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Publications on the internet
UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
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Malcolm Bruce (Chair)
Mr Michael McCann
Witness: Dr Mo Ibrahim, Mo Ibrahim Foundation, gave evidence.
Q1 Chair : I bid you good morning, Mr Ibrahim. Thank you very much for coming here to give evidence.
Because we have a debate on international development in the House, we are slightly more constrained for time, so we have about 40 minutes. If there are things you want to say, please say them. We will try to keep our questions short and can we have crisp answers? We do very much appreciate you coming. As you know we are looking into infrastructure development and the role of the UK Government, particularly through the Department for International Development. Obviously this is something that, in an African context, you know a considerable amount about.
I wonder if I could start by asking about your own particular enterprise. What do you think made mobile phone development in Africa such an outstanding success compared with other elements of infrastructure? Is there anything about that that you feel could be transferred to other infrastructure developments? Is there something about it that might have lessons that could be transferred?
Dr Ibrahim: Yes, thank you very much for inviting me to speak to such a high level Committee. Given the constraints on time, I will try to give very concise answers. I think there are two reasons: one is the involvement of the private sector-mobile phones were implemented exclusively by the private sector-and secondly there was the framework of the policies, which enabled the private sector to intervene. These are the two main reasons for the success of the mobile phone industry: private sector and policies.
Q2 Chair : You must have identified a market. A lot of people at the time were surprised that in a continent like Africa, where incomes were low, something that was seen to be a high-tech, trendy development in developed countries took off so well. What made you realise that even relatively poor people could access this in a way that was beneficial commercially to the investors?
Dr Ibrahim: Africa is not perfect. Africa has its share of misrule, and in some instances corruption, but the perception of Africa is really much worse than the reality. There is a great deal of ignorance and there is a tendency to generalise. Many people do not realise that Africa is 53 countries. I remember that one American investor of mine once called me and said, "I am going down to Africa. Any chance you will be there so we can have lunch together?" That was a very sophisticated banker. There is a great deal of ignorance, and ignorance generates prejudice unfortunately.
Investors and the private sector will not put their money where they are not sure of what is happening-where there is ignorance. According to World Bank reports, the highest return on investment over the past seven or eight years has always been in Africa-always. How many people are aware of that? Very few. So there is a really great deal of ignorance about what is happening in Africa.
A report by Merrill Lynch a year and a half ago called Africa: The Final Frontier gave some very vivid examples. One was regarding an African-listed company with the same market cap as an Indian company, so the same value. The Indian company is likely to be covered 15 times more by the banks’ research. If it is a Chinese company, it will be 12 times more. So if I am an investor and I look at the research reports that people use to decide what to invest in, I will have 15 reports from 15 different banks on an Indian company-not a British company but an Indian one-and one report from one bank about the African company. Obviously you do not have enough information. It is the lack of information that is unjustifiable, because we are talking about the same market cap.
There is a great deal of ignorance about going into Africa. Unfortunately we tend to hear a lot about Zimbabwe and Darfur, and nowadays about Libya and Côte d’Ivoire-that is a big story. That is a great disadvantage for the other 50 countries. So we end up with a picture of Africa as a place of chaos, and that puts investors off. There are issues here of how to proceed. I am of African roots; I think I know Africa a little bit. I travel around quite a bit of Africa and I think it is a wonderful place to invest. It is not a place where everywhere is suffering from civil war or corruption. They are just normal people like every other people.
Q3 Mr McCann: Good morning Dr Ibrahim. It is very nice to meet you. Could I ask a question about the success of the mobile phone technology? How quickly are broadband services being activated in Africa?
Dr Ibrahim: Yes, of course broadband services are essential for ICT. We can see some developments around the major cities, but the problem is economics. Africa is huge geographically-very huge. Putting down fibre etc. is very difficult in Africa. The private sector tends to focus on the centres of population, and so confines broadband in most of the major cities, but as you go to second-tier cities or third-tier cities, the economics start to get a little bit difficult. I have had a number of discussions with the people at Google and Microsoft on this issue because they have a vested interest in deploying broadband in Africa. Besides the broadband business, they have the other business of selling the subscription base, etc., and we have 1 billion potential users in Africa. Unfortunately two supposedly innovative companies do not have the guts to do it here, but we are still talking.
There are some initiatives. Personally I invested in a company called O3b. O3b means "the other 3 billion", which is the other 3 billion who have not have access to broadband. Those people are putting a cluster of satellites really to deliver to the rural areas. Amazingly, it is a private company and it raised $1.5 billion privately, without any public money. That is a wonderful initiative and it is going to be profitable; I am going to make money on my investment I am sure. That is a good initiative that shows that it can be done.
Q4 Mr McCann: The private sector is looking at the mass areas of population first, though. Is DFID giving any support to that sector?
Dr Ibrahim: Not to my knowledge. The problem is that if it is an area where the private sector can have a crack, it is a bit difficult to put public money behind it in areas where it is difficult. We need to look at innovative finance, perhaps indirectly through CDC investment in such companies. Then there is investor money and you have the risk like I do, and both of you can make money, which will enable us to do more. Infrastructure projects in Africa are one thing that CDC should really focus on, which I do not think it does much of.
Q5 Pauline Latham: You are a member of the G20 High Level Panel for Infrastructure Investment.
Dr Ibrahim: Yes.
Pauline Latham: What do you see as the major barriers to the infrastructure development that you are trying to address? How do you see success being measured once you achieve something?
Dr Ibrahim: Right, I will have to give you a long answer to that because it is a loaded question, if you do not mind. Infrastructure in Africa: infrastructure is the basis for development. You cannot talk about development without infrastructure. One problem is that there are fewer than 1 billion people in all of Africa-that is less than India. The whole continent is less populous than India or China, yet it is 53 countries. These 53 countries have really tough borders and they are disconnected. We have a real need for economic integration in Africa because many countries are subscarce, which makes investment, especially in large projects, difficult.
Power generation is one amazing example. Just one dam in DRC, the Inga dam, which I am sure you have heard of, is enough to generate electricity for all the southern half of Africa. As it happens the location is in DRC. DRC is a problem as an investment destination. I have just come from Addis Ababa, where you will be aware we had the conference of African Ministers of Finance and Planning, and I was invited to address them. Everybody said, "Yes, we need integration," but where is the political will? What is happening? That is something that is lacking.
