10/02/2017

:00:30. > :00:36.Thank you very much. Ladies and gentlemen, welcome to the

:00:37. > :00:43.Public Accounts Committee this Wednesday 8th February, 2017. We are

:00:44. > :00:51.here today to look at the CDC, the Commonwealth development corporation

:00:52. > :00:55.which is a body set up originally in 1948 to channel money into

:00:56. > :00:59.investment in developing countries to help promote economic growth and

:01:00. > :01:02.job creation and it is going through an interesting change right now,

:01:03. > :01:10.going through the House is a bill that's going to change the structure

:01:11. > :01:13.but particularly focus on increasing investment in line with an economic

:01:14. > :01:17.strategy so there is an investment limit going up from 1. 5 billion

:01:18. > :01:20.currently to 6 billion and potentially enables the House

:01:21. > :01:24.through secondary legislation to increase that to ?12 billion. So it

:01:25. > :01:27.is an interesting time of change. The report goes through some of that

:01:28. > :01:32.with interesting graphs about the expansion of staff teams and the

:01:33. > :01:38.cost of staff going up as a result, partly as a result of that. This is

:01:39. > :01:43.a quadruple willing of taxpayers' money to be invested for overseas

:01:44. > :01:47.development aid but a vehicle that's a sort of hybrid vehicle because it

:01:48. > :01:50.gets direct taxpayers' money but operates in private sector terms

:01:51. > :01:57.which is a sort of brief summary of how it works. I want to welcome our

:01:58. > :02:00.witnesses and I wanted to ask some questions about St Helena airport

:02:01. > :02:06.before the main session. This is from my left to right. Rachel

:02:07. > :02:08.Turner, interim director general for economic development. Welcome I

:02:09. > :02:13.think it's your first time in the committee. Yes. Welcome. We are a

:02:14. > :02:18.friendly bunch, most of the time. If you answer our questions! Sir mark,

:02:19. > :02:22.permanent Secretary at the Department for International

:02:23. > :02:27.Development. Diane Nobel, the chief executive, but not for much longer s

:02:28. > :02:33.that right? A few more months. Do you know who your successor is? We

:02:34. > :02:39.will talk about that later. OK. And Graham Ridley the chair of the CDC.

:02:40. > :02:44.Our hashtag for anyone following on social media is hashtag CDC. Before

:02:45. > :02:49.we start on that, Sir Mark, I wanted to ask about St Helena, I understand

:02:50. > :02:54.there was a key date yesterday for tenders coming in to provide

:02:55. > :02:58.aircraft to the airport. What can you do, can you update us on

:02:59. > :03:03.progress on whether flights will be able to land at the airport? Yes,

:03:04. > :03:07.chair. There was a closing date submission of tenders. I can tell

:03:08. > :03:11.you we have had a substantial number of responses. My commercial advisers

:03:12. > :03:15.tell me I shouldn't tell you the precise number because it is a

:03:16. > :03:18.commercial process ongoing. It remains the Government's plan to

:03:19. > :03:22.move through the tender process and to start an air service to St Helena

:03:23. > :03:29.in the way we discussed last time I was here later in the year. OK. Any

:03:30. > :03:33.of these aircraft large or all smaller aircraft that were managing

:03:34. > :03:41.to land successfully? There are some aircraft that are in the category

:03:42. > :03:45.that I ran through when I was here with Richard Montgomerie last time.

:03:46. > :03:50.We won't revisit that in this session. Thank you for the update. A

:03:51. > :03:53.couple of questions. I met some people from St Helena yesterday,

:03:54. > :03:57.they may have met you, as well, I don't know. But I am concerned

:03:58. > :04:00.because we have seen all of this money go in and haven't yet got the

:04:01. > :04:04.right solution in terms of the airport, I hope that will happen.

:04:05. > :04:08.But these are really questions for CDC and I don't expect to you sign

:04:09. > :04:12.your name in blood to anything right now but your mission is to secure

:04:13. > :04:19.future sustainability and prosperity for some of the poorest countries in

:04:20. > :04:25.sub Sahara Africa and Asia. St Helena is underdeveloped and is in a

:04:26. > :04:29.sort of aspect where it can't really change without the airport and

:04:30. > :04:34.without the investment. It hardly has any hotel beds, the bank is

:04:35. > :04:40.capitalised at ?5 million. It is precisely the sort of thing one

:04:41. > :04:45.might think where a multilateral financial institution like the EBRD

:04:46. > :04:49.or CDC might come in over a long period of time perhaps with partners

:04:50. > :04:54.to develop a corporation, particularly if the air solution

:04:55. > :05:00.comes up, that would create the right conditions for a much more

:05:01. > :05:04.sustainable long-term tourist industry with perhaps 1520,000

:05:05. > :05:11.visitors, there is obviously a huge interest and a niche market for

:05:12. > :05:18.that. Is this the sort of thing that CDC would seriously look at? You

:05:19. > :05:22.described precisely what CDC does but the geographies that we invest

:05:23. > :05:28.in are decided by our shareholder and we invest at the moment only in

:05:29. > :05:32.Africa and south Asia wris where 80% of the world's poor live. So a

:05:33. > :05:39.question of the shareholder changing its mind. You Getty point. I get

:05:40. > :05:45.your point and indeed you will be aware that the Caribbean development

:05:46. > :05:49.bank, for example, with help is interesting in overseas territories

:05:50. > :05:53.now I need to check which of the development banks have a mandate for

:05:54. > :05:58.exactly where St Helena is but I will take that away and have a look

:05:59. > :06:02.at it and in respect of CDC as you will know the Secretary of State is

:06:03. > :06:07.planning to agree with the board shortly the new strategy for CDC and

:06:08. > :06:11.that does touch on the issue what of right geographical areas are. It

:06:12. > :06:18.would be extraordinary if the British overseas territories, some

:06:19. > :06:21.are which very poor, some have had governance problems, when I was

:06:22. > :06:26.first elected to as an MP I was invited to the solicitor owemans and

:06:27. > :06:31.it was cancelled a because it was too dangerous. If they were excluded

:06:32. > :06:36.when other places were, even if they were roughly in the right

:06:37. > :06:39.geographical area, would that not be strange? It's a matter for the

:06:40. > :06:42.investment policy and they're reviewing the policy at the moment.

:06:43. > :06:46.So I will take away the point and consult the Secretary of State.

:06:47. > :06:52.There is an open invitation for you to lobby the Secretary of State. OK.

:06:53. > :06:57.We are moving into our main session on CDC, particularly in light of the

:06:58. > :07:00.bill going through parliament. I will pass over.

:07:01. > :07:03.Thank you very much for being here. There are a number of questions I

:07:04. > :07:09.want to ask relating to your strategy.

:07:10. > :07:15.First, to Sir Mark, do you think there has been a big benefit moving

:07:16. > :07:20.from a fund to fund strategy to more direct investments? Well, I think

:07:21. > :07:25.probably the company will want to comment on that, as well. The then

:07:26. > :07:30.Secretary of State in 2012 was very keen to do that in order to get CDC

:07:31. > :07:34.back in the business of being able to invest directly in companies

:07:35. > :07:40.where the company thought there was a good prospect for creating jobs

:07:41. > :07:44.and adding to the tax base and making development impact and the

:07:45. > :07:48.experience so far, it is early days in terms of the proven results, but

:07:49. > :07:53.the experience so far has been very positive. Yes, we think it's a good

:07:54. > :07:58.idea for CDC to have both the fund to funds vehicle and the direct

:07:59. > :08:02.investments, equity and debt. Yes, we are happy with our mandate. We

:08:03. > :08:06.think it gives us the full range of tools we need to achieve our mission

:08:07. > :08:11.to create jobs especially in the poorest places. There are some great

:08:12. > :08:15.things that funds, investing through funds can achieve. You are creating

:08:16. > :08:24.a layer of investing infrastructure effectively that will last for

:08:25. > :08:30.decades to come. And also you are - direct investing can be much more

:08:31. > :08:34.precise in targeting investments that alleviate poverty. The

:08:35. > :08:36.principle worry about this is you are moving from one set of

:08:37. > :08:39.investment, your investment professional, I read, so you

:08:40. > :08:43.understand that it is a very different thing to be a fund to

:08:44. > :08:51.funds manager than to be a direct investor. So you need a different

:08:52. > :08:55.skills set. How are you doing in expanding that particular skills

:08:56. > :09:00.set? If I can refer colleagues to page... Yes, the report covered it

:09:01. > :09:04.very well actually, that we have done a lot of work over the last

:09:05. > :09:07.five years to establish effective will you new teams, there is a

:09:08. > :09:14.figure that shows all the boxes of the teams in the colours. And so we

:09:15. > :09:16.have put in place product teams so a direct equity team and sector teams

:09:17. > :09:21.because you really need to understand the sectors that you are

:09:22. > :09:25.investing. Now we are beginning to expand our geographic reach as well

:09:26. > :09:28.to supplement this so that we can be really close to our portfolio

:09:29. > :09:35.companies but you are right it's a different skill. Do you think it is

:09:36. > :09:38.- I was looking at the compound growth rate, which I asked for

:09:39. > :09:44.specifically. I notice that it is sort of fallen off. Take the last

:09:45. > :09:49.four or five years, it is about 7. 7.5%. Whereas over 15 year period

:09:50. > :09:53.it's 10%. Is that related to the fact that you are shifting your

:09:54. > :09:58.focus? Do you mean the financial return is coming down? Yes, it is.

