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Thank you very much. Ladies and gentlemen, welcome to the | :00:30. | :00:36. | |
Public Accounts Committee this Wednesday 8th February, 2017. We are | :00:37. | :00:43. | |
here today to look at the CDC, the Commonwealth development corporation | :00:44. | :00:51. | |
which is a body set up originally in 1948 to channel money into | :00:52. | :00:55. | |
investment in developing countries to help promote economic growth and | :00:56. | :00:59. | |
job creation and it is going through an interesting change right now, | :01:00. | :01:02. | |
going through the House is a bill that's going to change the structure | :01:03. | :01:10. | |
but particularly focus on increasing investment in line with an economic | :01:11. | :01:13. | |
strategy so there is an investment limit going up from 1. 5 billion | :01:14. | :01:17. | |
currently to 6 billion and potentially enables the House | :01:18. | :01:20. | |
through secondary legislation to increase that to ?12 billion. So it | :01:21. | :01:24. | |
is an interesting time of change. The report goes through some of that | :01:25. | :01:27. | |
with interesting graphs about the expansion of staff teams and the | :01:28. | :01:32. | |
cost of staff going up as a result, partly as a result of that. This is | :01:33. | :01:38. | |
a quadruple willing of taxpayers' money to be invested for overseas | :01:39. | :01:43. | |
development aid but a vehicle that's a sort of hybrid vehicle because it | :01:44. | :01:47. | |
gets direct taxpayers' money but operates in private sector terms | :01:48. | :01:50. | |
which is a sort of brief summary of how it works. I want to welcome our | :01:51. | :01:57. | |
witnesses and I wanted to ask some questions about St Helena airport | :01:58. | :02:00. | |
before the main session. This is from my left to right. Rachel | :02:01. | :02:06. | |
Turner, interim director general for economic development. Welcome I | :02:07. | :02:08. | |
think it's your first time in the committee. Yes. Welcome. We are a | :02:09. | :02:13. | |
friendly bunch, most of the time. If you answer our questions! Sir mark, | :02:14. | :02:18. | |
permanent Secretary at the Department for International | :02:19. | :02:22. | |
Development. Diane Nobel, the chief executive, but not for much longer s | :02:23. | :02:27. | |
that right? A few more months. Do you know who your successor is? We | :02:28. | :02:33. | |
will talk about that later. OK. And Graham Ridley the chair of the CDC. | :02:34. | :02:39. | |
Our hashtag for anyone following on social media is hashtag CDC. Before | :02:40. | :02:44. | |
we start on that, Sir Mark, I wanted to ask about St Helena, I understand | :02:45. | :02:49. | |
there was a key date yesterday for tenders coming in to provide | :02:50. | :02:54. | |
aircraft to the airport. What can you do, can you update us on | :02:55. | :02:58. | |
progress on whether flights will be able to land at the airport? Yes, | :02:59. | :03:03. | |
chair. There was a closing date submission of tenders. I can tell | :03:04. | :03:07. | |
you we have had a substantial number of responses. My commercial advisers | :03:08. | :03:11. | |
tell me I shouldn't tell you the precise number because it is a | :03:12. | :03:15. | |
commercial process ongoing. It remains the Government's plan to | :03:16. | :03:18. | |
move through the tender process and to start an air service to St Helena | :03:19. | :03:22. | |
in the way we discussed last time I was here later in the year. OK. Any | :03:23. | :03:29. | |
of these aircraft large or all smaller aircraft that were managing | :03:30. | :03:33. | |
to land successfully? There are some aircraft that are in the category | :03:34. | :03:41. | |
that I ran through when I was here with Richard Montgomerie last time. | :03:42. | :03:45. | |
We won't revisit that in this session. Thank you for the update. A | :03:46. | :03:50. | |
couple of questions. I met some people from St Helena yesterday, | :03:51. | :03:53. | |
they may have met you, as well, I don't know. But I am concerned | :03:54. | :03:57. | |
because we have seen all of this money go in and haven't yet got the | :03:58. | :04:00. | |
right solution in terms of the airport, I hope that will happen. | :04:01. | :04:04. | |
But these are really questions for CDC and I don't expect to you sign | :04:05. | :04:08. | |
your name in blood to anything right now but your mission is to secure | :04:09. | :04:12. | |
future sustainability and prosperity for some of the poorest countries in | :04:13. | :04:19. | |
sub Sahara Africa and Asia. St Helena is underdeveloped and is in a | :04:20. | :04:25. | |
sort of aspect where it can't really change without the airport and | :04:26. | :04:29. | |
without the investment. It hardly has any hotel beds, the bank is | :04:30. | :04:34. | |
capitalised at ?5 million. It is precisely the sort of thing one | :04:35. | :04:40. | |
might think where a multilateral financial institution like the EBRD | :04:41. | :04:45. | |
or CDC might come in over a long period of time perhaps with partners | :04:46. | :04:49. | |
to develop a corporation, particularly if the air solution | :04:50. | :04:54. | |
comes up, that would create the right conditions for a much more | :04:55. | :05:00. | |
sustainable long-term tourist industry with perhaps 1520,000 | :05:01. | :05:04. | |
visitors, there is obviously a huge interest and a niche market for | :05:05. | :05:11. | |
that. Is this the sort of thing that CDC would seriously look at? You | :05:12. | :05:18. | |
described precisely what CDC does but the geographies that we invest | :05:19. | :05:22. | |
in are decided by our shareholder and we invest at the moment only in | :05:23. | :05:28. | |
Africa and south Asia wris where 80% of the world's poor live. So a | :05:29. | :05:32. | |
question of the shareholder changing its mind. You Getty point. I get | :05:33. | :05:39. | |
your point and indeed you will be aware that the Caribbean development | :05:40. | :05:45. | |
bank, for example, with help is interesting in overseas territories | :05:46. | :05:49. | |
now I need to check which of the development banks have a mandate for | :05:50. | :05:53. | |
exactly where St Helena is but I will take that away and have a look | :05:54. | :05:58. | |
at it and in respect of CDC as you will know the Secretary of State is | :05:59. | :06:02. | |
planning to agree with the board shortly the new strategy for CDC and | :06:03. | :06:07. | |
that does touch on the issue what of right geographical areas are. It | :06:08. | :06:11. | |
would be extraordinary if the British overseas territories, some | :06:12. | :06:18. | |
are which very poor, some have had governance problems, when I was | :06:19. | :06:21. | |
first elected to as an MP I was invited to the solicitor owemans and | :06:22. | :06:26. | |
it was cancelled a because it was too dangerous. If they were excluded | :06:27. | :06:31. | |
when other places were, even if they were roughly in the right | :06:32. | :06:36. | |
geographical area, would that not be strange? It's a matter for the | :06:37. | :06:39. | |
investment policy and they're reviewing the policy at the moment. | :06:40. | :06:42. | |
So I will take away the point and consult the Secretary of State. | :06:43. | :06:46. | |
There is an open invitation for you to lobby the Secretary of State. OK. | :06:47. | :06:52. | |
We are moving into our main session on CDC, particularly in light of the | :06:53. | :06:57. | |
bill going through parliament. I will pass over. | :06:58. | :07:00. | |
Thank you very much for being here. There are a number of questions I | :07:01. | :07:03. | |
want to ask relating to your strategy. | :07:04. | :07:09. | |
First, to Sir Mark, do you think there has been a big benefit moving | :07:10. | :07:15. | |
from a fund to fund strategy to more direct investments? Well, I think | :07:16. | :07:20. | |
probably the company will want to comment on that, as well. The then | :07:21. | :07:25. | |
Secretary of State in 2012 was very keen to do that in order to get CDC | :07:26. | :07:30. | |
back in the business of being able to invest directly in companies | :07:31. | :07:34. | |
where the company thought there was a good prospect for creating jobs | :07:35. | :07:40. | |
and adding to the tax base and making development impact and the | :07:41. | :07:44. | |
experience so far, it is early days in terms of the proven results, but | :07:45. | :07:48. | |
the experience so far has been very positive. Yes, we think it's a good | :07:49. | :07:53. | |
idea for CDC to have both the fund to funds vehicle and the direct | :07:54. | :07:58. | |