If you look at Europe, Germany alone has 2.4 times the economy of the whole of Africa. The British economy, even now with the problems you have, is bigger than the whole economy of the 53 countries in Africa. Yet people need to come together in the European community because you need to let people, goods and capital move freely. That is what we definitely need in Africa. That will help grossly to enable the development of infrastructure. This guy has hydraulic power and can get green power very cheaply and share it; this person can produce tomatoes; this one can produce cucumbers; and this guy can have car factories. We really need to work in such a way to make investment viable. It is the size of the market and the freedom of movement of people and goods.
So that is one huge agenda for which we are fighting very hard in Africa. Amazingly everybody says yes to it: the African Union says that it is an essential policy; NEPAD says that the African Presidents should sign on this. Everybody says yes, so why is it not happening? It is the political will and we really need to push to deal with that. This is really the issue, and we need to look for regional infrastructure projects, as that is what makes them viable. We do not want white elephants just so that we can say, "Oh, we’ve built a railway." We really need to do things sensibly and we need to look for an innovative way of financing these projects.
Once the Inga dam becomes a regional project, it is a piece of cake. There will be no problem with finance; people projected a return of 20% on investment. You cannot get a return on infrastructure investment anywhere else in the world at the rate of 20%. You can get that in Africa, yet it is not happening because the environment has not been created to enable it to happen.
Q6 Pauline Latham: And you are fighting subsistence farmers who plough a few acres and do not see the benefits, even to themselves, of doing a huge co-operative project.
Dr Ibrahim: Exactly, we need to encourage that. Then infrastructure is needed, because what is the point of producing a huge amount of tomatoes that cannot be sold because there are no roads or there are roadblocks and I have to pay bribes? It does not work.
Q7 Pauline Latham: So do you think the panel will seek to ensure greater and more reliable public sector financing for these sorts of projects?
Dr Ibrahim: I think I would call it public sector support. Financing? One has to be careful because there is a lot of capacity for private sector financing. We need to be smart. With very little public money, we need to leverage a huge amount of private sector money and that is what we can do. If we box clever, we can really produce huge change in Africa.
Q8 Pauline Latham: How is DFID engaged in this process?
Dr Ibrahim: DFID has a good reputation. In the work at our foundation, we are very much involved with the development communities and we use those in Africa as well. DFID has a really good reputation. One good thing about DFID is that it listens. It is open to listening and it has also started to forget about flags. One problem with the development community everywhere is that everybody wants a little flag on what they are doing, and you end up with state agencies trying to outdo each other. But things are improving in general in the community, and DFID is definitely one of the best organisations I come across in delivering what it does.
Q9 Pauline Latham: What about CDC?
Dr Ibrahim: I have been detached from CDC for a few years. CDC was one of my investors in Celtel, and I am very glad to let you know it made £400 million in profit in my company, so I hope it invests it back in Africa. Unfortunately I am a little bit distant now, and there was some concern when CDC, for example, withdrew from agriculture in Africa. How could it do that?
Q10 Pauline Latham: What measures will be taken to ensure that lowcarbon technologies are prioritised within these major infrastructure projects in developing countries?
Dr Ibrahim: Africa lends itself to lowcarbon technology. There is immense hydraulic potential in Africa. Power generation is the number one priority, and we can do that, but in order to do that, we understandably need regional projects, because of the way the geography is.
Pauline Latham: Economies of scale.
Dr Ibrahim: What we need is to enable that-to be able to build consortia-so the Inga dam really belongs to southern Africa, not necessarily just to Congo. People could finance it and share in its benefit, and it would be amazing if we managed to achieve that.
At the same time we should not really deprive Africa. When South Africa had one project based on coal-power generators, there were some hiccups. I think Africa also needs to produce a little bit of carbon. It is a fraction of what you will produce here, so we should not really be holier than thou when it comes to Africans when all this stuff is happening here.
Q11 Pauline Latham: So if you have this vision of regionalisation and how to specialise and develop, what comes first: the big ideas or things like roads? You cannot do the farming or agricultural projects on a large scale without decent roads and transport links, so do you feel they need to be put in first, and by who?
Dr Ibrahim: What about power generation? We need power. We need roads, but also the thing that enables this is good policies. We need good policies in Africa and good policies here. These really leverage and facilitate investment. We need to get the private sector involved, not because we are begging them, but because they are going to make a lot of money. If they are smart enough, they know what kind of return they can make.
Q12 Alison McGovern: Thank you Dr Ibrahim for seeing us today. It has been most interesting so far.
When we met Bob Zoellick from the World Bank, he said that infrastructure investment meant jobs today and productivity tomorrow. We are at a crucial time in terms of employment and the lack of it across the world. Do you think that the High Level Panel will be able to suggest how infrastructure can be used to get people working, and what good policies do we need to have in place, either in this country in terms of our investment or in Africa, to make sure that people feel the benefit of infrastructure in terms of the job that they can do?
Dr Ibrahim: Frankly it is going to be a tough job. In my view, what we need to do is to produce some recommendations, hopefully. The G20 is not going to pay any money to Africa. The whole objective of this is for the G20 to recommend that wealth funds elsewhere help. So the people at the end who are going to give the money are probably China, Qatar, the Emirates, Singapore and so on-whoever has the wealth fund. What we are saying is that you guys should look at China. China has almost $1 trillion in American treasury bills, but what is the return on China out of this investment? Is it 0.2%; is it 0.5%?
Alison McGovern: It is next to nothing.
Dr Ibrahim: If a small fraction of that was invested in Africa in private sector projects or whatever, it could really generate. Strangely enough China charges high interest rates for loans to Africa. Why do it charge America such a low rate and at the same time charge Africa such a high rate on the loans? It can have much more than it would get from the United States, but still have reasonable amount. So there is room for some adjustments really to help the flow of investment into Africa. We need to make the case to start with that this is not about begging; this is about advising investors and saying, "If you really want to make good money and also feel good about it, come and do this, and we guarantee you are going to make a lot of money." So nobody is begging for anything; we are just trying to say that by introducing the right policy and by making the information really clear to people, we can see a lot of investment happening in Africa.
