Chidgey

  31. Can we return to examining the Foreign Office rather than Viscount Weir's commercial interests? One of the strategic objectives of the Foreign Office is to provide firms with high quality and timely information to help them invest overseas. The company that you have been associated with have been very well established for a very long time, mostly in heavy civil engineering, you have been a global player for many decades, so you pretty well know your way round, the specific question I would like to ask you, first of all, is, do you find in the areas where you may well need assistance, and that is, perhaps, in the changes of laws, the changes of commercial laws in countries such as Latin America or elsewhere, you are getting timely advice in those areas, recognising that in the commercial areas you are pretty well up to speed anyway?
  (Viscount Weir) I think we do, certainly in the sense that if we ask we certainly get the information, usually pretty quickly, that we need.

  32. I am thinking particularly where laws have changed and you sitting in London or Berlin would not necessarily know the commercial impact that it would have on your operation or the contracts you would have running in those countries?
  (Viscount Weir) There are certainly cases where we do get brought up to date. The fact of the matter is because we are keeping in touch with what is going on commercially and in the market place there we usually learn about these kind of things ourselves in any event.

  33. I see.
  (Viscount Weir) Where the Foreign Office is very helpful is if we say, they are changing the law in such a such Middle Eastern country about partnerships, and that you have to have a 51 per cent local partner, that sort of thing, then we can go to the embassy in that place and say, "Can you tell us what actually, specifically this really means?" Very often in these countries you are sometimes dealing with countries where you get these sort of changes, they are ones where there is not what I call great clarity about the laws and the way they are interpreted is sometimes rather different from what any of us here would expect. They are very helpful if you ask them about this sort of thing.

  34. It is a reactive rather than a proactive service because of where you are.
  (Viscount Weir) It is because we are making it that way.

  35. Can I ask my second question, one of the other objectives of the Foreign Office is to help new in experienced and occasional exporters to develop their potential expert capability. I understand that there has been a mixed result of that interest so far, reading the Foreign Office's Annual Report, it is at the other end of the scale from your operations but I would like to have your views about what could best be done to promote innovation, to promote new interest into the export market because as we all know that is the healthy way forward, through new competition and new inputs.
  (Viscount Weir) I have to say I am involved, to some extent, directly with that, for example, through the China Britain Business Council. We actually have a separate offshoot in Scotland, and I chair there. A great deal of our efforts is directed—because that is policy, not only at the government but of our organisation, which is a sort of partnership of government—towards smaller and medium sized companies. It is a very difficult subject to attack. To start with there are so many of them and so that how do you get the sort of effective access to them. You could set up the most enormous organisation to try to cover everybody but it would be desperately expensive and possibly not terribly effective. One of the things you have to be also very careful about is that you do not encourage people to go into a market which is unsuitable for them. I can give you a specific example, if you want to have one man full-time in China, let us say, his company says, "We are going to attack the Chinese market", that is going to costs you £100,000 a year by the time you have accommodation for him, an office, travel, salary and everything, that is going to cost you about £100,000 a year. If you are a small company then £100,000 off the bottom line of your profit is a damn big lot and so you really have to say to people, "Look, are you really sure you can afford to do this?", and stop people doing the wrong thing. This does not sound a very constructive way of attacking, but it is important. However, the best way to do it is really through organisations like the China Britain Business Council, they have regular seminars all over the country, and I think if you are a small company who wants to go and attack a market like China and if you do not go to them and use their help you are daft. I really do think that.

  36. Can I just ask you, in that context is it the case, in your experience, that the embassy staff, and so on, who are, of course, very helpful and very professional, tend to concentrate their human resources, their time, on supporting the larger, the well established, the robust international players, like the companies you are associated with, rather than spend time and resource on new entrants?
  (Viscount Weir) I do not think so. I do not think that is the case. If one takes a smaller company, going back to trying to attack China, if they go to the CBBC, first of all they can get a huge amount of factual information about the market, they will do market research virtually for free for them, they have five offices in China, and so on, they can give local contacts, they can produce people who speak Chinese and so on, and so on. They work extremely closely with the Embassy in Bejing. In one case we are closing our office in Guangzhou, which is an important centre, simply because there is a very good British Consulate there now, so we are shutting that office and we are spending the money on opening up another office somewhere else. It works really very well and people like CBBC have regular seminars all over the country, so people can go and find out. You must also remember, for many small companies—I am raising this in the context of your question of, do the embassies help the big rather as well as the small—the export business of a lot of small companies is actually piggybacked on the major contracts, that is the message that we are always trying to get across to the Government, sometimes not with the success I would like to see.

  Mr Chidgey: Thank you very much.

Mr Illsley

  37. My question is partly on that point of piggybacking, and taking you back to your earlier point regarding this lack of funding assistance, which is available in other countries such as Germany, it is basically to ask you to elaborate on just how much business or what volume of contracts abroad the British companies are unable to take on or that we are losing out to competition which is coming from our European partners, mainly Germany, and, perhaps, France.
  (Viscount Weir) Speaking with my hat on as Chairman of a Major British Exporters, when there was a process of re-examining the ECGD and its goals, and so on, which went on over the last couple of years, I suppose the three points we have tried most to make, first the point I have just mentioned, that rather than try, in trade promotion, to aim directly at the SMEs, to recognise that for many of them, certainly in engineering, almost their entire export business comes as suppliers on these major contracts. It is extraordinary that even something like Rolls Royce, you imagine Rolls Royce making the whole engine, they do not at all, they have an enormous number of small sub suppliers with an average turnover, Rolls told me, of £1 million a year. They have hundreds of these people who in no way could afford to go into export themselves. We have tried to stress that. What we have also tried to say, and you may think this is slightly nasty, is we have tried to make clear that, for instance, our membership in MBE, (I was giving you an example of it earlier), are actually able to carry out overseas contracts from quite a number of places. There are about four bases from which Balfour Beattie can carry out overseas contracts. When you do that then the suppliers tend not to be the British SMEs, they tend to be, for quite obvious reasons, the local ones. The message we have tried to give is, before you try and inhibit and control the ECGD too much please remember that if you make Britain a difficult place or a more difficult place than other places to do business in, whether it is by having more restrictive conditions imposed on exporters by the ECGD or whether it is by a lack of finance, soft loan facilities or by higher premiums, by any of these kind of things or, indeed, I have to say, by insisting on, as they do now, that you have to produce an environmental impact report for some projects, which takes a heck of a lot of work, and if you make it more difficult, well then people like ourselves cannot just give up our business, then we might do what I said earlier, "Okay we will run a job out of Munich", or if it was in South America we would get pretty good export/import bank finance from the States and we could do it out of our offices in the States, we have a pretty good premium business over there. There are a lot of people in the major project business who are in that situation. We have given DTI, and so on, chapter and verse examples. I know of one water treatment company here, very strong in their field, and they are doing almost all their overseas business now out of South Africa and America, they are even doing jobs out of Malaysia, with Malaysian export credit support and yet we support Malaysia. It is a bit strange.

Mr Rowlands

  38. In some ways I want to follow that up, you have given us examples, you have just mentioned environmental impact reports as a sort of possible burden or additional cost and hassle in going for the contract and you say, "It would be better to do it out of Munich". Does the German Government have this type of similar type of thing or not? Are we saying that even compared to our serious European partners they are not in the same game as we are?
  (Viscount Weir) What has infuriated ministers for years and years and the DTI is when people like myself talk about a level playing field. Very often, of course, they have rules, the rules may be very much the same as here, but in many of these countries like France, for example, nobody pays a blind bit of the notice to them, you do not have to bother.

  39. You have come across that in real terms repeatedly.
  (Viscount Weir) Absolutely. I was, a number of years ago, a long time ago, involved in a consortium with French companies bidding for a very big job in Saudi Arabia, which was partly a power station and partly a desalination plant, we were the desalination plant supplier and there was an enormous amount of civil work as well. We were a partner with the French, we amounted to 25 per cent of the job. I got sent for by the French Minister of Industry at the time and told that I was appointed an honourary Frenchman and if I wished in Saudi Arabia to ring the French Ambassador to get an appointment with somebody I was to do so and we were not to be troubled about financing, they could arrange all of that, and we were given bid bonds that cost us about a half or one third of what they cost us here, and so on. One was actually genuinely treated as if we were French, it was rather a pleasant experience.


 
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