investments, equity and debt. Yes, we are happy with our mandate. We | :07:59. | :08:02. | |
think it gives us the full range of tools we need to achieve our mission | :08:03. | :08:06. | |
to create jobs especially in the poorest places. There are some great | :08:07. | :08:11. | |
things that funds, investing through funds can achieve. You are creating | :08:12. | :08:15. | |
a layer of investing infrastructure effectively that will last for | :08:16. | :08:24. | |
decades to come. And also you are - direct investing can be much more | :08:25. | :08:30. | |
precise in targeting investments that alleviate poverty. The | :08:31. | :08:34. | |
principle worry about this is you are moving from one set of | :08:35. | :08:36. | |
investment, your investment professional, I read, so you | :08:37. | :08:39. | |
understand that it is a very different thing to be a fund to | :08:40. | :08:43. | |
funds manager than to be a direct investor. So you need a different | :08:44. | :08:51. | |
skills set. How are you doing in expanding that particular skills | :08:52. | :08:55. | |
set? If I can refer colleagues to page... Yes, the report covered it | :08:56. | :09:00. | |
very well actually, that we have done a lot of work over the last | :09:01. | :09:04. | |
five years to establish effective will you new teams, there is a | :09:05. | :09:07. | |
figure that shows all the boxes of the teams in the colours. And so we | :09:08. | :09:14. | |
have put in place product teams so a direct equity team and sector teams | :09:15. | :09:16. | |
because you really need to understand the sectors that you are | :09:17. | :09:21. | |
investing. Now we are beginning to expand our geographic reach as well | :09:22. | :09:25. | |
to supplement this so that we can be really close to our portfolio | :09:26. | :09:28. | |
companies but you are right it's a different skill. Do you think it is | :09:29. | :09:35. | |
- I was looking at the compound growth rate, which I asked for | :09:36. | :09:38. | |
specifically. I notice that it is sort of fallen off. Take the last | :09:39. | :09:44. | |
four or five years, it is about 7. 7.5%. Whereas over 15 year period | :09:45. | :09:49. | |
it's 10%. Is that related to the fact that you are shifting your | :09:50. | :09:53. | |
focus? Do you mean the financial return is coming down? Yes, it is. | :09:54. | :09:58. | |
It is not so much because we are investing direct, it's because we | :09:59. | :10:04. | |
deliberately responded to the recommendations from this committee | :10:05. | :10:08. | |
and also the development committee and international development | :10:09. | :10:11. | |
committee in 2010 to push ourselves to make harders investments. You | :10:12. | :10:15. | |
will have seen the development impact grid in the NAO report and | :10:16. | :10:22. | |
that is that targets our tapes and pushes our teams to make investments | :10:23. | :10:26. | |
in the harder countries. You will have seen our portfolio is more | :10:27. | :10:30. | |
weighted to the harder bits so we think we are pushing our mission and | :10:31. | :10:33. | |
that we think over time will continue to bring the financial | :10:34. | :10:37. | |
return. If as you accept that the financial return is slightly | :10:38. | :10:41. | |
decreasing, and that's what the numbers suggest, the issue that I | :10:42. | :10:44. | |
would have is that how do you measure the development impact | :10:45. | :10:48. | |
because it seems looking at the report and looking at other things | :10:49. | :10:52. | |
that that's a difficult thing for you to get a handle on and you have | :10:53. | :10:57. | |
used different criteria. So we think we have extraordinary impact and we | :10:58. | :11:00. | |
think and we are demonstrating it, as well. So we want to try and | :11:01. | :11:04. | |
maximise the number of jobs that are created. We can now show the last | :11:05. | :11:09. | |
two years our portfolio companies created over a million jobs in each | :11:10. | :11:14. | |
of those two years. A million jobs in each of those two years. We want | :11:15. | :11:21. | |
to increase taxes paid. We can show that our portfolio companies paid | :11:22. | :11:25. | |
over $7 billion over the last three years into local Exchequers, we want | :11:26. | :11:31. | |
to power Africa. We can show that our power companies generated 56,000 | :11:32. | :11:38. | |
gigawatt hours, which is enough to support 28 million people. And we | :11:39. | :11:43. | |
want to bring the private sector and other investors in alongside us and | :11:44. | :11:48. | |
we can show that last year 700 million extra capital came in | :11:49. | :11:51. | |
alongside our 3 punz million that we committed to funds. Forgive me, | :11:52. | :11:57. | |
these are fluent answers but if you look at figure 15 of the report on | :11:58. | :12:07. | |
page 34, it's not - the picture that you lucidly describe is not captured | :12:08. | :12:10. | |
in that figure because there are a number of criteria that you | :12:11. | :12:14. | |
discontinued for what reason, I am not sure why you would have done | :12:15. | :12:17. | |
that. It looks to me like you have been moving the goal posts slightly | :12:18. | :12:21. | |
in the sense that some of the criteria are no longer used or have | :12:22. | :12:25. | |
I got the wrong impression? It's a different picture. Again the NAO | :12:26. | :12:30. | |
report very clearly shows how much we have done and how much has | :12:31. | :12:36. | |
changed since 2011. So, where we invest, how we invest, what we | :12:37. | :12:43. | |
invest in and a lot of our processes and policies have changed, as well. | :12:44. | :12:48. | |
Every time we enhance what we do we add something new to the way that we | :12:49. | :12:52. | |
report. So the picture I want to paint is one of constant | :12:53. | :12:57. | |
improvement, not one of wanting to change goal posts. You will | :12:58. | :13:02. | |
understand if you alter the measure it is very difficult for committees | :13:03. | :13:07. | |
like us to track progress. You understand that problem? Of course. | :13:08. | :13:15. | |
But the main metrics that I described upfront, jobs created, tax | :13:16. | :13:19. | |
paid, capital crowded in, power generated, these are not measures | :13:20. | :13:25. | |
that are changing. We will report consistently on them year on year. | :13:26. | :13:30. | |
Can I ask about jobs created. You talk about a million from the | :13:31. | :13:34. | |
portfolio companies. Direct jobs is about 25,000, isn't it? Yes Seems a | :13:35. | :13:38. | |
big jump from 25,000 to a million. Can you talk through how you make | :13:39. | :13:43. | |
that, what measure you set in place and make sure you are not double | :13:44. | :13:50. | |
counting? Of course. So it follows accepted economic advice which is | :13:51. | :13:54. | |
when you look at the job effect of investing it falls into three | :13:55. | :13:57. | |
categories. Obviously the direct jobs, we all understand that. Then | :13:58. | :14:02. | |
there are indirect jobs generated through supply chains. Then there | :14:03. | :14:07. | |
are induced jobs which result of bringing more power or finance to a | :14:08. | :14:10. | |
country or a region that doesn't have enough of it. | :14:11. | :14:15. | |
Your right to say that the methodology we put in place a couple | :14:16. | :14:21. | |
of years ago, it is clear that the indirect jobs are much great and the | :14:22. | :14:26. | |
direct jobs are much smaller as the proportion of the whole. But I think | :14:27. | :14:31. | |
this is intuitive. As an example, we made an investment bringing | :14:32. | :14:38. | |
hydropower to eastern Congo, this is off grid, the first of this region | :14:39. | :14:44. | |
has had it, that we think will generate 250 direct jobs but it is | :14:45. | :14:49. | |
part of planned to bring 40,000 new jobs to the indirect effect... | :14:50. | :14:56. | |
Perhaps we can follow up on this but how do you measure your not double | :14:57. | :15:01. | |
counting? You're creating the energy which could potentially create | :15:02. | :15:04. | |
40,000 but other things which could contribute to this which you might | :15:05. | :15:09. | |
also be investing in. The design of the methodology was not ours. We | :15:10. | :15:12. | |
went out and find the best adviser to put it together and we are peer | :15:13. | :15:18. | |
reviewing that methodology at the moment. Like you, we want to be as | :15:19. | :15:23. | |
precise and accurate and honest about the impact we have. About this | :15:24. | :15:30. | |