Public support, whether DFID or local Government support, can be in trying to create this innovative, financial model. For example, I am on the board of AGRA, which is the Alliance for a Green Revolution in Africa, which you are about to hear about. So we are trying to do something about agriculture in Africa. One of the things we are trying to do is work out how to generate loans to farmers, as farmers cannot easily have credit. So what we do is go to some big banks and ask them to have a partnership with us, and we say that we can give them some guarantees to cover a certain amount of loss if they lose money. Then we let them know that with $10 million we can leverage $200 million. It is not sure that we are going to lose the $10 million; there is a good chance we are going to get it back. So it is by using these innovative ideas that we can really leverage and help develop things forward.
We just need to define our priorities, and our priorities would be power generation, roads, railways, houses and so on. At the moment there is about $50 billion to $60 billion of annual financing for infrastructure projects in Africa already, and about 70% of that is actually supported by the Governments of the African countries themselves. So, there is already a reasonable commitment to that, but what we need is to accelerate it. The African Development Bank also plays an important role in doing that.
Q13 Chris White: Thank you Dr Ibrahim. I just have a further question on finance. How effective, in your experience, are the World Bank and other regional banks in supporting such infrastructure projects?
Dr Ibrahim: I think they are quite crucial and important, and we work a lot with them and with the World Bank Advisory Panel for the Development Report 2011. So they engage with civil society, with Governments and with people, and things have moved a lot since the earlier silly mistakes about structural policies and other stuff. I think in general the multilateral institutions are learning from the past. The fact is we have a more open society now and we are connected. There is an admission that there is a role for the NGOs, the civil society and for various people, and this created a sense of openness within all these institutions. So everybody knows who is doing what and that is conducive to good governance. So the governance of the World Bank today is much better. The governance in DFID is much better, because it is open and always looking at what it is doing, and it seems to know exactly where everybody is going-well, I think so anyway. That helps to improve the governance of all these institutions.
Q14 Chris White: Do you think DFID should be using its good influences further, or more strongly or closely, with the World Bank to get a better output?
Dr Ibrahim: I think DFID has a major role to play. DFID is a very well respected institution with a lot of capacity, and you have some smart people there as well. It needs to stay engaged really and to focus on the main issue for African development, which we said was integration. Integration has to be supported by infrastructure, and it also supports infrastructure developing.
Agriculture is a very important area for Africa. Some 700 million people in Africa are involved in agriculture, yet Africa is unable to feed itself. I see this as a great opportunity. Imagine the increased productivity of the land; we are looking at productivity increased by 10 times if we compare it with the norm elsewhere. That is a fantastic business opportunity, but it is also essential because it is going to feed not only Africans but a lot of other people as well. So that is another area we need to focus on, besides which is the issue of climate change and how we are to mitigate and deal with its effect.
There are a few simples issues, and if we focus on them and get all the stakeholders to really focus and work together in tandem, not in competition, that would be very useful indeed. That is what we are trying to do in our foundation-helping get all the Africans on the same page. That way we can get things done.
Q15 Chair : Dr Ibrahim, your African leadership prize would be described as both a challenge and an inspiration to encourage good governance, and you have backed it up with your governance index. You awarded the prize in the first two years, but for the subsequent two years you did not award a prize. Where do you think the issue of governance is, and how does your index inform us as to why people are not achieving it and perhaps what more incentive there could be?
Dr Ibrahim: I think it is very important not to give the prize. Not giving the prize is perhaps more important than giving the prize, because the message is also very important. We are not a pension department for African presidents; we seek excellence-we make that absolutely clear. We seek excellence in leadership because that is what we need in Africa. We are not compromising in our standards, and African people are very happy with this and very supportive with what we have done because they know why some people got it and know why some people did not get it, and that is equally important.
Last year I was asked a bit of a nasty question by a BBC reporter, frankly. He asked if I was saying that African leaders are all bad because nobody got the prize. I told him that I was happy to go to the committee and offer to give the prize this year to a European leader who left in the last three years who you think really moved his or her country forward and deserves a prize. I asked them to just say a name for me, but they could not. So wonderful leadership is not something that you find around each corner; you really have to look for it. It is essential to really do it properly because the covetability of the prize is also important.
In our report last year, we said that there was a good indication of economic development in Africa’s developing economies-they are doing very well and moving forward regardless of what happened in the financial crisis-but we expressed concern about the issue of democracy and human rights, as it seems that things have stagnated over the past two years. We expressed that especially for North Africa, where we said that regardless of what appeared to be good economic performance, etc., we were concerned about the issue of human rights. It is very interesting to see what is happening in North Africa now. This is a long-term project, and we are not going to change Africa, but we hope to be among those who are helping to change Africa.
Q16 Chair : I think you did say to me in a conversation once that you felt that your index was helping to drive some people as an example of what they should be aspiring to.
Dr Ibrahim: Absolutely. We get a lot of calls when we publish the index. A number of presidents are very concerned about why their country moved down-they read it and they pay attention to it. A number of development agencies tell me this, and USAID administrator Raj Shah said publically that when they allocate money they look at our index. I think we really need to reward people who are governing themselves well rather than people who are misgoverning. We need to move away from the blue-eyed guys of the West, who for some reason fall in love one day with Museveni, and another day with somebody else. We need to look at governance, and, if people are not willing to help themselves, we should not help them.
Q17 Chris White: I think this issue is absolutely fascinating as a model, but there are some questions that I would like to ask. First of all I see there was no award given in 2009 or 2010. First, may I make it clear that corruption is by no means exclusive to one area in the world? I have a couple of questions. First, do you think the award was not sufficiently high to encourage people to lead, or do you think you achieved your objectives very early on by changing the nature of good governance? My final question is: do you think this is a good example to set for leaders to be incentivised? Perhaps they may be very good leaders. Do you think you are intervening too strong effectively?
