Investing for Development: the Department for International Development's oversight of CDC Group plc - Public Accounts Committee Contents


Examination of Witnesses (Questions 60-79)

DEPARTMENT FOR INTERNATIONAL DEVELOPMENT AND CDC GROUP

15 DECEMBER 2008

  Q60  Angela Browning: I always find this one of the most important parts of any NAO Report and that is when you look at page eight and you see the range of recommendations made by the NAO, can we take it then that you, having already read this report and studied it for some time now, are satisfied that you can accept and meet these recommendations so that if you were to come back before us this time next year you would be able to say you had put all of that into your practice?

  Ms Shafik: Broadly speaking we agree with all the recommendations.

  Q61  Angela Browning: I am asking if you are going to do it.

  Ms Shafik: Yes, in fact we have already, as I have said, moved on many of these things in terms of the new investment policy, the new remuneration framework, putting in place this new procedure for business principles. So yes, we are almost there in terms of responding to these recommendations and we will do that within months.

  Q62  Mr Touhig: Ms Shafik, your department is responsible for Britain's international aid programme with the ultimate objective of poverty reduction. The CDC Group is supposed to support that.

  Ms Shafik: That is correct.

  Q63  Mr Touhig: How does it do that? What are the specific targets and objectives that you set it?

  Ms Shafik: CDC is one very important instrument in our arsenal for fighting poverty. DFID does many other things.

  Q64  Mr Touhig: Yes, but what specifically have you asked them to do?

  Ms Shafik: We have asked them to demonstrate and to bring others with them to show that you can make money and create sustainable jobs in the poorest countries in the world, and do that in a way that creates sustainable jobs, pays taxes and has good social and environmental policies.

  Q65  Mr Touhig: That is a broad mission statement; what specifically have you asked them to do?

  Ms Shafik: We have asked them to do that in the context of the investment policy, to invest the majority of their assets in the poorest countries in the world. It is important to note that we have not put any public money into CDC since 1995 so it is a self-sustaining vehicle. We are continuing to push the frontier to create sustainable private sector development in the poorest countries.

  Q66  Mr Touhig: A little while ago Mr Laing said that you put a billion pounds into the poorest countries in the world. That is not true though, is it? You put that money into China, India, South Africa and Nigeria where you might have the largest number of poor people but not necessarily the poorest countries. They are quite different things, are they not?

  Ms Shafik: Yes but CDC can invest in those economies where we no longer give a lot of aid, to be honest. We are investing in the more public sector side of development in those countries because there is not as much of an opportunity for business.

  Q67  Mr Touhig: Investing in the poorest countries is not the same as investing in the key areas like India, China, South Africa and Nigeria which might have the largest number of poor people taken across the world but are not necessarily the poorest countries.

  Ms Shafik: They have the largest number of poor people but CDC is not giving aid to them; CDC is investing and getting a return.

  Q68  Mr Touhig: How often do you and your ministers meet with the chairman and the chief executive to review their objectives?

  Ms Shafik: We have a quarterly meeting with CDC to review performance and additional meetings as needed. In the recent period we have met quite a lot.

  Q69  Mr Touhig: The Comptroller and Auditor General's Report does point out that you have substantially exceed growth expectations. The annual rate of growth in assets has averaged 24% and the Report also tells us that over-performance reflects the strong market upturn in the economies you have invested in. Should you be surprised at this? You are investing in India and China, two economies that will overtake Europe and the United States and be world leaders economically.

  Ms Shafik: Again context is important. In 2004 CDC was restructured. The internet bubble had burst; the East Asian crisis had occurred; the Russian crisis had occurred; Argentina had defaulted. Investors were fleeing from emerging markets so when we restructured CDC and gave it this investment policy and mission it was not obvious that investors would go heavily into emerging markets. That context is important. Having said that, CDC has outperformed its benchmark so they have not just been going with the trend with emerging markets, they have done better than the trend. I should note that the index that we have available to us—which is the Morgan Stanley Emerging Markets Index—is actually heavily weighted with middle income countries which are much easier markets to make money in than the ones CDC is in.

  Sir Malcolm Williamson: I would emphasise that we do benchmark ourselves against an index; it is not just looking at what we do in absolute terms. Therefore we have, over the last few years, exceeded the benchmark. What we would hope over the next few years if we are going to see difficult times is that we still out perform the benchmark, but it is not going to be easy. We know this next year or two could be very rough. I suppose my big fear is that some of the countries that have become richer will become poorer to the point where they are back in the bracket we would have looked at back in 2004.

  Q70  Mr Touhig: Ms Shafik just said that you do not just invest in markets that are going to produce a strong return, it has to be a solid investment and poverty reduction, but we are not suggesting, are we, that China and India, even with the global crisis we have now, are really going to start to retreat in terms of economic growth. These are two powerful economies.

  Sir Malcolm Williamson: If you look at the Stock Market indices for these emerging markets they have all fallen by about 60% in the last few months.

  Q71  Mr Touhig: Yes but their growth is still far in excess of most of Europe.

  Sir Malcolm Williamson: It will be, yes.

  Q72  Mr Touhig: So these are going to be pretty strong economies even with the world downturn.

  Sir Malcolm Williamson: I do not want to give an economic forecast here, it is not my job, but I think the important thing to say is what Mark Lowcock has said which is that we have a new investment policy which is designed to make us focus on the poorest countries in the world, that some countries that were in our nets before, like China, will no longer be in the future. I would stress in answer to the question from Angela Browning earlier that when we have been in China we have not actually always been exclusively in those areas which are getting help, we have made investments in Shandong Province and other quite poor provinces actually in an attempt to do something for the local economy. I think the answer to your question is that we have a very clear development mission; nobody can tell us what it is and we are doing our best to execute it in the most sensible way.

  Q73  Mr Touhig: How often do you review your investment portfolios in the developing countries other than China and India?

  Sir Malcolm Williamson: The board of CDC acts as an investment committee so we do not make any investments that do not go to the full board and the full board reviews progress on all those investments on a very regular basis. That is part of the management information that flows to us.

  Q74  Mr Touhig: So you have a board that actually takes its responsibility pretty seriously.

  Sir Malcolm Williamson: It takes them very seriously, I can assure you.

  Q75  Mr Touhig: You have a history of banking, of course, Sir Malcolm.

  Sir Malcolm Williamson: Yes. We are not very popular people these days, are we?

  Q76  Mr Touhig: Do you believe in risk as a banker?

  Sir Malcolm Williamson: I take risk very seriously, absolutely.

  Q77  Mr Touhig: Most of your colleagues seem to think they can sell us products that they do not understand and they have managed to take away something called risk. When I crossed the road today from the Abbey to the St Stephen's entrance of the Commons I took a risk.

  Sir Malcolm Williamson: I cannot speak for other banks but I can speak for the one that I chair and I chair the risk committee there and they regard me in good times as a pretty miserable old git and in the bad times people thank me for being a miserable old git.

  Q78  Mr Touhig: So you are a pretty old fashioned banker.

  Sir Malcolm Williamson: Absolutely.

  Q79  Mr Touhig: You recognise that in any investment there is risk.

  Sir Malcolm Williamson: Yes.


 
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