development, we had slightly more problems on this than I think you're | :15:31. | :15:36. | |
answers may suggest. In 2008 there was an issue, was there not? This is | :15:37. | :15:45. | |
to Sir Mark. There were a number of things in two dozen eight. This was | :15:46. | :15:50. | |
a question that Mr Kaepernick Lakra bacon asked in 2008. Why was the tax | :15:51. | :15:57. | |
paid by the date the company? Asking about the development company. There | :15:58. | :16:02. | |
are none of damage and need element impact. Are these businesses are | :16:03. | :16:07. | |
generating business and paying tax going back into the Exchequer? A big | :16:08. | :16:11. | |
change in the element impact has been the eight fold increase in | :16:12. | :16:14. | |
businesses paying tax. It is absolutely the case today that in | :16:15. | :16:17. | |
2008 we were not tracking jobs created. It is also the case as the | :16:18. | :16:24. | |
report pointed out that we were not in 2008 identified at the moment is | :16:25. | :16:30. | |
the company was going to make an investment or not, will be predicted | :16:31. | :16:34. | |
development impact would be. Those three things are enhancements. The | :16:35. | :16:37. | |
report recommends we do more to enhance knowledge of the element | :16:38. | :16:42. | |
impact, more evaluation work and so, and we agree with that I want to do | :16:43. | :16:47. | |
that. There has been a lot progress since 2008. Can I ask you a specific | :16:48. | :16:51. | |
question about this? By understanding is you had ?5 million | :16:52. | :17:01. | |
of the 735 that you got in 2015, ?5 million allocated specifically to | :17:02. | :17:07. | |
hire a senior evaluation Officer, or someone who would be looking at this | :17:08. | :17:13. | |
very issue impact, development impact. Where have you got to | :17:14. | :17:18. | |
intensify ring this person? The 5 million was not to hire the | :17:19. | :17:25. | |
individual, to be clear. We were in the -- we were intended to hire an | :17:26. | :17:29. | |
individual who had expertise in this and would be able to manage a 15 | :17:30. | :17:34. | |
year long study, checking in periodically to provide the | :17:35. | :17:37. | |
aggregate picture of the element impact. I'm sorry to have to report | :17:38. | :17:44. | |
to you, at the report says that we have not been able to find the | :17:45. | :17:46. | |
person with the right skills to do that. What we have done is tender | :17:47. | :17:51. | |
contract to provide the analysis in the study over that 15 year period. | :17:52. | :17:55. | |
That is not the only thing we have done, we have also, the company | :17:56. | :18:01. | |
should be to much bigger programme of work they have commissioned of an | :18:02. | :18:06. | |
evaluative sword so we can tell a stronger story as we go along. Are | :18:07. | :18:11. | |
you still looking for someone or had you abandon that? We will have | :18:12. | :18:15. | |
another look at what I didn't want to do is delay the whole evaluative | :18:16. | :18:19. | |
process because we were delaying finding the senior person for that | :18:20. | :18:24. | |
we can let the contract and we have competent people. How long did you | :18:25. | :18:27. | |
spend trying to define this person? Are you so. -- a year or so. The | :18:28. | :18:41. | |
other thing I wanted to ask about is the quality of jobs because clearly | :18:42. | :18:45. | |
that is a big issue you pride yourself on in terms of job | :18:46. | :18:49. | |
creation. How do you measure the quality of the jobs you create? The | :18:50. | :18:57. | |
NAO report recognises that we made a lot of progress in this area. And we | :18:58. | :19:02. | |
agreed that it is not enough just to care about the number of jobs | :19:03. | :19:06. | |
created, we should also care about the quality of those jobs, or decent | :19:07. | :19:09. | |
work if you like. The things we have done, we have a code of responsible | :19:10. | :19:16. | |
investing and that had standards in it that followed the International | :19:17. | :19:23. | |
Labour organisation. It is very clear that we have standards set to | :19:24. | :19:29. | |
avoid forced child labour or discrimination, we ensure safe and | :19:30. | :19:32. | |
healthy working environments, and we ensure that our companies pay the | :19:33. | :19:37. | |
minimum wage. It is fine to say these are standard but the important | :19:38. | :19:40. | |
thing is are they actually did too? We have a great team that goes in | :19:41. | :19:50. | |
and does due diligence before we invest and assess the compliance and | :19:51. | :19:52. | |
if they are not complained they will put in place and action plan and | :19:53. | :19:57. | |
they oversee real change. We don't stop there, we also assess how the | :19:58. | :20:01. | |
companies are doing against the action plan and we will step in and | :20:02. | :20:04. | |
help them if they are falling short. We had a traffic light system that | :20:05. | :20:14. | |
go to the risk committee. If I may, it's a very compelling story, but | :20:15. | :20:18. | |
I'm interested in your relation to the private sector. This is quite | :20:19. | :20:28. | |
hybrid beast and I'm sure you would have been happy to receive capital | :20:29. | :20:31. | |
underwritten by the taxpayer, I've looked at York account and there no | :20:32. | :20:36. | |
cost of capital that I can see and yet you're competing on favourable | :20:37. | :20:42. | |
terms on financing with the private sector -- your accounts. Is that | :20:43. | :20:46. | |
something you are happy doing? Do you feel that you're competing not | :20:47. | :20:53. | |
competing but operating in a fair environment with other people you | :20:54. | :20:56. | |
are trying to do it on a commercial basis? CDC is a unique and | :20:57. | :21:04. | |
extraordinary organisation. What you describe is actually its strength. | :21:05. | :21:07. | |
It has permission to go to the very hard places that it uses and this is | :21:08. | :21:13. | |
a strength of the team we have hired, it uses commercial skills to | :21:14. | :21:17. | |
apply judgment to navigate the difficult places. The judgment about | :21:18. | :21:23. | |
which team we should work with which management team we should not work | :21:24. | :21:27. | |
with, what standards should we have in job quality and is this a company | :21:28. | :21:34. | |
that is going to grow and be sustainable for the long term? These | :21:35. | :21:37. | |
are important judgment that the team makes and these are commercial | :21:38. | :21:42. | |
skills. But you see there may be an issue in terms of private investors | :21:43. | :21:45. | |
operating in your space who feel they cannot compete and are being | :21:46. | :21:49. | |
crowded out. This is an important topic. We use the phrase | :21:50. | :21:59. | |
additionality. The meaning of that is that we always want to be clear | :22:00. | :22:01. | |
that CDC is bringing something that CDC is bringing something | :22:02. | :22:05. | |
unique to the investment we make and that can be capital. For example, | :22:06. | :22:14. | |
during the Ebola crisis we provided much-needed liquidity to companies | :22:15. | :22:17. | |
that were running out of working capital to the essential businesses | :22:18. | :22:21. | |
going. No other investor was investing in cereal own at the time. | :22:22. | :22:26. | |
That occur in Sierra Leone. Also we can bring things that the private | :22:27. | :22:35. | |
sector would not bring -- in Sierra Leone. We have dramatically improved | :22:36. | :22:41. | |
working conditions in a rail freight business intimately poorest state of | :22:42. | :22:49. | |
India, which is an industry which is notorious for poor working practice. | :22:50. | :22:52. | |
Or we may change the strategy of the investment that we work with. The | :22:53. | :22:59. | |
report talks about global leg, our busiest investment, which is the | :23:00. | :23:02. | |
biggest independent power producer in Africa. We make that investment | :23:03. | :23:06. | |
but commercial capital would have invested in it. It is an attractive | :23:07. | :23:10. | |
company. But what we have done is completely change the strategy from | :23:11. | :23:16. | |
essentially a commercial strategy where the shareholders are taking | :23:17. | :23:21. | |
out dividends each year and saying that we want those dividends and all | :23:22. | :23:26. | |
the focus to go on developing the next generation of power plants | :23:27. | :23:29. | |
across Africa which is not a fully commercial strategy. We have changed | :23:30. | :23:33. | |