:09:59. > :10:04.It is not so much because we are investing direct, it's because we

:10:05. > :10:08.deliberately responded to the recommendations from this committee

:10:09. > :10:11.and also the development committee and international development

:10:12. > :10:15.committee in 2010 to push ourselves to make harders investments. You

:10:16. > :10:22.will have seen the development impact grid in the NAO report and

:10:23. > :10:26.that is that targets our tapes and pushes our teams to make investments

:10:27. > :10:30.in the harder countries. You will have seen our portfolio is more

:10:31. > :10:33.weighted to the harder bits so we think we are pushing our mission and

:10:34. > :10:37.that we think over time will continue to bring the financial

:10:38. > :10:41.return. If as you accept that the financial return is slightly

:10:42. > :10:44.decreasing, and that's what the numbers suggest, the issue that I

:10:45. > :10:48.would have is that how do you measure the development impact

:10:49. > :10:52.because it seems looking at the report and looking at other things

:10:53. > :10:57.that that's a difficult thing for you to get a handle on and you have

:10:58. > :11:00.used different criteria. So we think we have extraordinary impact and we

:11:01. > :11:04.think and we are demonstrating it, as well. So we want to try and

:11:05. > :11:09.maximise the number of jobs that are created. We can now show the last

:11:10. > :11:14.two years our portfolio companies created over a million jobs in each

:11:15. > :11:21.of those two years. A million jobs in each of those two years. We want

:11:22. > :11:25.to increase taxes paid. We can show that our portfolio companies paid

:11:26. > :11:31.over $7 billion over the last three years into local Exchequers, we want

:11:32. > :11:38.to power Africa. We can show that our power companies generated 56,000

:11:39. > :11:43.gigawatt hours, which is enough to support 28 million people. And we

:11:44. > :11:48.want to bring the private sector and other investors in alongside us and

:11:49. > :11:51.we can show that last year 700 million extra capital came in

:11:52. > :11:57.alongside our 3 punz million that we committed to funds. Forgive me,

:11:58. > :12:07.these are fluent answers but if you look at figure 15 of the report on

:12:08. > :12:10.page 34, it's not - the picture that you lucidly describe is not captured

:12:11. > :12:14.in that figure because there are a number of criteria that you

:12:15. > :12:17.discontinued for what reason, I am not sure why you would have done

:12:18. > :12:21.that. It looks to me like you have been moving the goal posts slightly

:12:22. > :12:25.in the sense that some of the criteria are no longer used or have

:12:26. > :12:30.I got the wrong impression? It's a different picture. Again the NAO

:12:31. > :12:36.report very clearly shows how much we have done and how much has

:12:37. > :12:43.changed since 2011. So, where we invest, how we invest, what we

:12:44. > :12:48.invest in and a lot of our processes and policies have changed, as well.

:12:49. > :12:52.Every time we enhance what we do we add something new to the way that we

:12:53. > :12:57.report. So the picture I want to paint is one of constant

:12:58. > :13:02.improvement, not one of wanting to change goal posts. You will

:13:03. > :13:07.understand if you alter the measure it is very difficult for committees

:13:08. > :13:15.like us to track progress. You understand that problem? Of course.

:13:16. > :13:19.But the main metrics that I described upfront, jobs created, tax

:13:20. > :13:25.paid, capital crowded in, power generated, these are not measures

:13:26. > :13:30.that are changing. We will report consistently on them year on year.

:13:31. > :13:34.Can I ask about jobs created. You talk about a million from the

:13:35. > :13:38.portfolio companies. Direct jobs is about 25,000, isn't it? Yes Seems a

:13:39. > :13:43.big jump from 25,000 to a million. Can you talk through how you make

:13:44. > :13:50.that, what measure you set in place and make sure you are not double

:13:51. > :13:54.counting? Of course. So it follows accepted economic advice which is

:13:55. > :13:57.when you look at the job effect of investing it falls into three

:13:58. > :14:02.categories. Obviously the direct jobs, we all understand that. Then

:14:03. > :14:07.there are indirect jobs generated through supply chains. Then there

:14:08. > :14:10.are induced jobs which result of bringing more power or finance to a

:14:11. > :14:15.country or a region that doesn't have enough of it.

:14:16. > :14:21.Your right to say that the methodology we put in place a couple

:14:22. > :14:26.of years ago, it is clear that the indirect jobs are much great and the

:14:27. > :14:31.direct jobs are much smaller as the proportion of the whole. But I think

:14:32. > :14:38.this is intuitive. As an example, we made an investment bringing

:14:39. > :14:44.hydropower to eastern Congo, this is off grid, the first of this region

:14:45. > :14:49.has had it, that we think will generate 250 direct jobs but it is

:14:50. > :14:56.part of planned to bring 40,000 new jobs to the indirect effect...

:14:57. > :15:01.Perhaps we can follow up on this but how do you measure your not double

:15:02. > :15:04.counting? You're creating the energy which could potentially create

:15:05. > :15:09.40,000 but other things which could contribute to this which you might

:15:10. > :15:12.also be investing in. The design of the methodology was not ours. We

:15:13. > :15:18.went out and find the best adviser to put it together and we are peer

:15:19. > :15:23.reviewing that methodology at the moment. Like you, we want to be as

:15:24. > :15:30.precise and accurate and honest about the impact we have. About this

:15:31. > :15:36.development, we had slightly more problems on this than I think you're

:15:37. > :15:45.answers may suggest. In 2008 there was an issue, was there not? This is

:15:46. > :15:50.to Sir Mark. There were a number of things in two dozen eight. This was

:15:51. > :15:57.a question that Mr Kaepernick Lakra bacon asked in 2008. Why was the tax

:15:58. > :16:02.paid by the date the company? Asking about the development company. There

:16:03. > :16:07.are none of damage and need element impact. Are these businesses are

:16:08. > :16:11.generating business and paying tax going back into the Exchequer? A big

:16:12. > :16:14.change in the element impact has been the eight fold increase in

:16:15. > :16:17.businesses paying tax. It is absolutely the case today that in

:16:18. > :16:24.2008 we were not tracking jobs created. It is also the case as the

:16:25. > :16:30.report pointed out that we were not in 2008 identified at the moment is

:16:31. > :16:34.the company was going to make an investment or not, will be predicted

:16:35. > :16:37.development impact would be. Those three things are enhancements. The

:16:38. > :16:42.report recommends we do more to enhance knowledge of the element

:16:43. > :16:47.impact, more evaluation work and so, and we agree with that I want to do

:16:48. > :16:51.that. There has been a lot progress since 2008. Can I ask you a specific

:16:52. > :17:01.question about this? By understanding is you had ?5 million

:17:02. > :17:07.of the 735 that you got in 2015, ?5 million allocated specifically to

:17:08. > :17:13.hire a senior evaluation Officer, or someone who would be looking at this

:17:14. > :17:18.very issue impact, development impact. Where have you got to

:17:19. > :17:25.intensify ring this person? The 5 million was not to hire the

:17:26. > :17:29.individual, to be clear. We were in the -- we were intended to hire an

:17:30. > :17:34.individual who had expertise in this and would be able to manage a 15

:17:35. > :17:37.year long study, checking in periodically to provide the

:17:38. > :17:44.aggregate picture of the element impact. I'm sorry to have to report

:17:45. > :17:46.to you, at the report says that we have not been able to find the

:17:47. > :17:51.person with the right skills to do that. What we have done is tender

:17:52. > :17:55.contract to provide the analysis in the study over that 15 year period.

:17:56. > :18:01.That is not the only thing we have done, we have also, the company

:18:02. > :18:06.should be to much bigger programme of work they have commissioned of an

:18:07. > :18:11.evaluative sword so we can tell a stronger story as we go along. Are

:18:12. > :18:15.you still looking for someone or had you abandon that? We will have

:18:16. > :18:19.another look at what I didn't want to do is delay the whole evaluative

:18:20. > :18:24.process because we were delaying finding the senior person for that

:18:25. > :18:27.we can let the contract and we have competent people. How long did you

:18:28. > :18:41.spend trying to define this person? Are you so. -- a year or so. The

:18:42. > :18:45.other thing I wanted to ask about is the quality of jobs because clearly

:18:46. > :18:49.that is a big issue you pride yourself on in terms of job

:18:50. > :18:57.creation. How do you measure the quality of the jobs you create? The

:18:58. > :19:02.NAO report recognises that we made a lot of progress in this area. And we

:19:03. > :19:06.agreed that it is not enough just to care about the number of jobs

:19:07. > :19:09.created, we should also care about the quality of those jobs, or decent

:19:10. > :19:16.work if you like. The things we have done, we have a code of responsible

:19:17. > :19:23.investing and that had standards in it that followed the International

:19:24. > :19:29.Labour organisation. It is very clear that we have standards set to

:19:30. > :19:32.avoid forced child labour or discrimination, we ensure safe and

:19:33. > :19:37.healthy working environments, and we ensure that our companies pay the

:19:38. > :19:40.minimum wage. It is fine to say these are standard but the important

:19:41. > :19:50.thing is are they actually did too? We have a great team that goes in

:19:51. > :19:52.and does due diligence before we invest and assess the compliance and

:19:53. > :19:57.if they are not complained they will put in place and action plan and

:19:58. > :20:01.they oversee real change. We don't stop there, we also assess how the

:20:02. > :20:04.companies are doing against the action plan and we will step in and

:20:05. > :20:14.help them if they are falling short. We had a traffic light system that

:20:15. > :20:18.go to the risk committee. If I may, it's a very compelling story, but

:20:19. > :20:28.I'm interested in your relation to the private sector. This is quite

:20:29. > :20:31.hybrid beast and I'm sure you would have been happy to receive capital

:20:32. > :20:36.underwritten by the taxpayer, I've looked at York account and there no

:20:37. > :20:42.cost of capital that I can see and yet you're competing on favourable

:20:43. > :20:46.terms on financing with the private sector -- your accounts. Is that

:20:47. > :20:53.something you are happy doing? Do you feel that you're competing not

:20:54. > :20:56.competing but operating in a fair environment with other people you

:20:57. > :21:04.are trying to do it on a commercial basis? CDC is a unique and

:21:05. > :21:07.extraordinary organisation. What you describe is actually its strength.