Dr Ibrahim: Of course people will have different views about incentivising. We never thought of it as an incentive for people to be honest. To be frank, a dishonest president can make billions of dollars-$5 million is nothing; $10 million or $100 million is nothing. We know that. AlBashir passed £2 billion through the banks here in the UK. That is the amount of money a president can siphon. I do not think our little money is any deterrence. We do not mean it as a deterrent, and we do not mean it as an incentive to make people honest. Either leaders are good or bad; we are not going to change that. I do not know that there are that many really bad guys but there are a few, and we are not addressing that. That is up to the people and people dealing with them now or tomorrow-in Tahrir Square and elsewhere-will be the people who deal with them. It is not our job.
Sometimes there is a great leader who comes and really changes things. Why do we have the Nobel Prize? It is a recognition of a major achievement. I think that if a leader comes and rules well, and takes 100,000 or 500,000 people out of poverty, builds the institution and leaves on time, that is a hero. For me he is better than any winner of the Nobel Prize. Of course, they are a lot of nice people-it is great-but so what when this guy has saved a lot of lives. That is great and we need to recognise that. Why do we have the Olympics? You are having the Olympics here in London. Why are you having that? Why do we have gold medals? Because we as human beings love recognition. What we are doing is giving recognition, and the money helps people after office to continue to do things.
Look at President Chissano for example, one of our winners. After office what would he have done? He would have to go and work somewhere to make money. Now he does not need to work, so he is a professor and he teaches at university for free. He is running around in Madagascar trying to secure peace there. He was dealing with the Lord’s Resistance Army in northern Uganda. He was involved with the peace process. President Mogae of Botswana is now dealing with carbon emissions. He is doing work on AIDS and dealing with a number of things. Those people are free now to go and do public service-public work-and talk to our kids. All those people have a lot of lectures at schools and universities all over Africa to inspire a young generation. They do not need to go and work somewhere because they get $500,000 every year and that is enough. They are okay and we will finance their travel.
When European leaders retire, they become rich. You will all agree that Tony Blair is not exactly poor at the moment, and Clinton is not poor. That is because they are able to go and give lectures on the public sector, do consultancy, sit on boards at banks and so on. They have a reasonable life and that enables them to start foundations here, if they want to. Our people do not have a second life after office, and we try to give the good ones life after office. We say to them that actually what you are doing after office is maybe more important than what you did in office. They are able to go around fighting for the good causes full time, for example for girls to be admitted to schools and other gender issues, and on AIDS.
That is the value of the prize. It is not meant as a bribe for people to stop stealing money. It does not work like that. You cannot match a corrupt president, and morally it is wrong to do it. But we want to give them a second life. Firstly we give them a something nice as an honour-that is the Olympics gold medal-and then we want them to continue serving the public after office and continue working.
Chair : I think that is a very clear focus on your vision. We have just a few more minutes and we still have two or three questions.
Q18 Hugh Bayley: Is there a connection between good governance and good infrastructure? Does one feed off the other?
Dr Ibrahim: There may be an indirect connection. Good infrastructure facilitates better communications and better transparency, which helps with better governance. Once you have transparency there may be good governance. Also, good infrastructure helps investments. Investments change the environment around them by the requirement for transparency and good governance. I think there is this indirect link between them.
Q19 Hugh Bayley: Can I ask a difficult and personal question? When you look at corruption throughout the world, one of the most common areas is when an engineering company or some other infrastructure company is seeking a licence or a contract from a Government. You must have done this many, many times with Celtel when winning a competition for a licence or seeking permission to put up radio masts. What pressures have you come under, and how have you as a company coped with the pressure from corrupt officials or Ministers?
Dr Ibrahim: That is a very interesting question and I think it is something that we talk a lot about. I think that the private sector is actually the instigator of corruption. We corrupt everybody around us, so we need to think about this a little bit. At Celtel, we made a decision in our first board meeting about a policy that we called "not a single dollar", and then the question was how we were going to impose this. If we had a chief executive in this country or over there or wherever, we needed to know how to support them. So the second decision was that no cheque for more than $30,000 would be signed without board approval. Nobody in the company, no chief executive-nobody-can sign anything more than $30,000 without board approval.
Our board had about 12 people. Although I am the founder and the largest shareholder, I only had one seat. CDC had somebody on the board; the World Bank through the IFC had somebody on the board. There was OPEC, the American guys, FMO of Holland and DEG of Germany-I had all those guys on the board. Then we had some statesmen: we had the Secretary General of the African Union for 12 years, Dr Salim, and Lord Prior, who was a member of this House some years ago and is a very respectable statesman. These were the two cops-we called them the two policemen-Salim and Jim Prior.
So that was the board. How could that board give the bribes to anybody? We have representatives from all these Governments, the World Bank and institutions on the board, and that board is the one that approved cheques. So we tell our chief executives that if anybody asks you for anything, you say that you have no problem, but do not get into trouble-tell them that you cannot sign any cheques and will have to make an application to the board, and ask them exactly how much they want. They will then ask if you are crazy as they cannot have you write to the board to say they want a bribe-it is out of the question. So it was very easy to be adept at this.
Then we also had to be involved in the society we were in-we could not succeed in a failing society. We are very a profitable company, so we say that you help the country, not the persons within the country. So we are very happy to open a free clinic, for example, or to give computers over to schools or something like that, and we say to the president, "Please come and open this; we are going to name it after your daughter." That is fine, and we do these kinds of things, but they have to be something for the people. What you call it and who comes and opens it we do not care about, but that is the kind of gesture that we make. They actually enhance our relationship with our customers and our people. That was the policy.
Once you have a reputation and people know you do not pay bribes, nobody asks you. It is not as though people are going out there and quarrelling. We need to look very carefully at the issue of corruption and who instigates corruption. Do people think they can have a shortcut or they can make more profit by changing things? We need to have a close look at that. We focus only on the officials, and there can be terrible officials over there, but for any corrupt official there are at least a dozen corrupt businesspeople living here. These are very respectable and honourable people and in my view they should be in the dock together with those guys. I am delighted to hear that you, as the legislative assembly here, are taking a stand and tightening the corruption laws. Just take a leaf from the Americans’ book. You can see how the Americans are dealing with the Foreign Corrupt Practices Act. How many corruption cases concerning Africa were tried here in Britain? I think it is legitimate that you can have a Committee and ask what is going on. You have a law against corruption, but why you have not arrested anybody?