the board and the management team and the strategy. For my | :23:34. | :23:39. | |
clarification, do you essentially go in as yourself or do you go in as | :23:40. | :23:44. | |
joint ventures? Do you have a style or approach with respect to joint | :23:45. | :23:48. | |
ventures and partners? We are very flexible. We can be very active, as | :23:49. | :23:54. | |
I described with Globalec, we were a majority shareholder. One of the | :23:55. | :23:59. | |
important things we do is to try to work with the best people. The magic | :24:00. | :24:05. | |
of CDC is when you combine capital with people who share your values | :24:06. | :24:10. | |
and what to do the right thing. One of the most important things we do | :24:11. | :24:13. | |
is to try to choose those people and back them. You don't see any | :24:14. | :24:20. | |
tension, any tension at all between those twin goals? You think this is | :24:21. | :24:28. | |
a model that is completely without any wrinkles? Of course it's | :24:29. | :24:37. | |
challenging. To the mandate we have, and the whole team that we've hired | :24:38. | :24:41. | |
over the last five years, completely accept this, is to really push the | :24:42. | :24:45. | |
impact part of our mission, to do the hard things that the committee | :24:46. | :24:52. | |
wants us to do. But to do it in a responsible way that generates | :24:53. | :24:58. | |
returns, crowds in the private sector as well, and also had a | :24:59. | :25:02. | |
demonstration effect so future investors will follow us. It is a | :25:03. | :25:07. | |
hard mission and it does have challenges and trade-offs, should we | :25:08. | :25:10. | |
make this investment, will it achieve both those aims? Mr Wrigley? | :25:11. | :25:28. | |
You summarised the balancing of the impact and the return. It is | :25:29. | :25:32. | |
perpetual paranoia, are we getting the right balance? You can think | :25:33. | :25:36. | |
about it on an investment level and a strategic level. Every investment | :25:37. | :25:42. | |
comes to the investment committee, the teams and the committee has to | :25:43. | :25:47. | |
make a judgment, a triangulation between the redevelopment impact, | :25:48. | :25:50. | |
how can we make the world better, financial return, how we're to | :25:51. | :25:55. | |
achieve our financial mandate from the UK taxpayer, are we going to be | :25:56. | :26:02. | |
additional? Your question, we never want to crowd out and we don't crowd | :26:03. | :26:06. | |
out and we have clear rules and guidelines. And are we managing UK | :26:07. | :26:13. | |
money with full business integrity? That is every investment. Last year | :26:14. | :26:18. | |
we made over 40 investments. At a strategic level, and we are very | :26:19. | :26:24. | |
long-term business, we have to judge development impact and financial | :26:25. | :26:30. | |
return, the tone of the National Audit Office inquiry eight years ago | :26:31. | :26:34. | |
was a different set of questions. That is what we try to do. Those are | :26:35. | :26:39. | |
the debate we are having at the moment with each shareholder for the | :26:40. | :26:45. | |
next five years. I looked at the 2008 report and clearly there were | :26:46. | :26:49. | |
big problems and it's a different picture. They were running it like | :26:50. | :26:54. | |
hedge funds with 30% returns one year on taxpayer money and were | :26:55. | :26:57. | |
being very well paid for it. You have moved on from that. I think, as | :26:58. | :27:06. | |
the NAO report said, the returns that we've made and the taxpayer has | :27:07. | :27:12. | |
made in the last five years, 84% of them came from that strategy and a | :27:13. | :27:16. | |
lot of great mobilisation was done in that period. And the Joslin | :27:17. | :27:21. | |
report from Harvard business School talked about 345,000 jobs created. | :27:22. | :27:30. | |
What was the fall in 2008? You have been saying how wonderful it was but | :27:31. | :27:35. | |
it was down 36% in one year? It was a volatile market. I'm talking about | :27:36. | :27:42. | |
over the period. I remember this, I was on the committee at the time and | :27:43. | :27:47. | |
one of your predecessors paid himself ?970,000 and was targeting a | :27:48. | :27:52. | |
bunch of middle income countries, not the most difficult to help so | :27:53. | :27:55. | |
they were mimicking what was being done by a private equity providers | :27:56. | :27:59. | |
and hedge funds and very nice for them, thank you very much, but not | :28:00. | :28:05. | |
clear that Mr and Mrs taxpayer need to be involved. And Sir Mark is | :28:06. | :28:09. | |
nodding. The reason you sort the drop wasn't because it was volatile, | :28:10. | :28:14. | |
although of course it was, but because there was a strategic choice | :28:15. | :28:20. | |
made, a good one. I'm not speaking out of turn, I hope, that an | :28:21. | :28:25. | |
accurate description? I think the change has been profound. The new | :28:26. | :28:30. | |
strategy that started in 2012 is a fundamental change and we have now | :28:31. | :28:36. | |
targeted, as it says on figure for on page 20, sub Saharan Africa and | :28:37. | :28:41. | |
South Asia, the poorest states, so we have 90% of our new investment... | :28:42. | :28:46. | |
Do you know how close signalling is to sub-Saharan Africa? As Mark said | :28:47. | :28:54. | |
earlier... -- how close St Helena. As the NAO report said, we have | :28:55. | :29:00. | |
fundamentally addressed the concerns of Parliament about that period. | :29:01. | :29:05. | |
Figure seven on page 24 of the report demonstrates the rate of | :29:06. | :29:16. | |
return and the 36% drop in 2008. In a sense there is another | :29:17. | :29:21. | |
objective, which is rather bizarre at first which is actually Sir | :29:22. | :29:24. | |
Mark's, if you like, objective, which is to spend a minimum of, | :29:25. | :29:28. | |
which is the most bizarre, if you like, way of looking at this, as | :29:29. | :29:34. | |
against clearly the more commercial objectives of trying to develop | :29:35. | :29:38. | |
projects which will give you development improvement in some of | :29:39. | :29:42. | |
these countries as well as a return on the investment made. So, | :29:43. | :29:47. | |
presumably each of these projects has a different development value so | :29:48. | :29:53. | |
to speak. So, Sir Mark, how do you make sure in your quest to make sure | :29:54. | :29:57. | |
you spend all that money we aren't actually spending on projects which | :29:58. | :30:01. | |
in the real world if we didn't have that target we wouldn't because it | :30:02. | :30:05. | |
is not good value or a good rate of return for the taxpayers of the | :30:06. | :30:08. | |
country because I am assuming there are some things which have a big | :30:09. | :30:11. | |
impact fairly quickly, you have picked infrastructure targets, I | :30:12. | :30:14. | |
suspect, because they're much better at doing that and the long-term | :30:15. | :30:18. | |
sustainable advantages is clearly demonstrated, but are you going to | :30:19. | :30:21. | |
be pushing now into territories which don't give you that sort of | :30:22. | :30:26. | |
return and how are you dealing with that? So, obviously I think you are | :30:27. | :30:30. | |
which is what the Government's which is what the Government's | :30:31. | :30:34. | |
decided and parliament sort of put on statute book for the tax payer to | :30:35. | :30:40. | |
spend every year on official development assistance. From that | :30:41. | :30:44. | |
budget the Government has a choice about how much to capitalise CDC and | :30:45. | :30:48. | |
the legislation which the chair referred to at the beginning which I | :30:49. | :30:56. | |
think is going through the House of Lords process tomorrow, gives the | :30:57. | :31:00. | |
Government the authority to invest with a statutory instrument on the | :31:01. | :31:06. | |
way up to another ?10. 5 billion into CDC. Now the previous | :31:07. | :31:11. | |
legislation which I think was passed in 99 or 2,000 capped what the | :31:12. | :31:15. | |
Government could put in. The capitalisation of CDC over the last | :31:16. | :31:19. | |
70 years has been here and there from the taxpayer, grown over time, | :31:20. | :31:23. | |
sometimes coming down a bit as MrBacon observed in a bad year, but | :31:24. | :31:32. | |
grown over time. The choice we face now is given that we had exhausted | :31:33. | :31:37. | |
the ability to capitalise previously permitted by legislation, assuming | :31:38. | :31:40. | |