:21:08. > :21:13.It has permission to go to the very hard places that it uses and this is

:21:14. > :21:17.a strength of the team we have hired, it uses commercial skills to

:21:18. > :21:23.apply judgment to navigate the difficult places. The judgment about

:21:24. > :21:27.which team we should work with which management team we should not work

:21:28. > :21:34.with, what standards should we have in job quality and is this a company

:21:35. > :21:37.that is going to grow and be sustainable for the long term? These

:21:38. > :21:42.are important judgment that the team makes and these are commercial

:21:43. > :21:45.skills. But you see there may be an issue in terms of private investors

:21:46. > :21:49.operating in your space who feel they cannot compete and are being

:21:50. > :21:59.crowded out. This is an important topic. We use the phrase

:22:00. > :22:01.additionality. The meaning of that is that we always want to be clear

:22:02. > :22:05.that CDC is bringing something that CDC is bringing something

:22:06. > :22:14.unique to the investment we make and that can be capital. For example,

:22:15. > :22:17.during the Ebola crisis we provided much-needed liquidity to companies

:22:18. > :22:21.that were running out of working capital to the essential businesses

:22:22. > :22:26.going. No other investor was investing in cereal own at the time.

:22:27. > :22:35.That occur in Sierra Leone. Also we can bring things that the private

:22:36. > :22:41.sector would not bring -- in Sierra Leone. We have dramatically improved

:22:42. > :22:49.working conditions in a rail freight business intimately poorest state of

:22:50. > :22:52.India, which is an industry which is notorious for poor working practice.

:22:53. > :22:59.Or we may change the strategy of the investment that we work with. The

:23:00. > :23:02.report talks about global leg, our busiest investment, which is the

:23:03. > :23:06.biggest independent power producer in Africa. We make that investment

:23:07. > :23:10.but commercial capital would have invested in it. It is an attractive

:23:11. > :23:16.company. But what we have done is completely change the strategy from

:23:17. > :23:21.essentially a commercial strategy where the shareholders are taking

:23:22. > :23:26.out dividends each year and saying that we want those dividends and all

:23:27. > :23:29.the focus to go on developing the next generation of power plants

:23:30. > :23:33.across Africa which is not a fully commercial strategy. We have changed

:23:34. > :23:39.the board and the management team and the strategy. For my

:23:40. > :23:44.clarification, do you essentially go in as yourself or do you go in as

:23:45. > :23:48.joint ventures? Do you have a style or approach with respect to joint

:23:49. > :23:54.ventures and partners? We are very flexible. We can be very active, as

:23:55. > :23:59.I described with Globalec, we were a majority shareholder. One of the

:24:00. > :24:05.important things we do is to try to work with the best people. The magic

:24:06. > :24:10.of CDC is when you combine capital with people who share your values

:24:11. > :24:13.and what to do the right thing. One of the most important things we do

:24:14. > :24:20.is to try to choose those people and back them. You don't see any

:24:21. > :24:28.tension, any tension at all between those twin goals? You think this is

:24:29. > :24:37.a model that is completely without any wrinkles? Of course it's

:24:38. > :24:41.challenging. To the mandate we have, and the whole team that we've hired

:24:42. > :24:45.over the last five years, completely accept this, is to really push the

:24:46. > :24:52.impact part of our mission, to do the hard things that the committee

:24:53. > :24:58.wants us to do. But to do it in a responsible way that generates

:24:59. > :25:02.returns, crowds in the private sector as well, and also had a

:25:03. > :25:07.demonstration effect so future investors will follow us. It is a

:25:08. > :25:10.hard mission and it does have challenges and trade-offs, should we

:25:11. > :25:28.make this investment, will it achieve both those aims? Mr Wrigley?

:25:29. > :25:32.You summarised the balancing of the impact and the return. It is

:25:33. > :25:36.perpetual paranoia, are we getting the right balance? You can think

:25:37. > :25:42.about it on an investment level and a strategic level. Every investment

:25:43. > :25:47.comes to the investment committee, the teams and the committee has to

:25:48. > :25:50.make a judgment, a triangulation between the redevelopment impact,

:25:51. > :25:55.how can we make the world better, financial return, how we're to

:25:56. > :26:02.achieve our financial mandate from the UK taxpayer, are we going to be

:26:03. > :26:06.additional? Your question, we never want to crowd out and we don't crowd

:26:07. > :26:13.out and we have clear rules and guidelines. And are we managing UK

:26:14. > :26:18.money with full business integrity? That is every investment. Last year

:26:19. > :26:24.we made over 40 investments. At a strategic level, and we are very

:26:25. > :26:30.long-term business, we have to judge development impact and financial

:26:31. > :26:34.return, the tone of the National Audit Office inquiry eight years ago

:26:35. > :26:39.was a different set of questions. That is what we try to do. Those are

:26:40. > :26:45.the debate we are having at the moment with each shareholder for the

:26:46. > :26:49.next five years. I looked at the 2008 report and clearly there were

:26:50. > :26:54.big problems and it's a different picture. They were running it like

:26:55. > :26:57.hedge funds with 30% returns one year on taxpayer money and were

:26:58. > :27:06.being very well paid for it. You have moved on from that. I think, as

:27:07. > :27:12.the NAO report said, the returns that we've made and the taxpayer has

:27:13. > :27:16.made in the last five years, 84% of them came from that strategy and a

:27:17. > :27:21.lot of great mobilisation was done in that period. And the Joslin

:27:22. > :27:30.report from Harvard business School talked about 345,000 jobs created.

:27:31. > :27:35.What was the fall in 2008? You have been saying how wonderful it was but

:27:36. > :27:42.it was down 36% in one year? It was a volatile market. I'm talking about

:27:43. > :27:47.over the period. I remember this, I was on the committee at the time and

:27:48. > :27:52.one of your predecessors paid himself ?970,000 and was targeting a

:27:53. > :27:55.bunch of middle income countries, not the most difficult to help so

:27:56. > :27:59.they were mimicking what was being done by a private equity providers

:28:00. > :28:05.and hedge funds and very nice for them, thank you very much, but not

:28:06. > :28:09.clear that Mr and Mrs taxpayer need to be involved. And Sir Mark is

:28:10. > :28:14.nodding. The reason you sort the drop wasn't because it was volatile,

:28:15. > :28:20.although of course it was, but because there was a strategic choice

:28:21. > :28:25.made, a good one. I'm not speaking out of turn, I hope, that an

:28:26. > :28:30.accurate description? I think the change has been profound. The new

:28:31. > :28:36.strategy that started in 2012 is a fundamental change and we have now

:28:37. > :28:41.targeted, as it says on figure for on page 20, sub Saharan Africa and

:28:42. > :28:46.South Asia, the poorest states, so we have 90% of our new investment...

:28:47. > :28:54.Do you know how close signalling is to sub-Saharan Africa? As Mark said

:28:55. > :29:00.earlier... -- how close St Helena. As the NAO report said, we have

:29:01. > :29:05.fundamentally addressed the concerns of Parliament about that period.

:29:06. > :29:16.Figure seven on page 24 of the report demonstrates the rate of

:29:17. > :29:21.return and the 36% drop in 2008. In a sense there is another

:29:22. > :29:24.objective, which is rather bizarre at first which is actually Sir

:29:25. > :29:28.Mark's, if you like, objective, which is to spend a minimum of,

:29:29. > :29:34.which is the most bizarre, if you like, way of looking at this, as

:29:35. > :29:38.against clearly the more commercial objectives of trying to develop

:29:39. > :29:42.projects which will give you development improvement in some of

:29:43. > :29:47.these countries as well as a return on the investment made. So,

:29:48. > :29:53.presumably each of these projects has a different development value so

:29:54. > :29:57.to speak. So, Sir Mark, how do you make sure in your quest to make sure

:29:58. > :30:01.you spend all that money we aren't actually spending on projects which

:30:02. > :30:05.in the real world if we didn't have that target we wouldn't because it

:30:06. > :30:08.is not good value or a good rate of return for the taxpayers of the

:30:09. > :30:11.country because I am assuming there are some things which have a big

:30:12. > :30:14.impact fairly quickly, you have picked infrastructure targets, I

:30:15. > :30:18.suspect, because they're much better at doing that and the long-term

:30:19. > :30:21.sustainable advantages is clearly demonstrated, but are you going to

:30:22. > :30:26.be pushing now into territories which don't give you that sort of

:30:27. > :30:30.return and how are you dealing with that? So, obviously I think you are

:30:31. > :30:34.which is what the Government's which is what the Government's

:30:35. > :30:40.decided and parliament sort of put on statute book for the tax payer to

:30:41. > :30:44.spend every year on official development assistance. From that

:30:45. > :30:48.budget the Government has a choice about how much to capitalise CDC and

:30:49. > :30:56.the legislation which the chair referred to at the beginning which I

:30:57. > :31:00.think is going through the House of Lords process tomorrow, gives the

:31:01. > :31:06.Government the authority to invest with a statutory instrument on the

:31:07. > :31:11.way up to another ?10. 5 billion into CDC. Now the previous

:31:12. > :31:15.legislation which I think was passed in 99 or 2,000 capped what the

:31:16. > :31:19.Government could put in. The capitalisation of CDC over the last

:31:20. > :31:23.70 years has been here and there from the taxpayer, grown over time,

:31:24. > :31:32.sometimes coming down a bit as MrBacon observed in a bad year, but

:31:33. > :31:37.grown over time. The choice we face now is given that we had exhausted

:31:38. > :31:40.the ability to capitalise previously permitted by legislation, assuming

:31:41. > :31:47.the bill goes on the statue book, the choice that will be available to

:31:48. > :31:50.ministers will be whether to put more capital into CDC and ministers

:31:51. > :31:56.are absolutely clear during the House of Commons passage of the bill

:31:57. > :31:59.that they would only do that on the basis of a clear business case where

:32:00. > :32:02.it was absolutely transparent what the development impact would be,

:32:03. > :32:10.what the trade-offs would be, whether there was a need for capital

:32:11. > :32:15.or not. Now currently over the last two years what's happened in 2015

:32:16. > :32:21.the company made commitments of ?735 million and in 2016 of ?1. 2

