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Lord Judd moved Amendment No. 6:


Page 1, line 10, after ("reconstruction)") insert ("where such reconstruction leads directly to increased investment in productive capacity").

The noble Lord said: In speaking to the above amendment, I should like to speak also to Amendments Nos. 7, 10 and 11; and, indeed, say a few words about Amendment No. 14 in that context. On page 8 of the CDC's corporate plan we read:


What is not clear, we suggest, from this Bill is precisely how the new powers of purchasing equity funds—tokens of ownership of existing assets, not the creation of new assets—meet this criterion.

I have been rereading our Second Reading debate. In that debate the noble Lord, Lord Trefgarne, drew attention to how Section 2 of the 1978 Act—indeed he has done it again today—envisages CDC's investment funds passing directly or indirectly to the project company for the promotion of new or the expansion of existing enterprises, and how CDC's funds should be applied primarily to additional assets or capacity. The noble Lord emphasised in the Second Reading debate—as I say, he has done it again this evening—the word "additional". He then spoke of what he perceived as the limitations and inhibitions of these arrangements. But why should CDC get involved in asset trading related to buy outs and the like—that is, of course, coded language for privatisation—if such activity leads to no new investment? There will, of course, be juicy commissions and merchant bank fees associated with such activity, but exactly what is its relevance to development?

The Minister really must demonstrate this relationship if we are to be reassured. Shares, securities and assets, to which the noble Lord referred, lead us into the realm of derivatives. Is this an aspect of western capital markets that would really help the third world? As the distinguished CDC board member, Sir William Ryrie, a director of Barings, knows all too well, Barings went broke through derivatives. It would be good to know what lesson from that he believes should be applied at CDC to guarantee protection against a similar fate for the corporation itself, or for those it aims to assist. It is salutary to note that the UK, as Europe's leading privatiser, has had the lowest average growth rate over the past 15 years. Where is the evidence of a demonstrable correlation between privatisation and economic growth?

As I have already argued, the 1978 Act firmly charges CDC with assisting overseas countries in the development of their economies as a whole. There was an interesting reference in our Second Reading

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deliberations on the part of the noble Viscount, Lord Waverley, to CDC's intention to shift from support for primary agricultural production to,


    "more downstream processing and marketing".

This, I would suggest, is precisely the wrong time to be disengaging from investment in food production. There is at last a prospect of a significant diminishing of food dumping by wealthier countries. When that happens, food prices will go up and developing countries can only benefit as a result. Just what is the CDC analysis that is leading it by contrast to concentrate at this very time on the frothy end of the economy, presumably including the service sector? Surely the priority remains to secure the basic infrastructure. It is our concern for the real economy of developing countries and the real people who make the real economies of developing countries, and for widening the base of both people involved in that real productive economy and the people benefiting from it, which leads us to table this amendment.

In the United Kingdom the poorest have become poorer in the age of privatisation. The overseas aid and development programme, of which CDC is a part, is about assisting the poor. How does the Minister square this circle? I very much hope she can reassure us today that the CDC mesmerisation with pump-priming privatisations is not being allowed to carry it away. I conclude by drawing attention to Amendments Nos. 7 and 11. In these amendments we are basically saying that, whatever the merits for the new investment which the Bill will make possible, it must not be allowed to create a situation in which new investment is conditional on privatisation, and that there will still be a very important need for investment in the public sector and indeed for investment in other aspects of social and economic infrastructure. Our amendments are intended to underline this. I beg to move.

6.45 p.m.

Lord Trefgarne: I hope that the noble Lord will allow me to say again that there is absolutely no intention within my Bill to drive CDC into the new areas of activity, many of which he considers undesirable and many of which I equally consider undesirable, and many of which—if not all of which—the CDC likewise considers undesirable. I dare say that my noble friend Lady Chalker also considers them undesirable. I believe that the noble Lord's fears are unfounded. His aspirations for CDC are, I believe, the same as mine. I hope therefore that on that basis he will consider his fears unfounded.

Lord Kindersley: I declare an interest as chairman of CDC during nine years of the 1980s. It was the most fulfilling time of my career and I have an enormous affection and admiration for the corporation and everything that it still does. I detect in the amendments being put forward a fear of privatisation and financial manipulation that may stem from this Bill. That distresses me enormously because during my time with CDC it was clear that the countries which had recently gained independence and had nationalised much of their prime assets, including their agricultural estates, had got themselves into a terrible mess, particularly in Africa.

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Before I left just a few glimmers of light were appearing and even countries still devoted to government power in its many facets were beginning to hand back those estates to the likes of CDC and even private entrepreneurs to try to get them to replace the enormous void that had been opened up by the mismanagement of those affairs. That is a role that I am sure CDC is continuing to play, and will continue to play, and is certainly not prevented from playing by anything that I can see in this Bill.

The other fear seems to be that anything to do with finance is bad and anything to do with production, manufacturing, or production of agricultural goods, is good. Mention was made of Sir William Ryrie who happened to be permanent secretary at ODA for part of the time that I was chairman of CDC. He was a marvellous permanent secretary and he later became chief executive of the IFC where he performed another tremendous job in building up IFC and its role in the developing world. One of his targets was to set up stock exchanges in developing countries where people did not feel that there was any prospect of that sort of thing coming about. He succeeded, and by so doing he succeeded in attracting investors and private capital to those countries. That has made an enormous impact on those countries. That is just one example of the way in which the financial role that is being allowed to CDC by this Bill could provide CDC with a marvellous new dimension for CDC to continue to make its mark in the developing world.