Q20 Jeremy Lefroy: Dr Ibrahim, China has of course been a major investor in Africa over many decades. I particularly remember the Ulhuru railway in Tanzania and Zambia. Do you think that, with the current flood of Chinese investment in African infrastructure, the advantages outweigh the disadvantages?
Dr Ibrahim: On the one hand we are very glad that China is involved in Africa because Africa needs to have as many partners in development as possible. It also helps to improve the prices of raw materials, because the price of raw materials only started to rise after China’s involvement. China has been involved in a lot of infrastructure projects, which is great, but what people in Africa complain about is the lack of transparency. It is wonderful to say, "I am going to build a 2,400 kilometre railway in DRC," or "I am going to build so many hospitals and two universities," but exactly what kind of university? Is it a two-room school, or is it like UCL here? How much will it cost? Someone might say they are going to build 100 hospitals, but what is the cost of that? They may be taking all my raw materials for this. What we need is transparency-just more transparency to make sure that people are having a fair deal. That is a downside of the programme-really China needs to find a solution and we need more transparency.
Q21 Jeremy Lefroy: How do you think China can be encouraged to use local expertise more in these infrastructure projects? We have seen examples where a lot of the labour comes from China. Certainly that was the experience in the railway that I referred to, but it happens even now.
Dr Ibrahim: There are two options. On rare occasions I have managed to speak to Chinese officials, although that is very difficult because China has a problem communicating with people like me who are not senior public officials or government officials. They do not like communicating with those in civil society-I mean I am unemployed and they do not like to deal with an unemployed guy. So there is a problem communicating with China. I always ask them, "Where is the 'People’s' in the People’s Republic of China?" I believe that China is open for discussion and people need to continue raising the issues with them. I do not think they are evil people who are doing things because they really want to be evil people. I think there is a lack of knowledge and they do not have the history. A number of people I meet here might say, "I was born in Tanzania and I lived in Kenya," but not many Chinese people know Africa, so there is a great deal of ignorance. However, either China gets engaged and understands what is happening, or it are going to learn through bad experience, because at the end friendship with people lasts, but friendship with dictators goes as the dictators are kicked out. That is the choice China has: does it want the friendship of the people or does it want the friendship of the few dictators.
Q22 Jeremy Lefroy: Lastly, how do you think the UK can become more involved with China in working together on this?
Dr Ibrahim: The UK has a long history in Africa. Some of it is painful and of course that is a handicap, but things are changing, a new generation is coming and this history is now being rewritten. You have a lot of experience and understanding of what is going on in Africa. I think that China needs help and I hope it realises that. It does not need financial help obviously-it has more money than anybody else-but it needs help to create partnerships and to learn to work with other people instead of in competition with other people.
Q23 Chair : Dr Ibrahim, I thank you very much indeed for coming in. You are a role model and I think that you are also challenging other people to raise their standards and their vision. Obviously we are particularly interested in what you have contributed to infrastructure and indeed how investment in infrastructure in Africa can be raised and deliver what people need. You have given us some very good pointers on issues of corruption and the value of investing in Africa. These are some very basic facts. This is all on the record of course, and I think it is very helpful to have that on the record. Thank you for coming and giving evidence, and can I say that you are one of the most productive unemployed people I have met?
Dr Ibrahim: Thank you Chair. I am really honoured to give evidence in front of such an eminent Committee. I really thank you very much for taking the time to hear me for half an hour or so. Thank you very much.
Chair : Not at all, thank you.
Witnesses: Professor Antonio Estache, Université Libre de Brussels, and John Hawkins, Institution of Civil Engineers, gave evidence.
Q24 Chair : Good morning gentlemen and welcome. Thank you very much for coming in. I will just repeat that I apologise that we are a bit constrained on time because we have a debate on international development coming up in the House fairly shortly. I appreciate that Professor Estache has come all the way from Brussels and we do want to hear from you. If we could try to keep our questions short and you do the same with your answers we should get through everything. Just briefly, I wonder if you could just introduce yourselves.
Professor Estache: Okay, my name is Antonio Estache. I teach economics at Université Libre de Brussels in Belgium, and before that-until 2007-I spent 25 years at the World Bank where I finished as the chief economist for infrastructure.
John Hawkins: Hello, I am John Hawkins. I am responsible for best practice at the Institution of Civil Engineers. I am also a policy adviser on the DFID-funded Construction Sector Transparency Initiative, and I have been working in-country with the majority of the pilot countries helping them to implement that.
Q25 Chair : Thank you for that. It is obviously very relevant. As we have been discussing-it is part of the reason we are doing this report-there is a recognition that Africa needs massive infrastructure investment across a whole range of different sectors, yet the funding for that infrastructure seems to be a long way short of the needs. So how do you think the gap between what Africa needs and the investment that is required to deliver it can be bridged? Indeed, can it be bridged and how should it be bridged?
Professor Estache: A tricky brief. I think what we heard from Mo before is that the private sector has a role to play. What we also know from the last 15 years of evidence is that the private sector has not contributed more than 20% of the investment realised in infrastructure in general in the world, and if you look at Africa it has concentrated in two ways. Firstly in sectors: the telecoms sector has been very successful in attracting private money; the water sector has not; the transport sector has only to a certain extent within ports and not elsewhere; and the power sector has also not been that successful except in some countries. Some 75% of the investment by private countries on infrastructure went to South Africa, and the poorer the country the less likely it is to get money. So how do we fill in the gaps? I think through aid: a transfer from the rich countries to the poor countries seems to be one of the easiest solutions, and in some of the sectors, I think that picking the right technologies will reduce the need for financing as well. So those are two broad strategies that you can think of.
Q26 Chair : Perhaps before you answer I could ask a supplementary and then you could come back because it might move us on a bit. What is the role of either bilateral donors or multilateral agencies in actually helping to deliver this? You implied a transfer of funds but are there also ways the donors could help unlock the private sector, because clearly the donors will not have enough of their own to deliver anyway. I wonder whether you might take that question on board as well.
John Hawkins: Yes. I mean there is potential. Leveraging private finance is probably not one of my strong areas of expertise but we are seeing examples with the Private Infrastructure Development Group, where they are trying to leverage private finance. There are also other areas around performance and governance where we could be making savings, particularly on developing the right design solutions at low cost, while making sure we invest in maintenance. That is a crucial area so that we do not then have expensive rehabilitation. Also in terms of leveraging private finance, there are some very interesting examples in the power sector with ABB, where there has been investment in developing mini grid systems and developing a power generator for the local community, and then an attempt to get user charges. Although it is mainly subsidised, there are user charges for the local community.
Professor Estache: Just to complement that, there are two other things that you can think of. One is to cut the bill; one way of cutting the bill is picking the right technologies and cutting costs. Technologies is one dimension, procurement is another dimension. What we know about developing countries in general, and Africa in particular, is that the unit costs are a lot higher than they need to be. If we change procurement rules, there will be ways of cutting costs and there will be ways of answering your question: for example picking technologies that create local jobs, which would use unit costs. So there are solutions. In terms of the other big dimension of actions that multilaterals have been working on, with the help of DFID actually, there is the policy framework. We heard from Mo that policy matters-it does matter a lot. If you want to cut the cost of capital for private companies, having a predictable framework is very effective as well. That is where international organisations have been helping in the past and probably need to continue helping in doing more.
Q27 Jeremy Lefroy: Just to continue on financing, do you not see a place for the public sector to be involved to some extent in risk guarantees to enable the leveraging of private finance? At what sort of level do you think public finance would be needed to leverage the kind of private finance we are seeing. At the moment you are saying that private finance is not coming in, but it will come in at a certain level.
Professor Estache: I think the level question is a bit complicated because it varies. The guarantees would have to be sector and country specific, and they would also have to be design specific. The sector specificity and country specificity is obvious, but the design one is peculiar, and I want to complement the presentation by Mo on this.
What the private sector will certainly want is to have something that is predictable and that has a high rate of return for a given country. What we tend to forget is that, when the public sector is managing many of those activities, there are cross-subsidies within the system, so high profit centres actually end up supporting high-cost, low-profit activities like rural areas or secondary cities. Mo was telling you earlier that getting broadband into secondary cities is complicated. One way of doing it-this leads me on to your guarantee question-is by defining the package of things for which you are giving guarantees, with the explicit concern for activities in which you would otherwise not get the private sector. If you get him to invest in a package that includes high-cost, low-profit activities and high-profit, low-cost activities, you reduce the need for public sector financing because you will get more private sector money.
This is not what has been done; we have been doing cream skimming up until now-pick the cherry, sell the cherry and then try to figure out how public money could finance the rest. We can rethink that. Once you have done that, depending on how far you can go on this politically, because you also have political constraints, you can then decide on the level of guarantee that you want.
Q28 Jeremy Lefroy: DFID has said that it has some comparative advantage in infrastructure, particularly in its policy thinking. Do you agree with that and could you perhaps give some examples?
Professor Estache: Yes I agree with that. I think on infrastructure it has probably been the most important actor among donors. The examples that it has supported are most of the very creative activities that have been developed in collaboration with the World Bank and other types of bilateral agencies. It has been the most effective actor in putting together PPIF. DFID has been very important in this research facility, or this policy advisory facility, as managed by the World Bank, and the construction initiative has also been very important. There are plenty of things for which DFID has been the leader, so basically it facilitates the activities and then delegates them to the World Bank. If the World Bank had not benefited from DFID involvement and support, I think a lot of the policy work that we are discussing here would not have been done, unfortunately. Partially it is because it is a lot more effective for a task manager in the World Bank or the African Development Bank to say that they just need another loan or to construct just another road, rather than saying that they have been thinking about the policy environment. You do not get a lot of credit for changing policies, but you get a lot of credit for building yet another road.
Q29 Chris White: In your experience do you think these big infrastructure projects help the local economy, with local jobs, additional procurement and local supplies? If it does, do you have any examples of where this has worked more effectively?
John Hawkins: Yes. In general with the large-scale projects there have not been huge benefits to the local construction sector. Generally it has been a European or Western designer and contractor that have been able to win the contract, and then there has been very little knowledge transfer down the supply chain. You therefore have an underdeveloped local private sector that, with the competition rules, struggles to raise access to capital, so it will then struggle actually to bid. They also do not have the experience required to bid or the ability to mobilise equipment and labour for these very large projects. There therefore really needs to be a rethink about how we create the right incentive structures and the right procurement strategies to be able to engage with, and make sure that, the local private sector really has the opportunity to compete on a level playing field, win these kinds of contracts and really begin to scale up their size.
Professor Estache: We do know that when things work well, they have a terrific impact. This is history-it is everywhere-and the poorer you are, the bigger the payoffs. A good example is telecoms; most activities have been very successful in developing local activities. The service industry has been able to grow thanks to this kind of investment, but we have not seen this in water and we have not seen this in roading. We have built lots of roads for very little traffic, so maybe that kind of knowledge could be used to design roads that may not be that great. We do not need to have European standards, but we need to have a much denser network with a lot more secondary roads that get us to generate the ability of farmers to get things to market, of kids to go to school, of sick people to go to hospital and so on. But you need the power to do all of that. So you need this cocktail of things where you have a technology choice, which is quite important. I come back to the labour intensiveness of activities. You are probably going to have a discussion on Libya and what follows, but a big part of the Middle East is growth without jobs. You can actually use infrastructure to generate jobs locally.
Q30 Chris White: Do you think DFID should be doing more to promote this type of activity?
Professor Estache: I think DFID could easily do more, but it is easy to say that now because we have seen the crisis. I am pretty sure that DFID, through PPIF, will be able to finance these activities and will do so.
I do want to come back on the procurement issue, which is really important. Part of the way in which procurement rules are being and have been designed is incredibly rigid. Economic theory has generated a lot of skills in terms of how to organise auctions, which you in the UK have experienced and benefited from with electricity and the telecoms sector, as well as everywhere else in the world. A lot of that stuff has not been transferred to the way we do procurement in developing countries. The World Bank has very rigid rules as does the EU. We should be thinking about how we can redesign some of these rules in order to promote local capacity, local construction companies and local jobs. This is something that should be on the agenda and may be a fair question for you guys to ask in your discussions.