:32:22. > :32:25.billion. Even in those African south Asian markets which have been

:32:26. > :32:28.traditionally harder, and obviously the Government wouldn't have tabled

:32:29. > :32:34.the bill if it didn't think there was a good case at some point in the

:32:35. > :32:38.future for more investment, but that decision on more investment hasn't

:32:39. > :32:42.been made yet. It will be subject to a business case. The quality of the

:32:43. > :32:47.business case will need to be as good as the last one by the NAO

:32:48. > :32:52.commented on, they say in the report it was a convincing business case

:32:53. > :32:57.last time and then if there is a convincing business case ministers

:32:58. > :33:03.will decide whether they do want to invest more. How do you measure the

:33:04. > :33:06.value? The reason I ask that and you will no doubt say it is about the

:33:07. > :33:10.number of jobs created and something other things you talked about, but

:33:11. > :33:15.in a sense that's easier with an infrastructure project than it would

:33:16. > :33:21.be than some of the things you are likely to be going into if they do

:33:22. > :33:25.grant you the money, so are you considering reviewing your whole

:33:26. > :33:28.measurement system so it is fit for purpose, that it is comparable

:33:29. > :33:33.against different types of investment you make because it seems

:33:34. > :33:41.that's quite important because the British taxpayer wants to see that

:33:42. > :33:47.it is a philantropic approach has delivered and you can see which

:33:48. > :33:51.investments have delivered more across the different measures? You

:33:52. > :33:55.describe almost perfectly what you will see in our next five-year

:33:56. > :34:00.strategy. So we want to be relentless about showing more, as I

:34:01. > :34:05.said upfront we show a lot of impact but there is always more you can do.

:34:06. > :34:10.So you will see in the strategy that we will be much clearer about the

:34:11. > :34:15.individual impact that we want to achieve on each case, on each

:34:16. > :34:18.investment that we make and you're right, it's different for each

:34:19. > :34:21.investment. Obviously jobs and taxes are a unifying force and that's

:34:22. > :34:27.where we started because we wanted to be able to show the impact of our

:34:28. > :34:30.whole portfolio. Now we need to drill in a bit more and look at the

:34:31. > :34:34.individual very much that is we make, what our expectations are,

:34:35. > :34:39.what we want that investment to do over time and we need to track it

:34:40. > :34:47.over time to see how we are doing. And will you look at that in the

:34:48. > :34:51.context of the poverty gap or poverty need the country that you

:34:52. > :34:54.decided to invest in, because you have picked projects presumably

:34:55. > :34:58.according to some crit year because you think you can make the most

:34:59. > :35:03.impact so to speak, but then do you go back to this country rather than

:35:04. > :35:08.just this project, how do you actually improve the overall quality

:35:09. > :35:13.of life there? What you see in the grid that we use and that really

:35:14. > :35:18.does it in a way in that it grades higher the poorer and the harder

:35:19. > :35:24.places to do business and the places that have the greatest need of our

:35:25. > :35:29.capital. But always when we assess an individual investment we do try

:35:30. > :35:33.and step back and say is this good for the country, is this good for

:35:34. > :35:37.poverty, is this good also, does it ling us to the sustainable

:35:38. > :35:39.development goals which obviously we are all unified in trying to

:35:40. > :35:44.achieve. Measurement.

:35:45. > :35:50.You are acutely aware from the answers that you have given of the

:35:51. > :35:55.need to measure and I know we don't yet have the individual in place, if

:35:56. > :35:58.we ever do, to look at this in the longer term, but pending that

:35:59. > :36:03.individual being in place it seems to me there is a need to ensure that

:36:04. > :36:07.you do take some action to make sure that what you think is happening is

:36:08. > :36:13.happening and is delivering what you need, so it would be helpful to have

:36:14. > :36:17.some spotlight on that as to how you go about it, and September this if

:36:18. > :36:23.you like, fix, that we hope you find and one specific issue I would like

:36:24. > :36:27.to address is one of corruption. Clearly you say that you look at the

:36:28. > :36:30.quality of the directors so they are not corrupt, which is clearly the

:36:31. > :36:34.right thing to do, but in many of these countries it is not just about

:36:35. > :36:38.whether the director is or is not corrupt, but there are business

:36:39. > :36:43.processes and business models which are simply not free of corruption so

:36:44. > :36:50.how do you deal with that because clearly one of the things that we

:36:51. > :36:53.face as politicians is a cry from the taxpayers say why are we

:36:54. > :36:57.spending money on this and that the country is wealthy or, you know,

:36:58. > :37:03.this is a project which could have been funded via the private sector?

:37:04. > :37:08.Yes, so we take all possible steps to try and ensure that we and our

:37:09. > :37:13.companies that we invest in avoid fraud and corruption and this

:37:14. > :37:20.requires a number of different work streams effectively. So, we inor

:37:21. > :37:26.dinnate efforts to make sure we work with the right people, that's really

:37:27. > :37:31.at the heart of of it. We try to avoid sectors that have particular

:37:32. > :37:36.propensity for corruption, ones with high levels of Government tendering

:37:37. > :37:40.and things like that. We have a very strong business integrity team which

:37:41. > :37:46.you will have seen from the report we built from scratch since 2011.

:37:47. > :37:52.That team is as large as the IFC's, which is the private sector on the

:37:53. > :37:56.World Bank, it has a portfolio of 15 times our size and our team is the

:37:57. > :38:02.real size and these are real professionals. And obviously we have

:38:03. > :38:06.lots of policies here. But again this isn't just about writing things

:38:07. > :38:12.on pieces of paper. As the report points out, 19% of our pipeline was

:38:13. > :38:14.turned down because we didn't meet the standards of integrity, either

:38:15. > :38:20.the people working with or the standards we found in the companies,

:38:21. > :38:23.or because of environmental and social issues. So, we are really

:38:24. > :38:27.careful about where we invest. Thank you.

:38:28. > :38:34.One of the things that is a bit of a riddle to me is the nature of the

:38:35. > :38:36.relationship you have with DIDOD. These are obviously huge amounts of

:38:37. > :38:43.money, the bill going through parliament is potentially giving

:38:44. > :38:47.more. I want to know more about the relationship between DIFOD

:38:48. > :38:51.ultimately responsible for the taxpayers money and the capable

:38:52. > :38:55.investment professionals. Well, as the report says, there has been some

:38:56. > :38:59.sort of revamping of the Government's arrangements and the

:39:00. > :39:09.report says we have a thorough set of arrangements. The basic construct

:39:10. > :39:14.is that the shareholder appoints the chair and sets the strategy and

:39:15. > :39:20.investment policy and then it is a matter for the chair to assemble a

:39:21. > :39:24.board on which she consults as new vacancies arise and to hire and

:39:25. > :39:32.supervise the executive, to execute the policy. So the construct is that

:39:33. > :39:37.there is a separation. As you will know, some of the low points in

:39:38. > :39:41.CDC's history over 70 years have been ones where civil servants,

:39:42. > :39:47.often well-meaning, came up with bright ideas on things that maybe

:39:48. > :39:50.the company could do and poor decisions all too often were made as

:39:51. > :39:57.a result. There is a deliberate separation. The report flags the

:39:58. > :39:59.point that it is important everybody across Government understands that

:40:00. > :40:06.separation and we have just sent guidance out to the whole of the HMG

:40:07. > :40:09.network overseas to explain it is up to CDC, who are accountable through

:40:10. > :40:16.the board to the shareholder and the Secretary of State, to decide what

:40:17. > :40:19.investments to make. It is not up to, you know, the - not the civil

:40:20. > :40:27.servants in my department or other departments. Clearly we don't want

:40:28. > :40:35.to go down to the schemes and that kind of stuff. Are there formal

:40:36. > :40:44.structures where DIFD communicate with CDC? Informal thing? There is a

:40:45. > :40:48.set in the report. As Mark said, I have a team of six who help Mark

:40:49. > :40:55.steward our relationship with the company. We have a formal process,

:40:56. > :41:02.four times a year to sit down with CDC, to go through a series of

:41:03. > :41:08.indicators about the portfolio, about the processes that Diane was

:41:09. > :41:16.talking about in terms of due diligence and the environmental and

:41:17. > :41:19.social plans and status of the underlying investments, it's a

:41:20. > :41:25.detailed set of information that we sit down, drill through it. So we

:41:26. > :41:32.feel that we are a very active and engaged and well-informed and we are

:41:33. > :41:38.able to debate, we are able to ask questions and that's at the core of

:41:39. > :41:44.our relationship, our ongoing relationship. And do you have a

:41:45. > :41:48.power of veto in terms of schemes that you feel are perhaps unethical

:41:49. > :41:53.or perhaps you feel that you don't wish taxpayers' money to be bound up

:41:54. > :41:59.in this way? What we have is a policy and the deal is the company

:42:00. > :42:03.are accountable for living within the policy. So in extremely rare

:42:04. > :42:06.circumstances there's been one case mentioned in the report the company

:42:07. > :42:10.brought an investment to us and asked us if we had a point of view,

:42:11. > :42:15.but that was not to get a decision from us. What was your point of view

:42:16. > :42:23.in that case was favourable? Had your point of view been, we are not

:42:24. > :42:31.happy, then what would happen? I don't know, maybe the chair could

:42:32. > :42:34.say what he would do. Graham Wrigley, what would have happened if

:42:35. > :42:42.they had said we are not sure or just no? The way the board and I

:42:43. > :42:47.feel accountable for is to deliver value for our shareholder and that

:42:48. > :42:52.means development impact, a steady increase in the balance sheet CDC so

:42:53. > :42:59.it's an evergreen facility that the UK Government can reuse and managing

:43:00. > :43:02.reputation. And all the issues that are laid out clearly in the code of

:43:03. > :43:10.responsible investment and the investment policy. And we explicitly

:43:11. > :43:12.through formal structures supplemented through informal

:43:13. > :43:16.conversations make sure we try and don't put our selves in that

:43:17. > :43:20.position and we haven't done. Had you been in that position what would

:43:21. > :43:25.you have done as a board? This is an informal relationship but it's

:43:26. > :43:31.important because in the end the money comes from DIFD. Taxpayers

:43:32. > :43:37.must be clear. So we would not do something that we felt that was not

:43:38. > :43:42.going to achieve those goals. But in terms of the investment

:43:43. > :43:46.decision-making itself... I need to publish you, it could be something

:43:47. > :43:52.would achieve those goals but would be something that DIFD didn't like.