the bill goes on the statue book, the choice that will be available to | :31:41. | :31:47. | |
ministers will be whether to put more capital into CDC and ministers | :31:48. | :31:50. | |
are absolutely clear during the House of Commons passage of the bill | :31:51. | :31:56. | |
that they would only do that on the basis of a clear business case where | :31:57. | :31:59. | |
it was absolutely transparent what the development impact would be, | :32:00. | :32:02. | |
what the trade-offs would be, whether there was a need for capital | :32:03. | :32:10. | |
or not. Now currently over the last two years what's happened in 2015 | :32:11. | :32:15. | |
the company made commitments of ?735 million and in 2016 of ?1. 2 | :32:16. | :32:21. | |
billion. Even in those African south Asian markets which have been | :32:22. | :32:25. | |
traditionally harder, and obviously the Government wouldn't have tabled | :32:26. | :32:28. | |
the bill if it didn't think there was a good case at some point in the | :32:29. | :32:34. | |
future for more investment, but that decision on more investment hasn't | :32:35. | :32:38. | |
been made yet. It will be subject to a business case. The quality of the | :32:39. | :32:42. | |
business case will need to be as good as the last one by the NAO | :32:43. | :32:47. | |
commented on, they say in the report it was a convincing business case | :32:48. | :32:52. | |
last time and then if there is a convincing business case ministers | :32:53. | :32:57. | |
will decide whether they do want to invest more. How do you measure the | :32:58. | :33:03. | |
value? The reason I ask that and you will no doubt say it is about the | :33:04. | :33:06. | |
number of jobs created and something other things you talked about, but | :33:07. | :33:10. | |
in a sense that's easier with an infrastructure project than it would | :33:11. | :33:15. | |
be than some of the things you are likely to be going into if they do | :33:16. | :33:21. | |
grant you the money, so are you considering reviewing your whole | :33:22. | :33:25. | |
measurement system so it is fit for purpose, that it is comparable | :33:26. | :33:28. | |
against different types of investment you make because it seems | :33:29. | :33:33. | |
that's quite important because the British taxpayer wants to see that | :33:34. | :33:41. | |
it is a philantropic approach has delivered and you can see which | :33:42. | :33:47. | |
investments have delivered more across the different measures? You | :33:48. | :33:51. | |
describe almost perfectly what you will see in our next five-year | :33:52. | :33:55. | |
strategy. So we want to be relentless about showing more, as I | :33:56. | :34:00. | |
said upfront we show a lot of impact but there is always more you can do. | :34:01. | :34:05. | |
So you will see in the strategy that we will be much clearer about the | :34:06. | :34:10. | |
individual impact that we want to achieve on each case, on each | :34:11. | :34:15. | |
investment that we make and you're right, it's different for each | :34:16. | :34:18. | |
investment. Obviously jobs and taxes are a unifying force and that's | :34:19. | :34:21. | |
where we started because we wanted to be able to show the impact of our | :34:22. | :34:27. | |
whole portfolio. Now we need to drill in a bit more and look at the | :34:28. | :34:30. | |
individual very much that is we make, what our expectations are, | :34:31. | :34:34. | |
what we want that investment to do over time and we need to track it | :34:35. | :34:39. | |
over time to see how we are doing. And will you look at that in the | :34:40. | :34:47. | |
context of the poverty gap or poverty need the country that you | :34:48. | :34:51. | |
decided to invest in, because you have picked projects presumably | :34:52. | :34:54. | |
according to some crit year because you think you can make the most | :34:55. | :34:58. | |
impact so to speak, but then do you go back to this country rather than | :34:59. | :35:03. | |
just this project, how do you actually improve the overall quality | :35:04. | :35:08. | |
of life there? What you see in the grid that we use and that really | :35:09. | :35:13. | |
does it in a way in that it grades higher the poorer and the harder | :35:14. | :35:18. | |
places to do business and the places that have the greatest need of our | :35:19. | :35:24. | |
capital. But always when we assess an individual investment we do try | :35:25. | :35:29. | |
and step back and say is this good for the country, is this good for | :35:30. | :35:33. | |
poverty, is this good also, does it ling us to the sustainable | :35:34. | :35:37. | |
development goals which obviously we are all unified in trying to | :35:38. | :35:39. | |
achieve. Measurement. | :35:40. | :35:44. | |
You are acutely aware from the answers that you have given of the | :35:45. | :35:50. | |
need to measure and I know we don't yet have the individual in place, if | :35:51. | :35:55. | |
we ever do, to look at this in the longer term, but pending that | :35:56. | :35:58. | |
individual being in place it seems to me there is a need to ensure that | :35:59. | :36:03. | |
you do take some action to make sure that what you think is happening is | :36:04. | :36:07. | |
happening and is delivering what you need, so it would be helpful to have | :36:08. | :36:13. | |
some spotlight on that as to how you go about it, and September this if | :36:14. | :36:17. | |
you like, fix, that we hope you find and one specific issue I would like | :36:18. | :36:23. | |
to address is one of corruption. Clearly you say that you look at the | :36:24. | :36:27. | |
quality of the directors so they are not corrupt, which is clearly the | :36:28. | :36:30. | |
right thing to do, but in many of these countries it is not just about | :36:31. | :36:34. | |
whether the director is or is not corrupt, but there are business | :36:35. | :36:38. | |
processes and business models which are simply not free of corruption so | :36:39. | :36:43. | |
how do you deal with that because clearly one of the things that we | :36:44. | :36:50. | |
face as politicians is a cry from the taxpayers say why are we | :36:51. | :36:53. | |
spending money on this and that the country is wealthy or, you know, | :36:54. | :36:57. | |
this is a project which could have been funded via the private sector? | :36:58. | :37:03. | |
Yes, so we take all possible steps to try and ensure that we and our | :37:04. | :37:08. | |
companies that we invest in avoid fraud and corruption and this | :37:09. | :37:13. | |
requires a number of different work streams effectively. So, we inor | :37:14. | :37:20. | |
dinnate efforts to make sure we work with the right people, that's really | :37:21. | :37:26. | |
at the heart of of it. We try to avoid sectors that have particular | :37:27. | :37:31. | |
propensity for corruption, ones with high levels of Government tendering | :37:32. | :37:36. | |
and things like that. We have a very strong business integrity team which | :37:37. | :37:40. | |
you will have seen from the report we built from scratch since 2011. | :37:41. | :37:46. | |
That team is as large as the IFC's, which is the private sector on the | :37:47. | :37:52. | |
World Bank, it has a portfolio of 15 times our size and our team is the | :37:53. | :37:56. | |
real size and these are real professionals. And obviously we have | :37:57. | :38:02. | |
lots of policies here. But again this isn't just about writing things | :38:03. | :38:06. | |
on pieces of paper. As the report points out, 19% of our pipeline was | :38:07. | :38:12. | |
turned down because we didn't meet the standards of integrity, either | :38:13. | :38:14. | |
the people working with or the standards we found in the companies, | :38:15. | :38:20. | |
or because of environmental and social issues. So, we are really | :38:21. | :38:23. | |
careful about where we invest. Thank you. | :38:24. | :38:27. | |
One of the things that is a bit of a riddle to me is the nature of the | :38:28. | :38:34. | |
relationship you have with DIDOD. These are obviously huge amounts of | :38:35. | :38:36. | |
money, the bill going through parliament is potentially giving | :38:37. | :38:43. | |
more. I want to know more about the relationship between DIFOD | :38:44. | :38:47. | |
ultimately responsible for the taxpayers money and the capable | :38:48. | :38:51. | |
investment professionals. Well, as the report says, there has been some | :38:52. | :38:55. | |
sort of revamping of the Government's arrangements and the | :38:56. | :38:59. | |
report says we have a thorough set of arrangements. The basic construct | :39:00. | :39:09. | |
