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Baroness Chalker of Wallasey: It may be for the convenience of the Committee if I intervene at this stage. When the noble Lord, Lord Judd, was inviting me to think about selling fridges to Eskimos I wondered whether I should not just put him right. If an Eskimo really wanted a fridge and wanted to pay the right price for it, I would be willing to sell it to him, but my concern is to get fridges for drugs to hot countries; in other words, I look at the real situation and what is needed. That is when I begin my selling. I do not sell things to people who neither want them nor can afford to pay for them.

With that preamble, I say to the noble Lord, Lord Judd, that there is nothing in his amendment except that it is a probing amendment. He believes genuinely, as do the Government, that aid policy and indeed the CDC (the private investment arm of aid policy) are designed to combat poverty by sustainable development. That is the cast-iron assurance for which he asked me.

The amendments tabled by the noble Lord would prevent more than 25 per cent. of CDC funds going to countries in which the CDC does not currently invest, and would also give the CDC power to take account of ODA priorities. There is nothing in my noble friend's Bill as it stands that would change the spread of countries in which the CDC works. Rather, the provisions which are the result of the quinquennial review of the CDC will enable it to respond more effectively to the changing needs of those countries; in other words, to provide for the hot countries the fridges in which to keep their immunisation drugs. I return to the analogy.

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We have always looked to the CDC to take a view on where it is best placed to deploy its particular skills. It needs specific ministerial permission to extend its activities to new countries, or indeed new ventures, which the noble Lord feared might take it down the path of suddenly turning itself into a bank. I can assure the noble Lord that that is not within its remit. We obviously consider carefully each application, looking at CDC's remit and wider aid policy interests. Nevertheless, it is right that additions are made from time to time. I am sure that the noble Lord, Lord Judd, welcomed the important recent extension of CDC's operations to South Africa, for instance.

The noble Lord mentioned China, Latin America, and other countries in South-East Asia in general terms. Investment in China is not an immediate prospect. The CDC has not asked to operate there. I realise that there will always be informal discussions between officials of the issues that might be addressed should it so ask, but it has not done so.

With regard to Latin America, I am not aware of any great interest on the part of CDC in extending its work into South America. It has some recent permissions to operate in a number of central American countries, but those are all countries which fit entirely within the remit which the noble Lord would give it: to combat poverty by sustainable development. I speak of Nicaragua in 1991, the Dominican Republic in 1992, Guatemala in 1993 and El Salvador last year. Those fit extremely well alongside the CDC's regional operations in the Caribbean and are certainly nothing to be afraid of. The same policy goes for other countries as well.

We realise that many countries do not have the respect for the rule of law and human rights that we would wish them to have, but we know that we persuade better through contact with them rather than eliminating prospects for change by isolating them still further.

Perhaps I may return to our present position. The main driver of the CDC's country coverage is the 70 per cent. target which I have set for poor countries. Although the noble Lord made play with the 1994 versus the 1997 figures in the CDC plan, the 70 per cent. target is reasonable when one looks at the per capita incomes of the poor countries and their proportion, in particular within the Commonwealth. I believe that that 70 per cent. target is as it should be and it certainly is not being changed. When I intervened on Second Reading, I said that there should be no diversion of activity to middle-income countries. The CDC is well aware of the fact that the ODA will watch that most carefully.

The CDC still has a large proportion of its investments in Commonwealth countries; it is now some 71 per cent. I am delighted that the majority of its offices are in Commonwealth countries, although that does not mean that it should operate only in Commonwealth countries—we have never restricted it to that. I understand that the CDC has set an internal target of putting not less than 30 per cent. of its new investments in sub-Saharan Africa. That is where there is a concentration of Commonwealth countries and of need. We welcome what the CDC is doing. It has more than half of its

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overseas offices in sub-Saharan Africa and it is constantly looking for new ways to stimulate the economies of those countries.

There is much that one could say about the role of the CDC and our objectives. Above all, using different instruments, we seek to address the individual objectives of countries. The CDC has a particular focus on the priority objectives of promoting economic reform and enhancing productive capacity, rather than the equally important objectives, which the ODA certainly has, of better education and health, children by choice and so forth. Therefore, the CDC is an important vehicle and I believe that through our established strategic planning system it already has clear regard to the objectives of the ODA. It is a public-sector body and as such it will continue to do so. In that regard, no change is envisaged either by my department or in the Bill brought forward by my noble friend Lord Trefgarne. That is why I do not believe that it would be appropriate to write into the Bill as specific a requirement as that proposed by the noble Lord, Lord Judd, in his amendment, and I urge the Committee to reject it.

6.15 p.m.

Lord Trefgarne: I wish to deal in more general terms with the anxieties expressed by the noble Lords, Lord Judd and Lord Rea, not only today but during the earlier stage of the Bill. In responding to the amendments tabled by both noble Lords, I propose to look beyond their texts, as did my noble friend Lady Chalker most eloquently and helpfully, and to direct my remarks to the anxieties which seem to underlie them. They were addressed by the noble Lord, Lord Judd, today and in his speech on Second Reading. He made clear the fact that what matters is not only the present situation, with the present human chemistry, but what might be opened up to a completely different set of players at some time in the future.

It is right that Members of the Committee should air their anxieties, many of which I have shared and would continue to share had I not had the benefit of receiving a great deal of information from the corporation about itself and its operations. I understand that recently the noble Lords, Lord Judd and Lord Rea, had discussions with the corporation. It is also right that the Committee stage of the Bill should provide an occasion on which Members should be more generally and publicly reassured on such issues. Therefore, I counsel against assigning to my Bill any greater importance than it has.

Neither the Bill as a whole nor any amendment which stands in my name is intended to change the CDC, its purpose or the long-standing principles on which it operates. All are centred on assisting overseas countries to achieve sustainable economic development. The CDC's sole statutory purpose under Section 2(1) of the 1978 Act is to assist overseas countries in the development of their economies. It has no separate or hidden agenda. Although, obviously, it seeks to invest in financially and economically viable projects, and thus to operate in surplus, it does not do that for its own sake but for the benefits of the countries in which it operates.

An enfeebled CDC is no good to anyone. The CDC has no shareholders; its surpluses are not distributed; and the greater the surplus the more development the CDC can

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undertake. Development is at the very centre of the CDC. That is reflected even in its logo, where the central D is printed much larger and in a more striking form than the Cs on either side. The CDC is and will remain first and foremost a development organisation.

The wording of Section 2 of the 1978 consolidating Act, which this Bill will amend, has been substantially unchanged since 1956. This Bill and the amendments seek to give the CDC means which are appropriate in this day and age, given the present economic order in the developing countries and the changing priorities in the host countries themselves. There is nothing sinister in the Bill. The amendments, which employ words such as "reorganisation", "rationalisation" and "reconstruction", seek to describe the possible means by which, among other things, productive capacity may ultimately be increased and solid economic development achieved.

Nor will the Bill and the amendments affect the CDC's commitment to pursue its targets; for instance, providing assistance predominantly to poor countries. In 1994, 82 per cent. of approvals were in poor countries, which is well above the target set by Ministers. Nor will the Bill affect the CDC's practice of assessing the economic rate of return as part of project appraisal and its consideration of other development criteria, such as environmental impact, health and safety and other social issues.

Therefore, it is safe to assume that the CDC, following the enactment of the Bill with its amendments, will be pursuing the same objectives by substantially the same means but with important new powers to do better more effectively, at an earlier stage and in a more fundamental way. For example, in a single southern African country there is at present a long list of projects which would manifestly benefit the economy of the country concerned but which are either outside the CDC's present powers or will severely challenge the lawyers to construct the project in such a way as to bring it within its present powers.

It cannot be in the CDC's interests—nor in the interests of those, including ultimately Parliament, whose task it is to monitor the CDC's operations—for the CDC to be operating at the margin of its powers. It has been given a mandate within the aid programme administered by the ODA to be the principal instrument of aid in the private sector. That reflects current economic thinking throughout the developed and developing world, as is evidenced by the IMF and World Bank-promoted economic recovery programmes. Sometimes following such a programme, economic conditions in a country may be more robust but simply not conducive to new investment. In some cases, the CDC as a development organisation is almost isolated in its willingness to stay with investment in a host country and to act as a vital catalyst in demonstrating that profitable investment can be made.

Given the widespread support for the work of the corporation which was expressed in all parts of the Chamber during the passage of the recent Government CDC Bill and during the Second Reading debate of this Bill, I believe that Parliament may be willing to give the CDC the tools that it needs to fulfil its mandate as efficiently and effectively as possible. My noble friend

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Lady Chalker touched on the question of the countries in which the CDC may be allowed to operate and therefore I do not need to dwell on that matter.

I turn now to the criticism that has been made that CDC is in some way duplicating the operations of other institutions. It is not. Members of the Committee will not need reminding of the size of the task in relation to development in the poorer countries. As CDC does not intend to operate in Eastern Europe, there is clearly no conflict with the operations of the European Bank for Reconstruction and Development, although even in its area of operation, the EBRD would presumably not do everything which is required. Other institutions are active there, including other bilateral institutions of European Union countries broadly comparable with CDC.

Although flows of private capital are increasing gratifyingly in global terms, they still tend to be concentrated in Asia and, to some extent, in Latin America. In the poorer countries—in particular in sub-Saharan Africa, where CDC concentrates its efforts—the task requires the efforts of more than one institution, although probably none offers quite the unique contribution which CDC has traditionally made and continues to make, particularly by offering management, especially in agri-business.

CDC has no intention of departing from its core activities and nothing in the Bill nor the amendments implies that. CDC's international reputation is built largely on its capacity to assist in making development happen. That frequently involves a hands-on approach which leads to corporate management. That area of CDC's activities has been strengthened recently by the creation of a managed business department which currently has responsibility for some 27 businesses, employing 44,000 people mainly in agri-business but also in industry. Fourteen of those businesses are in sub-Saharan Africa.

How then will the extended powers proposed in this Bill help? The most important proposed new power is that which, in the language of the amendments, will enable CDC to be involved in reorganisation, rationalisation and reconstruction of enterprises. At present CDC can be involved only in the promotion of new or the expansion of existing enterprises with the implication that CDC's funds can be applied normally only to funding the purchase of new shares, securities or assets so as to create some additionality.

As I outlined on Second Reading, that restriction has seriously inhibited CDC's role in a number of projects which are eminently worth while for the benefit of the economies of host countries. Whether an existing enterprise is in the private or public sector, it is frequently a change of ownership with the consequential change of management which is the key to transforming the enterprise for the benefit of the economy. That always involves an element of organisation, rationalisation or reconstruction, whether corporate or financial.

Expansion often follows at a significantly later stage in the process. If CDC is to be confined to investing in the expansion of the enterprise, it will be deprived of having influence at the vital formative stage. To require CDC to participate in the equity at a significantly more expensive

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stage when the enterprise is ready to undertake its expansion is unduly limiting. That confines the CDC to funding the expansion with loan only, with less opportunity to influence outcomes or share in any upside potential. If CDC shares in the risk of investing in poor developing countries, it seems reasonable that it should share also in the reward. The greater the reward, the greater the resource CDC has to undertake more development. Present limitations prevent many worthwhile projects even being considered. A number of CDC's representatives regard that as a serious obstacle to bringing forward new projects.

In the area of capital or other financial markets, CDC is not looking for powers to circulate by way of passive investment. It is looking to have positive development benefit directed less to investment activity than focusing on the promotion of successful funds which may attract private sector investors. There may be cases where the economic development of host countries is assisted by the promotion of funds which are able to invest in existing equities. It was the inability of CDC to fulfil its natural and expected role as primary UK investor in the Commonwealth Equity Fund, promoted by Commonwealth Finance Ministers and heads of government in 1988-89, that first prompted CDC, supported by the ODA, to seek this power. Even then there were proposals for a rapid enabling Bill but that had to be dropped because of pressures on the parliamentary timetable. Since then, CDC has had to decline invitations to participate in funds sponsored by IFC, the private sector affiliate of the World Bank designed to benefit the emerging economies of overseas countries.

The extended power is not intended to enable CDC to engage in derivatives or other more exotic markets. The Committee will remember that, before any investment decision is made by CDC, the corporation must be satisfied that it will contribute to its sole purpose of assisting the development of economies in host countries.

In regard to the extended power of consultancy, it is necessary only to facilitate the occasional positive response to a request for consultancy in or in relation to developing countries but which is unrelated to a project in which CDC might invest. It is likely to be in an area where CDC has particular knowledge and experience through its core activities, including financial intermediaries and institution-building.

I hope that I have dealt with the main anxieties expressed by the noble Lords, Lord Judd and Lord Rea, but, if I can give any further help or reassurance, I shall be happy to do so either now or in response to later amendments.

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