:43:53. > :43:56.If it was, we are talking hypothetical, if it was something

:43:57. > :44:02.that was so obviously wrong it wouldn't get through our processes.

:44:03. > :44:07.If it was, coming up with an investment decision as I said

:44:08. > :44:10.earlier, is a triangulation of those different things. It's a judgment

:44:11. > :44:15.call you have to make at the end of the day.

:44:16. > :44:20.I have to questions. When things go well and things have been success.

:44:21. > :44:26.That's fine, but if things go horribly wrong, and there is a big

:44:27. > :44:29.investment like in 2008, resume and you are ultimately responsible for

:44:30. > :44:33.that? Me and the board are responsible, yes. You would take a

:44:34. > :44:40.full response ability, it has nothing to do with DfID. The

:44:41. > :44:47.strategy and objectives are set by the shareholder and our job as a

:44:48. > :44:50.board is to execute and deliver the strategy. But an ordinary

:44:51. > :44:56.shareholders would be able to get rid of you at some point? And they

:44:57. > :45:01.can. I went through a review for my reappointment last year, there was a

:45:02. > :45:04.thorough review. I get reviewed by the senior independent director

:45:05. > :45:10.every year, the shareholder comments on my performance. As Mark and

:45:11. > :45:16.Rachel said, we feel accountable to our shareholder. My last question,

:45:17. > :45:22.and Diana answered but I want to what Sir Mark and Graham had to say

:45:23. > :45:27.about it. Let's say a member of the public would say, I don't get this,

:45:28. > :45:31.why not bring it all in-house and we have no problem with the

:45:32. > :45:39.accountability? Or spin it off? But I can't understand, hypothetically.

:45:40. > :45:43.It is an absolutely key question, why not bring it in-house? Because

:45:44. > :45:47.civil servants in my department do not have the skills to run the

:45:48. > :45:51.investments. We are an excellent department in the grant giving thing

:45:52. > :45:57.we do. You're good at signing cheques. The supervision and

:45:58. > :46:00.implementation and the result and all that but it does not involve the

:46:01. > :46:06.management of the balance sheet. That is why not bring it in-house.

:46:07. > :46:09.And I think the report does a good job of justifying that. Why not sell

:46:10. > :46:14.it off? Another good question and the answer is because the public

:46:15. > :46:21.policy rationale for the taxpayer owning this operation is because it

:46:22. > :46:26.is a very good way of promoting development in Africa and South Asia

:46:27. > :46:30.which find it hard at the moment contract -- attract investment. It

:46:31. > :46:34.is about a million jobs a year, two and a half, $3 billion in tax,

:46:35. > :46:40.demonstrating a new development path and the goal obviously if at some

:46:41. > :46:47.point, just as in East Asia and Latin America, the markets we are in

:46:48. > :46:50.now are open and attractive to pure private investment and there is no

:46:51. > :46:58.longer a need for CDC. That is the goal. Let's put this on record. CDC

:46:59. > :47:02.isn't actually a big part of your overall spend at a department. It

:47:03. > :47:09.has a 4 billion balance sheet whereas you are spending 12, 13

:47:10. > :47:15.billion a year. 10 billion. Of course, for 25 years up till the

:47:16. > :47:18.year before last there was no investment in CDC from the

:47:19. > :47:22.department's budget. Over the last two years, we have put in ?730

:47:23. > :47:29.million and we are considering putting in more. That is because we

:47:30. > :47:35.think the CDC, as the secretary district set out in the economic

:47:36. > :47:38.element strategy, if the key vehicle in the British do much to promote

:47:39. > :47:42.private investment in the poorest and most fragile countries, which we

:47:43. > :47:45.think is the best way of creating good quality jobs and contributing

:47:46. > :47:55.to the taxpayers. That is the rationale. Thank you, Mr Kwarteng. I

:47:56. > :47:59.want to welcome some members of the Uganda bureau of statistics who are

:48:00. > :48:06.attending the session today and you are very welcome. You're helping to

:48:07. > :48:13.aid the bureau in their work. Mr Boswell. Following on from Mr

:48:14. > :48:19.Kwarteng's light of questioning, a different

:48:20. > :48:26.the -- it is not received intimation and above the CDC's decisions to

:48:27. > :48:30.invest however the Department government arrangements encourage

:48:31. > :48:36.CDC to share information in certain circumstances. Under what

:48:37. > :48:39.circumstances does DfID encourage the CDC to share information about

:48:40. > :48:47.investment decisions? It is really in the example that is covered in

:48:48. > :48:55.the report. It was a very big investment for CDC to take its stake

:48:56. > :49:01.in Kwarteng which is the biggest green feed that McCoy greenfield

:49:02. > :49:05.power generation in Africa, burgers and on low carbon technologies, gas

:49:06. > :49:08.and renewables. Because it was a big investment, the chair at the right

:49:09. > :49:12.thing to do was to check if the department had a point of view about

:49:13. > :49:18.it and it is the only case I'm aware of since 2012 where the chair want

:49:19. > :49:24.to do that. We're not going to set criteria which tells the chair when

:49:25. > :49:28.to make what judgment. We have appointed him because we trust him

:49:29. > :49:36.to note the cases when he wants to prefer things to us. And from the

:49:37. > :49:42.CDC side, dreich does not receive information on all of this integrity

:49:43. > :49:48.issues that CDC encounters in its investments. So why does CDC in a

:49:49. > :49:59.put in some business integrity issues encounters to DfID? We do

:50:00. > :50:06.share all the serious ones. You deem them to be serious and then...?

:50:07. > :50:11.That's right. There are sometimes details of those that we have to

:50:12. > :50:13.keep confidential customer for example, the whistle-blower policy

:50:14. > :50:20.protect the identity of the whistle-blower. And how does the CDC

:50:21. > :50:25.determine which is this integrity issues are reported to DfID, which

:50:26. > :50:29.really is what you just said, you deem it serious so what is the

:50:30. > :50:34.criteria you use? Is there a process? It about yourselves? We

:50:35. > :50:39.have ahead of business integrity who is a very experienced crime

:50:40. > :50:44.prevention officer and also experienced in the private sector as

:50:45. > :50:50.well. And he applied his judgment but according to some reasonably

:50:51. > :50:58.clear principles. The areas we really need to share with DfID are

:50:59. > :51:02.ones where either CDC ourselves or the companies we have invested in or

:51:03. > :51:08.the fund managers we have supported have perpetrated some level of

:51:09. > :51:20.crime, or where a crime has been alleged, I should say, against CDC.

:51:21. > :51:28.That is where we focus. We will move on to indications of increased

:51:29. > :51:35.funding I think. Mr Bacon? Can I stop the ?735 million? Can you

:51:36. > :51:43.reiterate or summarise the rationale with it being that amount -- can I

:51:44. > :51:48.start? It was only in July 2015 am not that long ago. Of course that

:51:49. > :51:54.was the limit because that was the limit of the statutory provision of

:51:55. > :51:58.that time. Why was it as much as that? It was basically because the

:51:59. > :52:03.business case demonstrated convincingly as the report says that

:52:04. > :52:07.there were lots of uses for more capital than the CDC had. That has

:52:08. > :52:16.been corroborated because in the last two years, there was 730

:52:17. > :52:21.million of new investments in 2015 and 1.2 billion in 2016 so what has

:52:22. > :52:25.happened, even the toughest market in Africa and South Asia, the

:52:26. > :52:31.business climate has got a bit better so there are more investable

:52:32. > :52:35.propositions. CDC is by far the most concentrated of any organisation

:52:36. > :52:39.that sort in Africa. There is 40% of its business in Africa compared to

:52:40. > :52:44.10% for the International Finance Corporation but it is still smaller

:52:45. > :52:53.than I see in Africa so there is a lot of need for capital to help

:52:54. > :53:02.generate that number -- smaller than IFC. Years ago I used to act for a

:53:03. > :53:06.big private equity investor so I was always putting out statements to the

:53:07. > :53:10.press about when they bought or sold investment and it became apparent

:53:11. > :53:16.that there came a point when there was plenty of money out there, I

:53:17. > :53:18.guess this was the late 90s and I know it goes in cycles, and not

:53:19. > :53:22.enough good investment propositions enough good investment propositions

:53:23. > :53:26.so you would have more money chasing those good propositions. That is a

:53:27. > :53:32.universal, a phenomenon of investment, not particular to or

:53:33. > :53:35.Africa or a category. But I attended a dinner recently where some Kenyan

:53:36. > :53:43.investment professionals were talking about the growing tendency

:53:44. > :53:46.to create successfully Africa to Africa fund, funds generated in

:53:47. > :53:50.Africa for Africa. That being the case have you noticed you are

:53:51. > :53:58.increasingly competing for those good investments? And if so, given

:53:59. > :54:03.your remit, how do you calibrate, no, that is too good? How do you

:54:04. > :54:06.balance that? I go back to the additionality guidelines I talked

:54:07. > :54:11.about earlier. Every investment we make we have to be clear we are

:54:12. > :54:18.bringing something you need that wouldn't happen without CDC. And it

:54:19. > :54:22.may be capital but it may be no or expertise that it may be know-how.

:54:23. > :54:28.It is that say there is more capital coming into Africa and South Asia

:54:29. > :54:33.and this is what we want but CDC's mission is to try to do the hard

:54:34. > :54:36.things and the need is there. If we look at the private sector

:54:37. > :54:41.environment in some of those countries in the UK we have 64

:54:42. > :54:51.million people and 15,000 companies with revenue is more than $50

:54:52. > :54:53.million. In Ethiopia there are 17. The existing investable

:54:54. > :54:59.opportunities that a lot of people are competing over may be small but

:55:00. > :55:03.it needs the hard work by teams like CDC to grow smaller businesses. And

:55:04. > :55:08.the other thing we do a lot of invest in good quality operators and

:55:09. > :55:18.partner with them and take them to those hard places. I suppose this is

:55:19. > :55:22.a double act, following on closely, for 20 years, from 95 until 2015,

:55:23. > :55:27.there was not a penny extra provided by the taxpayer. I look at your

:55:28. > :55:32.balance sheet and you have something like 2.7 billion of retained

:55:33. > :55:36.earnings. In lots of retained earnings that you've put back into

:55:37. > :55:44.the business also it should be noted that the taxpayer doesn't get a

:55:45. > :55:48.penny back. So why now aren't you ramping up the potential amount of

:55:49. > :55:53.capital? I know you are saying there is this investment but why was not a

:55:54. > :55:59.penny but in for 20 years and all of a sudden you talking about a 6

:56:00. > :56:09.billion cap. That seems to be a huge step up. To start with that, the

:56:10. > :56:11.main focus of the economic development strategy which the

:56:12. > :56:17.Secretary of State published last week is to try to make links to

:56:18. > :56:21.global markets to harness more trade opportunities and hence reduce

:56:22. > :56:28.poverty for Africa and South Asia which is where our focus is. It is

:56:29. > :56:32.to focus on job-creating sectors, so construction, power, health and

:56:33. > :56:37.education, financial sector. And we seem CDC as the principal mechanism

:56:38. > :56:48.of doing that. Why now, to your question, it's a very fair question

:56:49. > :56:52.and it adds up to the choice made by ministers of the day over the last

:56:53. > :56:59.period. You understand that why now is a critical question went for 20

:57:00. > :57:04.years, a long time, not a penny was put question you are getting good

:57:05. > :57:10.returns, your growth rate was good. I think the thing that has changed,

:57:11. > :57:19.a lot of the returns in the 90s up until I suppose halfway through the

:57:20. > :57:22.last decade were in East Asia where the markets were booming. Most of

:57:23. > :57:30.Africa in that period wasn't really investable. And because the British

:57:31. > :57:34.development programme has always had a focus on Africa and South Asia, I

:57:35. > :57:38.give it would've been curious to invest in CDC so it could invest

:57:39. > :57:41.more in China when the markets were booming there. I think now that

:57:42. > :57:48.these markets are more viable than they were previously, there is more

:57:49. > :57:52.investable propositions and it also absolutely the case that the

:57:53. > :57:57.Secretary of State and her predecessors who believe strongly

:57:58. > :58:00.that the private sector is the engine development. Most jobs will

:58:01. > :58:04.have to come from the private sector, they will have to provide

:58:05. > :58:12.the tax base. It is that combination of things I would say. I think it's

:58:13. > :58:15.a great question and I can understand from all the conversation

:58:16. > :58:20.we have had with stakeholders in the last two months about the act of

:58:21. > :58:26.Parliament, why now and why this amount of money. The reality is that

:58:27. > :58:29.this plan to recapitalise CDC has been under development and

:58:30. > :58:35.discussion between the company and the shareholder since 2012 when the

:58:36. > :58:42.reforming strategy came in to say, is there a way in which CDC and the

:58:43. > :58:45.UK taxpayer could respond to the need for long-term, patient capital,

:58:46. > :58:49.doing exactly the sort of things Diana was talking about? In the

:58:50. > :58:54.prediction made in 2012 there was a variety of scenarios will sub the

:58:55. > :58:57.upside and the best in the base case one showed a need for more capital

:58:58. > :59:02.required and that led to conversations in 2014 with the

:59:03. > :59:08.shareholder for the recapitalisation that Mark is talked about. When we

:59:09. > :59:14.structured that investment, the recapitalisation, aware of exactly

:59:15. > :59:18.the danger Mr Bacon said that having force of pressure on capital, we

:59:19. > :59:21.structured that investment so it could be drawn down in the form of

:59:22. > :59:25.promissory notes over the next four years which is what we did but when

:59:26. > :59:26.we did the projections in 2015 week showed that if things carry on going

:59:27. > :59:36.we would need more capital. Last year we committed under 1. 2

:59:37. > :59:39.billion. So a large amount of the potential need, subject to a

:59:40. > :59:44.business case and the shareholder agreeing, is to allow CDC to

:59:45. > :59:50.increase its investment rate from what was about ?200 million a year,

:59:51. > :59:59.to what it is, 700 average for the last three years, 1. 2 billion last

:00:00. > :00:03.year. And that would permit CDC to be an evergreen, revolving, slowly

:00:04. > :00:06.growing balance sheet owned by the UK taxpayer but to commit money in

:00:07. > :00:10.the markets we are focussing on for the next five years. My

:00:11. > :00:17.understanding of the 735 is that you haven't even invested all of that.

:00:18. > :00:22.There is a 450 million promisory note you have got. Before you have

:00:23. > :00:30.invested that you are asking for... Well, so, it's a bit, a technical

:00:31. > :00:33.point. What we have done is deposit notes, that means the company knows

:00:34. > :00:38.they have the backing for their investments. What we didn't want to

:00:39. > :00:41.do is hand over the bank notes. Because that would have been handing

:00:42. > :00:44.over the cash before the company was going to be using it. So, the

:00:45. > :00:47.taxpayer doesn't have to hand over the bank notes until the cash needs

:00:48. > :00:53.to be drawn down. That's basically what's going on. You will appreciate

:00:54. > :01:01.capital is a scare commodity. The idea you have 735 million there

:01:02. > :01:07.which only 260 has been invested? The 735... You see the drift of what

:01:08. > :01:14.I say. I totally see the drift. This was a specific recommendation by the

:01:15. > :01:17.NAO in 2008 to make sure we manage our cash balances appropriately. At

:01:18. > :01:21.the same time as also for the company being able to honour its

:01:22. > :01:25.commitments that it has made into businesses. At the moment we have ?2

:01:26. > :01:29.billion of ongoing commitments, so the NAO report shows how we came up

:01:30. > :01:33.with the liquidity policy working with a Shear share and Treasury to

:01:34. > :01:38.do this. -- shareholder. At the moment we have at the end of last

:01:39. > :01:48.year, 223 million of cash which is 5% of our portfolio. The goal of the

:01:49. > :01:52.promisere note is to come up with a an efficient use of taxpayers' money

:01:53. > :01:55.as allowing us to make the scale of commitments we are doing. While you

:01:56. > :02:03.are expanding the balance sheet, as well. Yes. This brings me to my next

:02:04. > :02:08.point, the fear I have is that the risk of SATs rating CDC with cash,

:02:09. > :02:13.we have seen that in many places, the Reg gram noet fund, how are you

:02:14. > :02:16.going to manage that risk so it doesn't manifest itself in some of

:02:17. > :02:20.the ugly and unfortunate ways we have seen? That is the key question.

:02:21. > :02:26.That's the key question for the business case. The company are going

:02:27. > :02:34.to need to explain to us why the 1. 2 billion is going to continue into

:02:35. > :02:39.the future but why these are high quality investments which the

:02:40. > :02:46.taxpayer can be confident will sustain a decent return record. I go

:02:47. > :02:51.every few months or so have a sort of strategic discussion with the

:02:52. > :02:56.board. I thought you were going to say poke around... It's not anything

:02:57. > :02:59.the board wouldn't mind me saying. This is the point, you are going to

:03:00. > :03:06.need to persuade us that the quality of the investment pipeline is such

:03:07. > :03:10.as to justify any new capitalisation, never mind, you

:03:11. > :03:18.know, what the volume is. They have to make a case, never mind the

:03:19. > :03:22.next... Does the impact fund team have enough skill now to do this at

:03:23. > :03:26.the scale you are talking about? Let me describe the picture from the

:03:27. > :03:31.operating, from this chief executive's seat, I guess, so it is

:03:32. > :03:36.fair that back in 2012 when we were given the mandate of invest only in

:03:37. > :03:41.Africa and south Asia, but invest directly alongside funds, we didn't

:03:42. > :03:45.have a team and we didn't know what the demand was going to be. What we

:03:46. > :03:49.have learned over the last five years is if you put a highly

:03:50. > :03:55.committed and talented team behind the strategy, you give it very clear

:03:56. > :03:58.mandate of where you can invest additionality standards, development

:03:59. > :04:03.impact, etc, and you hire the people with the right motivation, it is

:04:04. > :04:08.amazing how much demand and need there is for the CDC team. Let me

:04:09. > :04:11.say clearly no one at CDC is motivated by scale. We are motivated

:04:12. > :04:17.by the quality of outcomes that we can general rate with capital. Do

:04:18. > :04:22.you see then, you didn't even know was there, but turns out to be

:04:23. > :04:25.latent demand, when somebody sees something done well and thinks

:04:26. > :04:29.perhaps we can do that and put together a sensible case, does that

:04:30. > :04:33.manifest itself? Very much so. Can you explore with us this question of

:04:34. > :04:37.additionality more. Are you saying your very presence, for example, in

:04:38. > :04:41.a territory that's rather marginal, would you would hope you are being

:04:42. > :04:43.additional, where perhaps the economy is not sufficiently

:04:44. > :04:46.diversified, where it is fragile, there isn't enough good

:04:47. > :04:50.infrastructure, where there are poor transport links, a lack of

:04:51. > :04:52.confidence, that your very presence is the thing that can make the

:04:53. > :04:56.difference potentially to other investors over a period of time?