is that the shareholder appoints the chair and sets the strategy and | :39:10. | :39:14. | |
investment policy and then it is a matter for the chair to assemble a | :39:15. | :39:20. | |
board on which she consults as new vacancies arise and to hire and | :39:21. | :39:24. | |
supervise the executive, to execute the policy. So the construct is that | :39:25. | :39:32. | |
there is a separation. As you will know, some of the low points in | :39:33. | :39:37. | |
CDC's history over 70 years have been ones where civil servants, | :39:38. | :39:41. | |
often well-meaning, came up with bright ideas on things that maybe | :39:42. | :39:47. | |
the company could do and poor decisions all too often were made as | :39:48. | :39:50. | |
a result. There is a deliberate separation. The report flags the | :39:51. | :39:57. | |
point that it is important everybody across Government understands that | :39:58. | :39:59. | |
separation and we have just sent guidance out to the whole of the HMG | :40:00. | :40:06. | |
network overseas to explain it is up to CDC, who are accountable through | :40:07. | :40:09. | |
the board to the shareholder and the Secretary of State, to decide what | :40:10. | :40:16. | |
investments to make. It is not up to, you know, the - not the civil | :40:17. | :40:19. | |
servants in my department or other departments. Clearly we don't want | :40:20. | :40:27. | |
to go down to the schemes and that kind of stuff. Are there formal | :40:28. | :40:35. | |
structures where DIFD communicate with CDC? Informal thing? There is a | :40:36. | :40:44. | |
set in the report. As Mark said, I have a team of six who help Mark | :40:45. | :40:48. | |
steward our relationship with the company. We have a formal process, | :40:49. | :40:55. | |
four times a year to sit down with CDC, to go through a series of | :40:56. | :41:02. | |
indicators about the portfolio, about the processes that Diane was | :41:03. | :41:08. | |
talking about in terms of due diligence and the environmental and | :41:09. | :41:16. | |
social plans and status of the underlying investments, it's a | :41:17. | :41:19. | |
detailed set of information that we sit down, drill through it. So we | :41:20. | :41:25. | |
feel that we are a very active and engaged and well-informed and we are | :41:26. | :41:32. | |
able to debate, we are able to ask questions and that's at the core of | :41:33. | :41:38. | |
our relationship, our ongoing relationship. And do you have a | :41:39. | :41:44. | |
power of veto in terms of schemes that you feel are perhaps unethical | :41:45. | :41:48. | |
or perhaps you feel that you don't wish taxpayers' money to be bound up | :41:49. | :41:53. | |
in this way? What we have is a policy and the deal is the company | :41:54. | :41:59. | |
are accountable for living within the policy. So in extremely rare | :42:00. | :42:03. | |
circumstances there's been one case mentioned in the report the company | :42:04. | :42:06. | |
brought an investment to us and asked us if we had a point of view, | :42:07. | :42:10. | |
but that was not to get a decision from us. What was your point of view | :42:11. | :42:15. | |
in that case was favourable? Had your point of view been, we are not | :42:16. | :42:23. | |
happy, then what would happen? I don't know, maybe the chair could | :42:24. | :42:31. | |
say what he would do. Graham Wrigley, what would have happened if | :42:32. | :42:34. | |
they had said we are not sure or just no? The way the board and I | :42:35. | :42:42. | |
feel accountable for is to deliver value for our shareholder and that | :42:43. | :42:47. | |
means development impact, a steady increase in the balance sheet CDC so | :42:48. | :42:52. | |
it's an evergreen facility that the UK Government can reuse and managing | :42:53. | :42:59. | |
reputation. And all the issues that are laid out clearly in the code of | :43:00. | :43:02. | |
responsible investment and the investment policy. And we explicitly | :43:03. | :43:10. | |
through formal structures supplemented through informal | :43:11. | :43:12. | |
conversations make sure we try and don't put our selves in that | :43:13. | :43:16. | |
position and we haven't done. Had you been in that position what would | :43:17. | :43:20. | |
you have done as a board? This is an informal relationship but it's | :43:21. | :43:25. | |
important because in the end the money comes from DIFD. Taxpayers | :43:26. | :43:31. | |
must be clear. So we would not do something that we felt that was not | :43:32. | :43:37. | |
going to achieve those goals. But in terms of the investment | :43:38. | :43:42. | |
decision-making itself... I need to publish you, it could be something | :43:43. | :43:46. | |
would achieve those goals but would be something that DIFD didn't like. | :43:47. | :43:52. | |
If it was, we are talking hypothetical, if it was something | :43:53. | :43:56. | |
that was so obviously wrong it wouldn't get through our processes. | :43:57. | :44:02. | |
If it was, coming up with an investment decision as I said | :44:03. | :44:07. | |
earlier, is a triangulation of those different things. It's a judgment | :44:08. | :44:10. | |
call you have to make at the end of the day. | :44:11. | :44:15. | |
I have to questions. When things go well and things have been success. | :44:16. | :44:20. | |
That's fine, but if things go horribly wrong, and there is a big | :44:21. | :44:26. | |
investment like in 2008, resume and you are ultimately responsible for | :44:27. | :44:29. | |
that? Me and the board are responsible, yes. You would take a | :44:30. | :44:33. | |
full response ability, it has nothing to do with DfID. The | :44:34. | :44:40. | |
strategy and objectives are set by the shareholder and our job as a | :44:41. | :44:47. | |
board is to execute and deliver the strategy. But an ordinary | :44:48. | :44:50. | |
shareholders would be able to get rid of you at some point? And they | :44:51. | :44:56. | |
can. I went through a review for my reappointment last year, there was a | :44:57. | :45:01. | |
thorough review. I get reviewed by the senior independent director | :45:02. | :45:04. | |
every year, the shareholder comments on my performance. As Mark and | :45:05. | :45:10. | |
Rachel said, we feel accountable to our shareholder. My last question, | :45:11. | :45:16. | |
and Diana answered but I want to what Sir Mark and Graham had to say | :45:17. | :45:22. | |
about it. Let's say a member of the public would say, I don't get this, | :45:23. | :45:27. | |
why not bring it all in-house and we have no problem with the | :45:28. | :45:31. | |
accountability? Or spin it off? But I can't understand, hypothetically. | :45:32. | :45:39. | |
It is an absolutely key question, why not bring it in-house? Because | :45:40. | :45:43. | |
civil servants in my department do not have the skills to run the | :45:44. | :45:47. | |
investments. We are an excellent department in the grant giving thing | :45:48. | :45:51. | |
we do. You're good at signing cheques. The supervision and | :45:52. | :45:57. | |
implementation and the result and all that but it does not involve the | :45:58. | :46:00. | |
management of the balance sheet. That is why not bring it in-house. | :46:01. | :46:06. | |
And I think the report does a good job of justifying that. Why not sell | :46:07. | :46:09. | |
it off? Another good question and the answer is because the public | :46:10. | :46:14. | |
policy rationale for the taxpayer owning this operation is because it | :46:15. | :46:21. | |
is a very good way of promoting development in Africa and South Asia | :46:22. | :46:26. | |
which find it hard at the moment contract -- attract investment. It | :46:27. | :46:30. | |
is about a million jobs a year, two and a half, $3 billion in tax, | :46:31. | :46:34. | |
demonstrating a new development path and the goal obviously if at some | :46:35. | :46:40. | |
point, just as in East Asia and Latin America, the markets we are in | :46:41. | :46:47. | |
now are open and attractive to pure private investment and there is no | :46:48. | :46:50. | |
longer a need for CDC. That is the goal. Let's put this on record. CDC | :46:51. | :46:58. | |
isn't actually a big part of your overall spend at a department. It | :46:59. | :47:02. | |
has a 4 billion balance sheet whereas you are spending 12, 13 | :47:03. | :47:09. | |
billion a year. 10 billion. Of course, for 25 years up till the | :47:10. | :47:15. | |
year before last there was no investment in CDC from the | :47:16. | :47:18. | |
department's budget. Over the last two years, we have put in ?730 | :47:19. | :47:22. | |
million and we are considering putting in more. That is because we | :47:23. | :47:29. | |