John Hawkins: Just to promote that, there is actually now an international standard on construction procurement, which was published last year and is based on South African national standards. This is deliberately designed to provide options to incentivise the use of small and medium-sized enterprises through joint ventures and also directly engaging with them, and looking at local employment issues. It has very much still has the competitive element in there.
Q31 Chris White: Is that seen as quite effective? Is it rolling out quite well?
John Hawkins: It is seen as being reasonably effective. One of the issues that I have heard of in South Africa is the balance between the macro-policy objective of creating jobs for local people and also developing small to medium-sized enterprises against delivering a very efficient and effective project. They still have to work around meeting the micro and the macro, but by and large it is seen to be pretty effective.
Q32 Chair : DFID has had some unfortunate experiences with corruption in construction projects. It had a problem in the DRC, which I think it subsequently overcame, but that was actually precisely on the basis of trying to build up local capacity and local capability. That opened it up to the question of which local people would have the key positions. How big a problem is this? Given that DFID spawned the Construction Sector Transparency Initiative, what role do you think that can or is playing to address it?
Professor Estache: Do you want to start or shall I start?
John Hawkins: I am happy to start. In countries as diverse as the Philippines, Vietnam, Tanzania and Ethiopia, where you have very different political and economic contexts, you are actually beginning to disclose issues to the public that have not been disclosed in the past, so this is really beginning to highlight governance issues in the way construction projects are identified, procured and delivered. At the moment the demand side for that information is low, but it is beginning to highlight some of these key problems, which we hope in time will be a catalyst for change.
Professor Estache: The correlation between corruption and construction is brutal, and you can predict more corruption in water and roads than you can predict in energy and telecoms, simply because there is a huge construction component. Part of the issue is that we are not monitoring this seriously. If you ask people who work in the field at DFID or anywhere they know who is who, and they can predict that if a certain company bids, there is a good chance that there is going to be something rotten in the system. They know that. None of the development agencies-either bilateral or multilateral-keeps track of that.
I can give you one very basic example. Part of my research is on procurement, and I look at unit costs. I am interested in unit costs and looking at how market design influences unit costs and infrastructure. The two agencies for which I was able to get real data were the Japanese development agency and the World Bank. You do not get it in the UK because things are decentralised, so you do not have a monitoring system and you do not know if every single time that company went into that country unit costs were higher. You do not know, but you can ask the task manager, the engineer, or the economist in the field, and they will know whether this is not good or if it is okay.
I really think that to deal with corruption, you need to have a lot more accountability, and accountability starts with data, which is simply having the procurement data set generating information on how high or how low bids are, and how they were once this was negotiated or whether it was exposed when making an assessment. This is true for procurement projects within European as well by the way, but in general, in developing countries, if you are really concerned about corruption in infrastructure, and you want to be able to zoom in on where it comes from, you need to have a set of IDs and a set of numbers as to who charges on which one.
Q33 Chair : Is CoST the right vehicle?
Professor Estache: It is one of the best vehicles. I agree with what Mo was saying: "If you want these papers to be processed on time then give me an envelope." That happens as well. But you do have sectors where you have very few players. If you look at the number of bidders in the water sector or large-scale projects in transport, you know who is going to be bidding. It is a fair question to ask whether you have a risk of collusion. They are not going to call this corruption; it is going to be collusion. In Senegal, you have a construction company that knows those roads that are cheaper, and that company is getting a lot of contracts. That is what is done because Senegal decided to do things a bit differently.
Q34 Chair : Obviously the UK has the experience of the Extractive Industries Transparency Initiative and this clearly is following a similar pattern, or it appears to be. Do you think that the fact that DFID has handed over and given it across to the World Bank is the right thing for it to do? Presumably this is saying, "We’ve have had this idea, piloted it and now want to internationalise it-butt out," and it takes ownership. Is that what is happening and is it actually going to succeed?
Professor Estache: You have the benefit of co-ordination. If every one of the key bilateral partners were to do this on their own, production costs would be very high. You would have differences in approaches and you would have a lack of consistency in the assessments. I think that what is missing is for DFID to request from the people coordinating the effort to generate the kind of information I was mentioning earlier.
Q35 Chair : Mr Hawkins, do you take that view? Should DFID continue to fund it or is it appropriate for it to hand it over?
John Hawkins: I think it is very appropriate that the World Bank has now taken the lead. It is a key development bank funding large infrastructure. But we do believe that DFID really needs to make sure it puts its full intellectual policy resource behind it to make sure that it draws in other donors-both bilateral and multilateral-and makes sure that the investment that it has put into it so far receives best value. In principle, I think it is right that the multilateral development banks now take the lead.
Q36 Chair : You said that you were ambivalent in your attitude towards the proposed expansion. Is that ambivalence fading in the light of the changes?
John Hawkins: I think it has. The difficulty was that, in a time-constrained pilot, we had very few results last summer, so that led to a certain level of ambivalence within the organisation, but as the results came through at the end of last year, there does seem to be a lot more support for it within DFID. We would still like to encourage it to be absolutely unequivocal in its support for the initiative and really put its intellectual capacity behind it. We are now beginning to see that, at a country level, we are finally getting country offices much more engaged, whereas in the past there was a real disconnect between what we see as a head office initiative rather than a country office initiative.
Q37 Chris White: You were already leading on to my question about DFID and making sure the appropriate staffing levels are available in country. Do you have any more that you could add?
John Hawkins: Yes, it is mixed. We have had very good experiences working with the local staff, who are really engaged and want to help take things forward, but then we have examples, particularly with my colleagues, where we were in one country where they were almost asking us what was going on in the local sector. It very much depends on what their interests are, what their policy areas are, and what their programmes are at a country level in terms of their knowledge and engagement with infrastructure issues.
Q38 Chris White: I note that we are recruiting something in the region of 300 to 400 staff at the moment. Where do you think their tasks or professions should predominantly lie?
John Hawkins: We would certainly like to see an increase in the engineering profession, and not just engineering, but across the construction professions. There is very much a need for bringing in architects and QSs as well as engineers to make sure we have a multidisciplinary approach. We think it is important that, by having that knowledge, they can get balanced decision making in terms of the policy programmes that have been developed both at Palace Street and at country level. That will also really help to identify country priorities.