:04:57. > :05:01.There is an element of that. But we haven't really even fully explored

:05:02. > :05:03.that yet. You will have seen in the report that our local country

:05:04. > :05:09.presence is still at a latent stage presence is still at a latent stage

:05:10. > :05:13.and we want to increase that. Actually I think the demand has been

:05:14. > :05:17.generated because the teams have gone out in a very focussed way, for

:05:18. > :05:21.example, the direct team from scratch, and said these are our

:05:22. > :05:24.seven priority sectors, what's the need in those sectors and

:05:25. > :05:30.particularly if you look at Africa and the poorest cases of India,

:05:31. > :05:35.there is enormous need, and what's the best way to get companies going,

:05:36. > :05:40.get companies growing and what can we invest in? They've gone out and

:05:41. > :05:45.knocked on doors and found really high quality aligned partners to

:05:46. > :05:48.invest in. So in many ways, certainly on the direct side where

:05:49. > :05:52.we had to start from scratch we generated our own pipeline. In funds

:05:53. > :05:57.where we have been doing it since 2,000 or before 2,000, we were a

:05:58. > :06:01.pioneer of this industry across Africa and south Asia, we now have

:06:02. > :06:05.such a reputation in funds in that any high quality fund manager will

:06:06. > :06:08.want to come to CDC first and get the seal of approval. It would help

:06:09. > :06:12.a project to have your name alongside it, good, yeah. One more

:06:13. > :06:16.question. You have had recruitment and retention difficulties, what are

:06:17. > :06:22.you going to do about that? We will be working very hard to make CDC a

:06:23. > :06:26.place that high quality people want to come to and to stay in,

:06:27. > :06:31.long-term, and that's about selecting the right people, but it

:06:32. > :06:37.is also about creating an environment of, say inspiration,

:06:38. > :06:40.that people really enjoy and we all know that the next millennium group

:06:41. > :06:44.of great graduates are coming in out of business school, this is the kind

:06:45. > :06:47.of thing, this is the kind of work that inspires them. They don't just

:06:48. > :06:51.want a financial bottom line, they do want to make the world a better

:06:52. > :07:05.place and CDC can offer that to them. Thank you.

:07:06. > :07:11.Recapitalisation decisions, particularly the CDC DfID

:07:12. > :07:15.relationship. In 2015 the decision to recapitalise by 735 million was

:07:16. > :07:20.made by DfID. According to the National Audit Office the DfID

:07:21. > :07:25.report arguing the case was quality assured internally. It is

:07:26. > :07:33.potentially a dangerous statement. So, was the DfID recapitalisation of

:07:34. > :07:38.the CDC by 735 million in 2015 first suggested by DfID indly or was the

:07:39. > :07:45.matter looked into upon question by CDC? As the chairman said, since

:07:46. > :07:49.2012 we have been, certainly I personally have been making the case

:07:50. > :07:51.and when Andrew Mitchell, when he was the Secretary of State, was

:07:52. > :07:56.encouraging us to think this through. We weren't ready to do it

:07:57. > :08:01.at that stage. So, I don't think it is the case that the shareholder was

:08:02. > :08:04.pushed by the company to do this. I think the shareholder wanted to

:08:05. > :08:10.encourage the company to have a bigger ambition, to make a bigger

:08:11. > :08:15.distribution because we do think the CDC is a very unusual, got an

:08:16. > :08:25.unusual capability. London obviously can be the capital market for

:08:26. > :08:28.Africa. Other countries have DfIDs bigger. There was an opportunity not

:08:29. > :08:33.being taken. We basically challenged the company to build a capability,

:08:34. > :08:39.to absorb more resources and to use them well, that was basically the

:08:40. > :08:44.direction of the conversation. So the recapitalisation, DfID produced

:08:45. > :08:48.a report find ago strong case for recapitalisation. Because this was

:08:49. > :08:52.quality assured internally, why did the department deem an external

:08:53. > :08:56.analysis and audit on the report unnecessary? Why was it internal?

:08:57. > :09:02.Well, there was quite a lot, Rachel may want to speak. There was a lot

:09:03. > :09:06.of external dialogue. We had experts like Paul Collier, for example,

:09:07. > :09:10.advised us on the future direction for CDC. The reference to the

:09:11. > :09:14.quality assurance is part of a general system we have in the

:09:15. > :09:17.department, so that the case put to ministers for spending large sums of

:09:18. > :09:21.money doesn't come just from the team who would be spending the

:09:22. > :09:27.money, there is an independent assurance from a group which is run

:09:28. > :09:30.by the chief economist who has to - who is dispassionate, doesn't mind

:09:31. > :09:34.which team gets the money, if you like, but provides a different point

:09:35. > :09:39.of view inside the department to justify the case. But there was a

:09:40. > :09:44.lot of external collaboration and dialogue, as well. You can see

:09:45. > :09:50.because of the relationship between DfID and CDC there is a certain

:09:51. > :09:55.discomfort when the watchdog is watching itself effectively. If DfID

:09:56. > :09:58.felt it was ail to analyse the merits of the recapitalisation

:09:59. > :10:02.itself but does not appoint a board member as it considers it not with

:10:03. > :10:08.the depth of commercial investment and experience, can you explain why

:10:09. > :10:12.DfID felt it was ail to analyse the recapitalisation case itself if it

:10:13. > :10:17.does not feel it is capable of appointing a board member? Well, two

:10:18. > :10:22.different things happening here. The job of the board and the board

:10:23. > :10:25.members is to review proposals put forward by the executive team, Diane

:10:26. > :10:31.and her colleagues, on each particular investment. Is it a good

:10:32. > :10:35.idea to invest in this company? That is not a skills set that we are

:10:36. > :10:39.hiring people to have inside the department. What we are hiring

:10:40. > :10:43.people to be able to do inside the department is understand and make a

:10:44. > :10:48.broader case for whether investing more in CDC versus other things we

:10:49. > :10:52.could spend the money on is going to be conducive to achieving the

:10:53. > :10:57.strategic goals that ministers have set. So, the report does explain -

:10:58. > :11:01.explains and we talked this afternoon about the sort of pros and

:11:02. > :11:06.cons of us appointing a civil servant to be on the board and our

:11:07. > :11:11.view is that we appoint the chairman as the chairman has said, you know,

:11:12. > :11:15.we can unapoint a chairman, but while they're accountable to us, we

:11:16. > :11:20.don't think in addition to that we need to appoint civil servants on to

:11:21. > :11:23.the board. The contradiction if you like in

:11:24. > :11:28.what you are trying to do, on the one hand you said it was basically a

:11:29. > :11:33.political decision massively to expand the balance sheet of CDC. Yet

:11:34. > :11:40.on the other hand, you are saying that you don't want any oversight in

:11:41. > :11:46.terms of how the new entity with expanded balance sheet potentially

:11:47. > :11:52.will run. Well, I am trying to say something else. What I am trying to

:11:53. > :11:55.say is there could be a strategic case for investing in the business

:11:56. > :12:02.which is what the business case for the 735, which the NAO were

:12:03. > :12:06.convinced by was, that's completely different to once you have a capital

:12:07. > :12:09.base, how do you pick the businesses in which to invest? What I am saying

:12:10. > :12:12.is the Government doesn't think it is a very good idea for civil

:12:13. > :12:15.servants to be taking those decisions. You said that the demand

:12:16. > :12:18.for more capital was something that was coming from the department, it

:12:19. > :12:22.was coming from ministers. You mentioned Ministers, it wasn't the

:12:23. > :12:26.CDC asking for more capital. It was the policy decision. Was it not?

:12:27. > :12:30.Yeah, that's exactly right. We saw a bigger opportunity in these markets

:12:31. > :12:34.for the reasons I have tried to run through. And those were politicians

:12:35. > :12:40.and civil servants. Yet, at the same time, you are saying that you don't

:12:41. > :12:43.wnt to get involved in that. Having identified the opportunities and

:12:44. > :12:50.being... I am not doing very well... What I am trying to do is draw the

:12:51. > :12:55.distinction between the strategic and the individual investment. Thank

:12:56. > :12:59.you. You said earlier the previous Secretary of States supported this

:13:00. > :13:02.idea. Isn't it true that the previous Secretary of State to that,

:13:03. > :13:06.Mr Benn, who was the Labour Secretary of State, said, I remember

:13:07. > :13:09.hearing him saying it on the radio, said explicitly that trade and

:13:10. > :13:16.business and the private sector ought to do more to lift people out

:13:17. > :13:21.of poverty than anything else, you mentioned Paul Collier, his book was

:13:22. > :13:25.given that title because two billion people above that had been lifted

:13:26. > :13:29.out of poverty by the private sector but until they've been lifted

:13:30. > :13:33.they're still in that grey zone that you were talking about, is that

:13:34. > :13:42.fair? I think that is fair. I don't normally help witnesses by the way!

:13:43. > :13:48.Thank you very much. From the company side we think we

:13:49. > :13:52.have an engaged active shareholder. We have quarterly shareholder

:13:53. > :13:56.meetings, we have AGMs, committees within the board who interface with

:13:57. > :14:01.relevant counterparties across DfID. We have a series of relationships

:14:02. > :14:04.with DfID as a partner level, trying to create investments and work in

:14:05. > :14:15.harmony together. I think CDC is a fundamentally

:14:16. > :14:19.long-term business. We are the oldest DFI in the world, and I will

:14:20. > :14:23.give it a couple of examples which goes to this incredibly important

:14:24. > :14:29.point about the governance of CDC and how it must work over the decade

:14:30. > :14:39.and a cross-party consensus. Kenya team was set up in 1964 by CDC. 20

:14:40. > :14:45.years later in 1983 there was 145,000 smallholder farmers giving

:14:46. > :14:52.product for 39 factories which made one in four cups of tea in the UK.

:14:53. > :14:57.20 years for that investment. 20 years later, sell Pell, the first

:14:58. > :15:06.big mobile phone company in Africa, was sold, and it has transformed the

:15:07. > :15:11.economy in Africa and that was a CDC investment -- Celltel. And over a

:15:12. > :15:15.long period, this is six years, if you look at Sierra Leone today,

:15:16. > :15:25.which you asked earlier, it is a poor country, last year I was in

:15:26. > :15:29.Freetown with the president and he thanked me, I did not do any of the

:15:30. > :15:36.work but I was happy to hear the praise, about the work the teams at

:15:37. > :15:40.CDC had done with the Ebola facility with Standard Chartered. There was

:15:41. > :15:46.an amazing amount of work done by NGOs and DfID that we can't

:15:47. > :15:50.contribute to but we did our bit to create the straight facility and

:15:51. > :15:58.keep businesses going. He said, the thing we need now is power. Last

:15:59. > :16:04.month CDC announced it is part providing the debt and the majority

:16:05. > :16:11.amount of equity in a $150 million investment in plant which will give

:16:12. > :16:15.49 megawatts of electricity which, in the low season, will double the

:16:16. > :16:26.amount of electricity given to the whole country. And that is a

:16:27. > :16:31.country, we have one 200th of the electricity they use. If we work on

:16:32. > :16:38.it for two years and it is a long time, so it is incredibly important

:16:39. > :16:43.that we have an institutional relationship which goes over the

:16:44. > :16:47.years. I get all of that. I think you have described it very

:16:48. > :16:53.persuasively and in a way I'm trying to use that to say, quite suddenly

:16:54. > :16:57.ramp up the balance sheet? In theory we are custodians of taxpayers

:16:58. > :17:02.money. I look at your balance sheet and it is very conservatively run,

:17:03. > :17:07.you have 10% of your assets in cash. I think you are slightly

:17:08. > :17:10.underinvested in terms of the extra 735 million. You have this

:17:11. > :17:15.incredible track record of success and all of a sudden we are saying

:17:16. > :17:18.we're going to transform this thing and completely expand the balance

:17:19. > :17:24.sheet and you can see why we would be concerned about it. You're asking

:17:25. > :17:30.the question I'm asking of the team in the Department and the company

:17:31. > :17:32.about why can explain to me the business case for another

:17:33. > :17:37.capitalisation. We will not be recommending another capitalisation

:17:38. > :17:44.even if Parliament gives us the authority to, unless we are

:17:45. > :17:52.persuaded that there is a case. Can I probe on that? This has puzzled

:17:53. > :17:56.us. As Mr Kwarteng said, it seems like a policy decision to have more

:17:57. > :18:00.available capital but it could go up to 12 billion. You go to CDC and

:18:01. > :18:03.asked them to put a business case to see if they can spend it question of

:18:04. > :18:09.CDC comes to you with a business case but would you ever say no. I'm

:18:10. > :18:16.not sure who starts the process. If you have an opportunity in a

:18:17. > :18:19.country, do you say to DfID, we think we can invest 2 billion in

:18:20. > :18:27.something could you let us have the money and then put the business case

:18:28. > :18:32.to DfID? No, that's not how it works, this is a long-term business

:18:33. > :18:35.and the teams go out and generate pipelines of opportunities that are

:18:36. > :18:43.sometimes a year, two years in the cooking. I would recommend the

:18:44. > :18:48.committee looked at the rate of investment we have already achieved,

:18:49. > :18:55.that is highlighted in the report, the ?1.2 billion a invested in these

:18:56. > :18:59.markets in 2016. Even if we only stayed at that level and didn't grow

:19:00. > :19:04.at all, we would need some money, and quite a large amount, to fund

:19:05. > :19:09.that step up. Because we are such a long-term investor, it'll only be

:19:10. > :19:14.when those seven, ten year investment start returning money

:19:15. > :19:21.that we become... You've got a lot of cash, this promissory note, you

:19:22. > :19:30.can actually expand your investments without additional capital. Do I

:19:31. > :19:35.make a point, a broader point -- can I make a point? In relation to the

:19:36. > :19:44.investment needs of Africa and South Asia over the next generation or

:19:45. > :19:50.two, which are calculated in the trillions, what CDC is able to do at

:19:51. > :19:54.the moment is very small. As we said earlier, CDC, although it has four

:19:55. > :20:01.times as much of its business in Africa than the IFC does, it is

:20:02. > :20:07.still small in aggregate terms. The investable opportunity and the

:20:08. > :20:11.taking of it is what will get Africa beyond its a dependency and give

:20:12. > :20:14.people their jobs and livelihoods and better futures. The investable

:20:15. > :20:19.opportunity is going to be dramatically bigger than what CDC

:20:20. > :20:26.can do. The question for us is, not how many good investment are there

:20:27. > :20:30.out there, the question is, what is the rate at which CDC can sensibly

:20:31. > :20:34.absorb more capital and spend and use it in a way that does not repeat

:20:35. > :20:40.some of the mistakes of the pass? That is what we're focused on. That

:20:41. > :20:42.is very reassuring. The fact you are focused on that is reassuring but

:20:43. > :20:48.can I ask Mr Wrigley another question? You emphasised the

:20:49. > :20:52.long-term nature of what you do so would you say the role for CDC

:20:53. > :20:56.potentially in and invest the country where the conditions were

:20:57. > :20:59.right to be assisting in the creation of a development

:21:00. > :21:04.Corporation locally with you investing with other partners over a

:21:05. > :21:10.long period of time? We have a whole series of ideas about how you can

:21:11. > :21:17.take an idea to a country and creating development banks like in

:21:18. > :21:20.the UK, the old three I invested in history, we have been thing about

:21:21. > :21:27.that as one of the platforms we might do. So the only criterion

:21:28. > :21:34.would be a political one, which is, if it within your remit? Are we

:21:35. > :21:39.going back to St Helena here? I'm very glad you said it first, but

:21:40. > :21:43.yes! If the remit were OK, that is the sort of thing, in a territory,

:21:44. > :21:46.let's call it that, that would be among the many things you would

:21:47. > :21:51.discuss question mark potentially, but can I add an important point?

:21:52. > :22:01.You were nodding, can you put that on the transcript? And can I add one

:22:02. > :22:07.incredibly important thing to this point about the absorptive capacity

:22:08. > :22:12.of CDC and its ability to invest? I got asked a question in the select

:22:13. > :22:14.committee about if the board of CDC will take capital from its

:22:15. > :22:19.shareholder evicted nothing it could invest it in high development

:22:20. > :22:23.impact. Meeting our return requirements and doing that well and

:22:24. > :22:28.thoughtfully and I said absolutely clearly, no. The point I've been

:22:29. > :22:30.trying to make is that we have been developing this business

:22:31. > :22:34.operationally, all of the things they talked about with the teams

:22:35. > :22:37.from the last five years and the conversations with the shareholder

:22:38. > :22:42.about how can fund it, hopefully over the last five years, it is a

:22:43. > :22:48.mutual decision. The shareholder has to want to provide the cash and the

:22:49. > :22:55.company is to believe it can execute it well. I think we are reassured by

:22:56. > :22:58.that, but turning to figure 18 on page 39, which gives the operating

:22:59. > :23:04.costs as a percentage of portfolio value and no doubt those costs are

:23:05. > :23:11.also have costs which figure 19 and others cover. And actually figure 20

:23:12. > :23:18.is also useful. You have a projection, operating costs as a

:23:19. > :23:21.percentage of portfolio value. You can read behind that there is a

:23:22. > :23:31.portfolio value prediction you are making so you have a plan, but when

:23:32. > :23:35.do you go to DfID and say, we are sure it is on track so we need to

:23:36. > :23:39.draw down some money and he is our business case, will you do it? And

:23:40. > :23:43.when do you think, we are not going to manage that? What assurances do

:23:44. > :23:47.you put in place? You have this extra staff that is ready to do this

:23:48. > :23:52.which is a cost and unless you are doing the business but they are a

:23:53. > :23:57.dead weight cost. The process for that is that we in the middle of

:23:58. > :24:01.concluding the strategy for the next five years and after that has been

:24:02. > :24:06.approved and with the Secretary of State, we would work to create a

:24:07. > :24:10.business case to provide any funding going forward. The reason that

:24:11. > :24:13.metric is in there, by the way, something that we have developed

:24:14. > :24:19.ourselves over the last three years, and it is thinking of the purpose of

:24:20. > :24:24.this committee, value for money. And one of the things we will be doing

:24:25. > :24:28.with the business case and the strategy discussions is saying to

:24:29. > :24:32.the shareholder, here are a range of options of what we can do. Different

:24:33. > :24:37.activities have different costs. Investing in high impact, people on

:24:38. > :24:41.the ground, not through intermediary vehicles is much more expensive than

:24:42. > :24:49.working in providing debt from London. Those numbers with the

:24:50. > :24:53.illustrative forecast to show the NAO how we are strategically

:24:54. > :24:56.thinking about costs. And on the staffing issue, we touched on this

:24:57. > :25:01.earlier, but there will be a pressure on salaries because of

:25:02. > :25:04.competition out there. You made a cogent case for how people want to

:25:05. > :25:13.do this because they are not just after the bottom line, but figure

:25:14. > :25:20.A19 highlights some of the issues around celery and we are worried

:25:21. > :25:25.that there is a pressure on salaries. How are you managing that

:25:26. > :25:28.risk to the business? When you need the people to do the job, but you

:25:29. > :25:32.also don't want to go back to the bad old days when salaries went

:25:33. > :25:39.exponentially to ridiculously high levels. I think the report paints a

:25:40. > :25:42.clear picture of the changes being made as a result of the

:25:43. > :25:49.recommendations, it was one of the first things I did as a new CEO. Now

:25:50. > :25:52.we have to look at the sustainability of the organisation,

:25:53. > :25:55.we have hired a lot of people quickly and it is a fantastic team

:25:56. > :26:02.with a lot of different skills in it but matched to us being a long-term

:26:03. > :26:04.business is we need long-term staff. We don't want to be a revolving door

:26:05. > :30:34.and this is something that takes... I beg leave to ask the question

:30:35. > :30:39.standing in my name on the order paper. We already have domestic law

:30:40. > :30:43.that safeguards the environment. The great repeal bill also to be

:30:44. > :30:51.introduced in the next parliamentary session will incorporate EU law

:30:52. > :30:52.relating to environment and biodiversity into UK law. The UK