think the CDC, as the secretary district set out in the economic | :47:30. | :47:35. | |
element strategy, if the key vehicle in the British do much to promote | :47:36. | :47:38. | |
private investment in the poorest and most fragile countries, which we | :47:39. | :47:42. | |
think is the best way of creating good quality jobs and contributing | :47:43. | :47:45. | |
to the taxpayers. That is the rationale. Thank you, Mr Kwarteng. I | :47:46. | :47:55. | |
want to welcome some members of the Uganda bureau of statistics who are | :47:56. | :47:59. | |
attending the session today and you are very welcome. You're helping to | :48:00. | :48:06. | |
aid the bureau in their work. Mr Boswell. Following on from Mr | :48:07. | :48:13. | |
Kwarteng's light of questioning, a different | :48:14. | :48:19. | |
the -- it is not received intimation and above the CDC's decisions to | :48:20. | :48:26. | |
invest however the Department government arrangements encourage | :48:27. | :48:30. | |
CDC to share information in certain circumstances. Under what | :48:31. | :48:36. | |
circumstances does DfID encourage the CDC to share information about | :48:37. | :48:39. | |
investment decisions? It is really in the example that is covered in | :48:40. | :48:47. | |
the report. It was a very big investment for CDC to take its stake | :48:48. | :48:55. | |
in Kwarteng which is the biggest green feed that McCoy greenfield | :48:56. | :49:01. | |
power generation in Africa, burgers and on low carbon technologies, gas | :49:02. | :49:05. | |
and renewables. Because it was a big investment, the chair at the right | :49:06. | :49:08. | |
thing to do was to check if the department had a point of view about | :49:09. | :49:12. | |
it and it is the only case I'm aware of since 2012 where the chair want | :49:13. | :49:18. | |
to do that. We're not going to set criteria which tells the chair when | :49:19. | :49:24. | |
to make what judgment. We have appointed him because we trust him | :49:25. | :49:28. | |
to note the cases when he wants to prefer things to us. And from the | :49:29. | :49:36. | |
CDC side, dreich does not receive information on all of this integrity | :49:37. | :49:42. | |
issues that CDC encounters in its investments. So why does CDC in a | :49:43. | :49:48. | |
put in some business integrity issues encounters to DfID? We do | :49:49. | :49:59. | |
share all the serious ones. You deem them to be serious and then...? | :50:00. | :50:06. | |
That's right. There are sometimes details of those that we have to | :50:07. | :50:11. | |
keep confidential customer for example, the whistle-blower policy | :50:12. | :50:13. | |
protect the identity of the whistle-blower. And how does the CDC | :50:14. | :50:20. | |
determine which is this integrity issues are reported to DfID, which | :50:21. | :50:25. | |
really is what you just said, you deem it serious so what is the | :50:26. | :50:29. | |
criteria you use? Is there a process? It about yourselves? We | :50:30. | :50:34. | |
have ahead of business integrity who is a very experienced crime | :50:35. | :50:39. | |
prevention officer and also experienced in the private sector as | :50:40. | :50:44. | |
well. And he applied his judgment but according to some reasonably | :50:45. | :50:50. | |
clear principles. The areas we really need to share with DfID are | :50:51. | :50:58. | |
ones where either CDC ourselves or the companies we have invested in or | :50:59. | :51:02. | |
the fund managers we have supported have perpetrated some level of | :51:03. | :51:08. | |
crime, or where a crime has been alleged, I should say, against CDC. | :51:09. | :51:20. | |
That is where we focus. We will move on to indications of increased | :51:21. | :51:28. | |
funding I think. Mr Bacon? Can I stop the ?735 million? Can you | :51:29. | :51:35. | |
reiterate or summarise the rationale with it being that amount -- can I | :51:36. | :51:43. | |
start? It was only in July 2015 am not that long ago. Of course that | :51:44. | :51:48. | |
was the limit because that was the limit of the statutory provision of | :51:49. | :51:54. | |
that time. Why was it as much as that? It was basically because the | :51:55. | :51:58. | |
business case demonstrated convincingly as the report says that | :51:59. | :52:03. | |
there were lots of uses for more capital than the CDC had. That has | :52:04. | :52:07. | |
been corroborated because in the last two years, there was 730 | :52:08. | :52:16. | |
million of new investments in 2015 and 1.2 billion in 2016 so what has | :52:17. | :52:21. | |
happened, even the toughest market in Africa and South Asia, the | :52:22. | :52:25. | |
business climate has got a bit better so there are more investable | :52:26. | :52:31. | |
propositions. CDC is by far the most concentrated of any organisation | :52:32. | :52:35. | |
that sort in Africa. There is 40% of its business in Africa compared to | :52:36. | :52:39. | |
10% for the International Finance Corporation but it is still smaller | :52:40. | :52:44. | |
than I see in Africa so there is a lot of need for capital to help | :52:45. | :52:53. | |
generate that number -- smaller than IFC. Years ago I used to act for a | :52:54. | :53:02. | |
big private equity investor so I was always putting out statements to the | :53:03. | :53:06. | |
press about when they bought or sold investment and it became apparent | :53:07. | :53:10. | |
that there came a point when there was plenty of money out there, I | :53:11. | :53:16. | |
guess this was the late 90s and I know it goes in cycles, and not | :53:17. | :53:18. | |
enough good investment propositions enough good investment propositions | :53:19. | :53:22. | |
so you would have more money chasing those good propositions. That is a | :53:23. | :53:26. | |
universal, a phenomenon of investment, not particular to or | :53:27. | :53:32. | |
Africa or a category. But I attended a dinner recently where some Kenyan | :53:33. | :53:35. | |
investment professionals were talking about the growing tendency | :53:36. | :53:43. | |
to create successfully Africa to Africa fund, funds generated in | :53:44. | :53:46. | |
Africa for Africa. That being the case have you noticed you are | :53:47. | :53:50. | |
increasingly competing for those good investments? And if so, given | :53:51. | :53:58. | |
your remit, how do you calibrate, no, that is too good? How do you | :53:59. | :54:03. | |
balance that? I go back to the additionality guidelines I talked | :54:04. | :54:06. | |
about earlier. Every investment we make we have to be clear we are | :54:07. | :54:11. | |
bringing something you need that wouldn't happen without CDC. And it | :54:12. | :54:18. | |
may be capital but it may be no or expertise that it may be know-how. | :54:19. | :54:22. | |
It is that say there is more capital coming into Africa and South Asia | :54:23. | :54:28. | |
and this is what we want but CDC's mission is to try to do the hard | :54:29. | :54:33. | |
things and the need is there. If we look at the private sector | :54:34. | :54:36. | |
environment in some of those countries in the UK we have 64 | :54:37. | :54:41. | |
million people and 15,000 companies with revenue is more than $50 | :54:42. | :54:51. | |
million. In Ethiopia there are 17. The existing investable | :54:52. | :54:53. | |
opportunities that a lot of people are competing over may be small but | :54:54. | :54:59. | |
it needs the hard work by teams like CDC to grow smaller businesses. And | :55:00. | :55:03. | |
the other thing we do a lot of invest in good quality operators and | :55:04. | :55:08. | |
partner with them and take them to those hard places. I suppose this is | :55:09. | :55:18. | |
a double act, following on closely, for 20 years, from 95 until 2015, | :55:19. | :55:22. | |
there was not a penny extra provided by the taxpayer. I look at your | :55:23. | :55:27. | |
balance sheet and you have something like 2.7 billion of retained | :55:28. | :55:32. | |
earnings. In lots of retained earnings that you've put back into | :55:33. | :55:36. | |
the business also it should be noted that the taxpayer doesn't get a | :55:37. | :55:44. | |
penny back. So why now aren't you ramping up the potential amount of | :55:45. | :55:48. | |
capital? I know you are saying there is this investment but why was not a | :55:49. | :55:53. | |
penny but in for 20 years and all of a sudden you talking about a 6 | :55:54. | :55:59. | |
billion cap. That seems to be a huge step up. To start with that, the | :56:00. | :56:09. | |
main focus of the economic development strategy which the | :56:10. | :56:11. | |