Q39 Jeremy Lefroy: I just want to follow on from that by asking why you think that UK-based civil companies do so little of the infrastructure work now, whether in terms of overall design or just implementation. Clearly that was not the case 20 or 30 years ago. What is stopping UK companies from taking advantage of this rapidly increasing market?
John Hawkins: It is really to do with the risks associated with investing in that market, particularly to do with corruption. The industry has changed its approach towards corruption in the past 15 years. Some companies have become fairly evangelical on the issue, and I think they feel that the risks involved in investing, in Africa particularly, are just not worth the time and effort to get it to work. So the key things are payment issues, and particularly whether they get?
Q40 Jeremy Lefroy: Would the ECGD cover that?
John Hawkins: Potentially yes, but with margins low, cash flow is still an issue.
Professor Estache: The amounts of money are so large that I do not think that the guarantee would cover all the risks. Another point I would like to add to that response is that the UK has evolved in the right direction in terms of trying to make these companies more accountable. Not all the countries in Europe have done that.
Q41 Jeremy Lefroy: When I travel, for instance, I see Danish and Norwegian construction companies very heavily involved.
Professor Estache: In specific sectors you see them. Again when you travel, if you look at the record, you will know that in the water sector you will most probably have French companies involved, the energy companies will depend on whether you are working in an Anglophone country, a Francophone country or Latin America, and you can predict the ID of the actors. Part of that is because those countries have a very proactive involvement of politics in the capture of markets, much more so than the UK. When I was in my previous job it would not be uncommon to have discussions on potential markets at the embassy of different countries. I never had a meeting in a British Embassy, ever.
Q42 Jeremy Lefroy: That is very interesting and a point that I think we have picked up. Taking for example a company that is very active, such as the Norwegian company Naremco, you would expect that it would adopt a pretty similar approach to corruption as a British company.
Professor Estache: The thing is that they bring money in easier terms and provide a lot more technical assistance. So they come up with another package that allows them to get a better deal. The overall package is also quite important. Part of it has to do with the skills of the people. A lot of the companies are there to do with the deal, but they do not want to do the follow-up. You also heard from Mo that there is a lot of demand for additional services provided to society, and this is something that the British companies do not really do and that Nordic companies do a lot more. I have plenty of friends going to countries such as Angola and South Africa, and they do not really work for these oil companies or energy companies but they do follow up. They help them set up governance systems and public hearing systems, and they do all of those things as an additional service, which is not really done here.
Q43 Jeremy Lefroy: Does that imply that British companies are basically quite lazy?
Professor Estache: No, I think it is a different way of organising business. Very importantly, I think that the politics of doing business are very different in the UK than in the other countries. As I said, you can really have a presentation on the opportunities to do business with three Spanish electricity companies in the Spanish Embassy in Buenos Aires, but you are not going to have that activity in the British Embassy in Buenos Aires. The same thing is true in Mali, in South Africa and Kenya.
John Hawkins: The British contracting business is very active in China and India, where they can see a pipeline of projects. They therefore feel that they can invest and can put down roots, because they can see that over the next five to 10 years they can make profit from these environments. When looking at the African market, they probably cannot see in the same way that that high-level investment at the beginning is going to be tangible five or 10 years down the line.
Professor Estache: Frankly, British companies have very, very good market share in other parts of the world, but not necessarily in Africa. If you look at Africa and the Francophone versus Anglophone countries, they are doing okay-not great but they are doing okay. They are quite present in Ghana, Uganda and Kenya.
Q44 Jeremy Lefroy: So what we are saying is that with, hopefully, a considerable expansion of infrastructure development in subSaharan Africa, British companies would be advised to look at the long term and put down regional roots in these places so that we can effectively bid for these contracts. With the work that you have been doing on CoST, the issue of corruption will be addressed, so therefore you would encourage them to start looking at that.
Professor Estache: Yes.
John Hawkins: Yes.
Jeremy Lefroy: Good.
Q45 Chair : We will be taking evidence from Claire CurtisThomas, a former MP who is an engineer, who has been involved in trying to encourage development partnerships between the British construction industry and parts of Africa. She has been somewhat frustrated by the process, and obviously we want to hear from her for that reason.
A question that arises comes from what Mo Ibrahim was saying, that even though rates of return are higher in Africa, any given project will get 15 times more interest in India or 12 times more in China than it does in Africa. Mr Lefroy asked if it was laziness and you said no.
Jeremy Lefroy: I asked the question.
Chair : Yes, risk averse is perhaps what we can say. Are they right to be quite so risk averse? After all, if the returns are higher, then we have a little bit more margin for getting things wrong, but on the other hand if you do not engage, you do not take part, and by definition you do not get the business. It is neither the UK Government’s nor this Committee’s interest to facilitate that-our aid is untied-but we do actually want to see the investment and we do have some major international construction companies, so they must be part of the solution. Objectively untied, but you would expect them to be-let’s put it that way.
John Hawkins: I would like to think so. We have some very large consultancy firms rather than contractors. Halcrow, TPS and those kind of firms are very large. Companies like Arup, particularly, are very engaged on these kind of issues and these kind of markets, and Mott MacDonald does a lot of work in the water sector. So the consultancy side is more likely to invest in these markets and put down roots. Again, it is linked to where DFID invests and has competition, which is really on the capacity or technical side of things where a lot of our companies are very strong. It is less likely when we get down to the construction and building side of things that we will see a growth in that area.
Chair : As you appreciate, we are in danger of losing our quorum, not for any reasons of lack of interest but because of the pressures of what is coming down the track in the House. Is there anything that you wish to put on record that we have not asked you?
I appreciate very much what you have had to say. We are just at the beginning of this inquiry, and what I would say is that you obviously can monitor what we are doing on the website. If there is anything that you feel, on reflection, you would like to put to us, please feel free to do so. We are really in the business of gaining an understanding of what the infrastructure challenges are, and what in particular our own Department for International Development can or should be doing to help contribute. It is not an area where it has strength, but on the other hand, if infrastructure in Africa is important and our contribution to Africa is growing, it needs to engage on that. If you do feel there is anything you want to put to us later, I hope you will do so-we would very much appreciate it. Thank you for coming in, especially to Professor Estache for taking the trouble to come across on an early train from Brussels. Thank you very much.
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