There are two more points which I hope I shall be allowed to make. First, it seems to me that it is essential to allow CDC, which has had much consultation in the preparation of this Bill, to interpret how most effectively it can fulfil its developmental role. I am sure that Members of the Committee on both sides of the Chamber would agree that CDC is the most effectively placed to make that interpretation. The developing world does not stand still. Even the poorest countries move forward, and CDC has to keep in step with the movements in those countries. They include—thank goodness—a certain element of financial sophistication. It is that which CDC must encourage in order to make those countries of interest to private capital from all parts of the world, not just from this country.

Secondly, please do not hamstring CDC still further with amendments to the Bill. It is a simple Bill. It gives CDC the necessary powers. However, during my time at CDC I have seen that any amendment can be interpreted in a very negative way by those who wish so to interpret it. There are so many constraints on the activities of CDC. My enjoyment of my nine years was enormous, but to some degree it was spoilt by seeing how much time I and many other members of senior management had to take with specific and general reviews of its activities. The more amendments and the more complicated such Bills are, the more scope there is for the most well intentioned civil servants to waste the time and divert the efforts of management from development into very negative processes. So please let this Bill fulfil its intent: that is, to give CDC more

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powers. Do not litter the Bill with amendments which will be time consuming in their interpretation in the future.

Baroness Chalker of Wallasey: Perhaps I may respond in some way to the speech of the noble Lord, Lord Judd, on Amendment No. 6, which is grouped with Amendments Nos. 7, 10 and 11. It may be for the convenience of the Committee if I say at the outset that the amendments of the noble Lord, Lord Judd, would nullify the proposed changes to CDC's powers. They would result in denying the CDC the very powers which it seeks under the legislation before the Committee tonight.

The amendments may be probing. Perhaps they are put forward in order to examine the extent to which the amendments of the noble Lord, Lord Trefgarne, will affect what CDC does. However, as my noble friend Lord Kindersley said, in the remarks of the noble Lord, Lord Judd, one senses a rather deep dislike of anything to do with privatisation.

I remember well the time when my noble friend Lord Kindersley was chairman of CDC. He is absolutely right to say that those who sought to take into public ownership many of the previously profitable organisations in those countries did not look far ahead in what they were doing. The contrast between that time and now is this. Having realised that parastatals were wasteful and did not produce what their countries needed, country after country has begged help to denationalise (if I may use a British word). They have begged us to help with reform of their parastatals. The question that they ask is: "How do we put ourselves in a position where we can attract investment in order to get us out of this trough of zero—in some cases negative—growth"? In many countries areas of agriculture in particular have literally lain fallow because of the lack of investment and management.

Therefore the situation is not as the noble Lord, Lord Judd, sought to state: that privatisation has been a bad thing. Help for parastatal reform is a constant request to my department; and help with new investment is a constant request to CDC in the countries in which it operates. I cannot believe that the noble Lord's fears are based on anything except a misreading of the real situation.

When the noble Viscount, Lord Waverley, spoke at Second Reading—sadly, he is not present tonight—he talked about additionality, as did my noble friend Lord Trefgarne. Countries wish to add value to their basic production in order to obtain a greater growth in their agro-industries. They wish to widen the base of their agro-economies. That is one of the aspects on which CDC has been most successful in helping many developing countries: to widen the base of their operation in order to obtain growth. It is that very growth which will help those countries to have a sound indigenous private sector. In the long term the developing countries will reduce their dependence on foreign investment. I know that to be the ultimate aim of CDC: to assist successful businesses so that they can stand on their own feet and reduce dependence on foreign investment.

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I turn back to the Bill and the amendments before us. There is nothing in my noble friend's Bill which fundamentally changes the way that CDC operates. It does not affect CDC's statutory purpose: to assist in the development of the economies of the developing countries. Everything that CDC does has to serve that purpose. What the Bill allows CDC to do is associate itself with the very necessary preliminary steps to develop those economies: to put businesses into a shape in which in due course they can be more productive.

I have made it quite clear to CDC, and I repeat it to the Committee tonight, that CDC should not engage in financial engineering for its own sake, either in relation to the reconstruction of businesses or the promotion of capital and other financial markets. Financial reconstruction should always be a means to an end, not an end in itself. Sometimes it may be a necessary precursor to further development. In such circumstances it would be wrong to prevent that being a condition, as the Opposition amendment would require.

CDC has no powers, nor does it have any intention, to become involved in derivatives. I wish to make that clear. CDC does not derive income from merchant banking activities such as advising on share placement. What it does and what it wants to do, by agreement with Government, is to help restore failed public companies in poor countries. Indeed, many ask for help and to rescue them often requires a financial reconstruction first, as I mentioned a moment ago, before one can undertake any new fiscal investment. That is what the Bill permits CDC to do. I give way to the noble Lord, Lord Judd.


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