Secretary of State published last week is to try to make links to | :56:12. | :56:17. | |
global markets to harness more trade opportunities and hence reduce | :56:18. | :56:21. | |
poverty for Africa and South Asia which is where our focus is. It is | :56:22. | :56:28. | |
to focus on job-creating sectors, so construction, power, health and | :56:29. | :56:32. | |
education, financial sector. And we seem CDC as the principal mechanism | :56:33. | :56:37. | |
of doing that. Why now, to your question, it's a very fair question | :56:38. | :56:48. | |
and it adds up to the choice made by ministers of the day over the last | :56:49. | :56:52. | |
period. You understand that why now is a critical question went for 20 | :56:53. | :56:59. | |
years, a long time, not a penny was put question you are getting good | :57:00. | :57:04. | |
returns, your growth rate was good. I think the thing that has changed, | :57:05. | :57:10. | |
a lot of the returns in the 90s up until I suppose halfway through the | :57:11. | :57:19. | |
last decade were in East Asia where the markets were booming. Most of | :57:20. | :57:22. | |
Africa in that period wasn't really investable. And because the British | :57:23. | :57:30. | |
development programme has always had a focus on Africa and South Asia, I | :57:31. | :57:34. | |
give it would've been curious to invest in CDC so it could invest | :57:35. | :57:38. | |
more in China when the markets were booming there. I think now that | :57:39. | :57:41. | |
these markets are more viable than they were previously, there is more | :57:42. | :57:48. | |
investable propositions and it also absolutely the case that the | :57:49. | :57:52. | |
Secretary of State and her predecessors who believe strongly | :57:53. | :57:57. | |
that the private sector is the engine development. Most jobs will | :57:58. | :58:00. | |
have to come from the private sector, they will have to provide | :58:01. | :58:04. | |
the tax base. It is that combination of things I would say. I think it's | :58:05. | :58:12. | |
a great question and I can understand from all the conversation | :58:13. | :58:15. | |
we have had with stakeholders in the last two months about the act of | :58:16. | :58:20. | |
Parliament, why now and why this amount of money. The reality is that | :58:21. | :58:26. | |
this plan to recapitalise CDC has been under development and | :58:27. | :58:29. | |
discussion between the company and the shareholder since 2012 when the | :58:30. | :58:35. | |
reforming strategy came in to say, is there a way in which CDC and the | :58:36. | :58:42. | |
UK taxpayer could respond to the need for long-term, patient capital, | :58:43. | :58:45. | |
doing exactly the sort of things Diana was talking about? In the | :58:46. | :58:49. | |
prediction made in 2012 there was a variety of scenarios will sub the | :58:50. | :58:54. | |
upside and the best in the base case one showed a need for more capital | :58:55. | :58:57. | |
required and that led to conversations in 2014 with the | :58:58. | :59:02. | |
shareholder for the recapitalisation that Mark is talked about. When we | :59:03. | :59:08. | |
structured that investment, the recapitalisation, aware of exactly | :59:09. | :59:14. | |
the danger Mr Bacon said that having force of pressure on capital, we | :59:15. | :59:18. | |
structured that investment so it could be drawn down in the form of | :59:19. | :59:21. | |
promissory notes over the next four years which is what we did but when | :59:22. | :59:25. | |
we did the projections in 2015 week showed that if things carry on going | :59:26. | :59:26. | |
we would need more capital. Last year we committed under 1. 2 | :59:27. | :59:36. | |
billion. So a large amount of the potential need, subject to a | :59:37. | :59:39. | |
business case and the shareholder agreeing, is to allow CDC to | :59:40. | :59:44. | |
increase its investment rate from what was about ?200 million a year, | :59:45. | :59:50. | |
to what it is, 700 average for the last three years, 1. 2 billion last | :59:51. | :59:59. | |
year. And that would permit CDC to be an evergreen, revolving, slowly | :00:00. | :00:03. | |
growing balance sheet owned by the UK taxpayer but to commit money in | :00:04. | :00:06. | |
the markets we are focussing on for the next five years. My | :00:07. | :00:10. | |
understanding of the 735 is that you haven't even invested all of that. | :00:11. | :00:17. | |
There is a 450 million promisory note you have got. Before you have | :00:18. | :00:22. | |
invested that you are asking for... Well, so, it's a bit, a technical | :00:23. | :00:30. | |
point. What we have done is deposit notes, that means the company knows | :00:31. | :00:33. | |
they have the backing for their investments. What we didn't want to | :00:34. | :00:38. | |
do is hand over the bank notes. Because that would have been handing | :00:39. | :00:41. | |
over the cash before the company was going to be using it. So, the | :00:42. | :00:44. | |
taxpayer doesn't have to hand over the bank notes until the cash needs | :00:45. | :00:47. | |
to be drawn down. That's basically what's going on. You will appreciate | :00:48. | :00:53. | |
capital is a scare commodity. The idea you have 735 million there | :00:54. | :01:01. | |
which only 260 has been invested? The 735... You see the drift of what | :01:02. | :01:07. | |
I say. I totally see the drift. This was a specific recommendation by the | :01:08. | :01:14. | |
NAO in 2008 to make sure we manage our cash balances appropriately. At | :01:15. | :01:17. | |
the same time as also for the company being able to honour its | :01:18. | :01:21. | |
commitments that it has made into businesses. At the moment we have ?2 | :01:22. | :01:25. | |
billion of ongoing commitments, so the NAO report shows how we came up | :01:26. | :01:29. | |
with the liquidity policy working with a Shear share and Treasury to | :01:30. | :01:33. | |
do this. -- shareholder. At the moment we have at the end of last | :01:34. | :01:38. | |
year, 223 million of cash which is 5% of our portfolio. The goal of the | :01:39. | :01:48. | |
promisere note is to come up with a an efficient use of taxpayers' money | :01:49. | :01:52. | |
as allowing us to make the scale of commitments we are doing. While you | :01:53. | :01:55. | |
are expanding the balance sheet, as well. Yes. This brings me to my next | :01:56. | :02:03. | |
point, the fear I have is that the risk of SATs rating CDC with cash, | :02:04. | :02:08. | |
we have seen that in many places, the Reg gram noet fund, how are you | :02:09. | :02:13. | |
going to manage that risk so it doesn't manifest itself in some of | :02:14. | :02:16. | |
the ugly and unfortunate ways we have seen? That is the key question. | :02:17. | :02:20. | |
That's the key question for the business case. The company are going | :02:21. | :02:26. | |
to need to explain to us why the 1. 2 billion is going to continue into | :02:27. | :02:34. | |
the future but why these are high quality investments which the | :02:35. | :02:39. | |
taxpayer can be confident will sustain a decent return record. I go | :02:40. | :02:46. | |
every few months or so have a sort of strategic discussion with the | :02:47. | :02:51. | |
board. I thought you were going to say poke around... It's not anything | :02:52. | :02:56. | |
the board wouldn't mind me saying. This is the point, you are going to | :02:57. | :02:59. | |
need to persuade us that the quality of the investment pipeline is such | :03:00. | :03:06. | |
as to justify any new capitalisation, never mind, you | :03:07. | :03:10. | |
know, what the volume is. They have to make a case, never mind the | :03:11. | :03:18. | |
next... Does the impact fund team have enough skill now to do this at | :03:19. | :03:22. | |
the scale you are talking about? Let me describe the picture from the | :03:23. | :03:26. | |
operating, from this chief executive's seat, I guess, so it is | :03:27. | :03:31. | |
fair that back in 2012 when we were given the mandate of invest only in | :03:32. | :03:36. | |
Africa and south Asia, but invest directly alongside funds, we didn't | :03:37. | :03:41. | |
have a team and we didn't know what the demand was going to be. What we | :03:42. | :03:45. | |
have learned over the last five years is if you put a highly | :03:46. | :03:49. | |
committed and talented team behind the strategy, you give it very clear | :03:50. | :03:55. | |
mandate of where you can invest additionality standards, development | :03:56. | :03:58. | |
impact, etc, and you hire the people with the right motivation, it is | :03:59. | :04:03. | |
amazing how much demand and need there is for the CDC team. