Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 180 - 195)

WEDNESDAY 6 MARCH 2002

RT HON CLARE SHORT, MP, MR ANDREW BENNETT AND MR TIM FOY

Mr Francois

  180. Do you think there is a danger that a global summit which is perceived to concentrate mainly on poverty eradication will be seen by UK citizens as broadly very worthy, but really nothing that is particularly relevant to them?
  (Clare Short) No. We are also trying to do more work with education of the public generally about development. If rich countries, the OECD countries, do not take this more seriously, the world is at a turning point, and either we could have a period of enormous advance in the globalising world, if the technology, the capital and the knowledge available is really applied across the planet, and give a lift-up to the poor of the world. If we do not, and the world is more and more bitterly divided and environmentally eroded, we will have all sorts of bitterness and division. This is in the selfish interests of UK citizens; it is not just morally right. We are testing opinion regularly, public opinion and young people's opinion. They show enormously high commitment to development. It comes in at 70 per cent. The levels of poverty in the world are the biggest moral issue facing the world. Then when people are asked what they can do about it, they have very limited sense of what to do, and they end up saying, "I should give some money to a charity." People have the intelligence to realise that this matters for their own security as well as mattering morally, and we need to deepen for them the sense of what can be done that will make the future of the world safer. I think that is where British public opinion is.

  181. I am not wearing my Nike trainers this morning, but from what you were saying earlier, you were arguing the case that economic development is very important to a number of these countries, even though you realise there is some kind of tension between that and sustainable development. In a nutshell, is it fair to say that you could summarise your case as "Trade, not Aid"?
  (Clare Short) No. Fair and equitable rules of trade, and more and better aid to build up the capacity of developing countries to grow their own economies and to provide services for their people.

Mr Barker

  182. On that subject of building up third world economies, can we go on to discuss the Commonwealth Development Corporation (CDC). There has obviously been a great deal of concern and growing unease that has particularly found expression in the media recently about the fact that the CDC appears to be diverting from its founding principles. I have had experience in the venture capital world before coming into parliament, and I have seen, certainly in our economy, the great benefits which venture capital can bring. But VC, like all capital, is amoral, and I really cannot understand how internal rates of return of 25-30 per cent are compatible with investments in third world projects which have at their heart a determination to promote social justice and sustainable development. Some of the examples we have seen quoted in the newspapers recently have quoted Guy Scott, a former agricultural minister in Zambia, saying, "Anything that works in this country is a result of CDC investment. For the CDC to be pulling out of this sector in search of short-term returns means the end of British foreign aid." As I understand it, CDC has sought to rid itself of long-term agricultural investments, which only have a rate of return of 6-8 per cent, as you might imagine. Can I ask you therefore what is happening with CDC? How can we reconcile an IRR of 25-30 per cent with its founding principles, and what environmental governance and sustainable development governance is actually in place to ensure that the investments that it is making do promote sustainable development?
  (Clare Short) I do not know whether you were in the House at the time, but we took through Parliament a Bill, which was very thoroughly discussed and supported by all parties, which committed us to restructure CDC, keeping its development objectives absolutely central, both in terms of the countries in which it invests and a very strong ethical code on environment, social, labour and the rest, but to try to get more private sector investment in partnering CDC into developing countries where the private sector tends not to go. That is the whole purpose, and we sought, and it was scrutinised, parliamentary approval, and all parties supported it. There is a disgruntled group of former employers who have generated two stories in the media. One ridiculous front page series in The Times—shock, horror—revealing that the Government is doing what it got the permission of Parliament in thoroughly scrutinised legislation to do. Obviously, the journalist concerned thought he had got a secret story but did not bother to scrutinise the parliamentary record. So we are absolutely committed to creating a partnership between CDC and the private sector to get more investment into developing countries under a very stringent ethical code. I absolutely still believe that this is the right thing to do. In order to do that and in order to get the long-term investment, CDC is moving more to equities, which, as you will know, means more engagement with management, and a lot of these countries need better management capacity in their own private sector. It means needing to get higher rates of return in order that all of our pension funds and all the rest will follow and be willing to go to these kinds of countries. Some of the old-fashioned, low rate of return agricultural investments have been sold on to local owners, not closed down, and I think that is a perfectly good thing to do—the CDC investing in something and then selling it on and it is still working. That is what we are doing, proudly. I think the dishonest attacks in The Times (and there was a previous piece in The Economist) are grossly mis-informed and are maligning the current management team who are doing a great job. The international climate has not been helpful for driving this forward post-September 11, and the rest, but I absolutely believe in what we are trying to do and I believe it will be successful. I think the CDC, instead of being government-funded, small investment, low-rate of return, can-never-be-an-example-for-the-private-sector-to-follow, can blaze a trail that will help to bring beneficial, large inner amounts of investment from the private sector into the poorest developing countries.

  183. But the rate of return that you set is absolutely critical. That is the big hurdle, is it not?
  (Clare Short) No.

  184. Secretary of State, it is.
  (Clare Short) I am sorry, with great respect, I have now got a time problem and I care about this enormously and I do not want to avoid answering your questions.

Chairman

  185. Perhaps the way out of this—
  (Clare Short) It is not central to this Committee.

  186. It is, actually.
  (Clare Short) I am delighted to find a way of having another discussion on where the CDC is—

  187. It is central to this Committee because it is about the whole issue of development versus the environment, which we are discussing.
  (Clare Short) Nothing that has been said has been anything to do with the environment, it is whether the CDC should restructure in order to—

  188. It is part of that argument.
  (Clare Short) No, nothing that has been said has touched on the environment.

Mr Barker

  189. It is environmental governance and sustainable development in conflict with a higher rate of IRR that is my premise. Should we not be going in to support projects which ordinary capital cannot support. Any capital that can get 25, 30 per cent rate of return will go to those projects, but capital is amoral. What I am concerned about is that the Government is sponsoring projects which do not have regard to the environment or sustainable development because they are simply doing a job that could be done elsewhere in the city by any of the major VC firms, who look for equivalent rates of return.
  (Clare Short) No, absolutely wrong. I profoundly disagree. I have said to you there is a very stringent code on environment labour and ethics under which the CDC operates. Again, if you are right, the world is in desperate trouble. If the private sector cannot get the rate of return that will take our investments and our pension funds to developing countries in responsible investments that generate economic growth that are also responsible environmentally, then the poorest countries are going to remain marginalised and going to be more and more environmentally degraded and the world is going to be more and more in bitter trouble. Happily, I think you are wrong. If you are right in saying the private sector will never go to these countries, then these countries have had it.

  190. Secretary of State, that is not what I am saying. I am saying that the CDC should be leading the way, not operating on exactly the same rules for IRR that the private sector is.
  (Clare Short) The CDC is leading the way. The other thing is we did have very long debates in the House of Commons on these questions. I do not know whether you have looked at the record.

  Mr Barker: I think we are trying to probe what actually happens in practice.

Chairman

  191. We had those debates two or three years ago, Minister.
  (Clare Short) What is happening is exactly what was outlined would happen in those debates.

  192. We are delighted to hear it.
  (Clare Short) There are tough environmental considerations and sustainability considerations, and I think this is another myth. If anyone is seriously arguing you can only have beneficial and environmentally responsible investment at very low rates of return that the private sector will never engage in, and it will only get the resources for those kinds of investments in poor countries out of the public sector, then they are never going to have clean water and sanitation. Half of humanity has no sanitation.

  193. Secretary of State, we are running out of time, but we appreciate that. I am glad we have had another quarter of an hour to make up for the half-hour at the beginning. I would be grateful if, in the light of Mr Barker's questions, you could send us a short memorandum on this, simply because things have moved on in the last two or three years and it may be working out rather differently from what was intended by Parliament.
  (Clare Short) It is moving well, and there is a group of malign forces which is trying to distort what is happening. They tended to work in the past in very low rate of return agriculture, and they are misleading people about what is taking place.

  194. Fine. If we could have a short memorandum which we could incorporate into our review we would be delighted to have it.
  (Clare Short) I would be delighted.

Mr Barker

  195. Could that memorandum take into account this article in The Times and put the record straight?

  (Clare Short) We can enclose that.

  Chairman: Thank you, Secretary of State. It was a belated start but, nonetheless, we are delighted to have had such an interesting session. Thank you very much indeed.





 
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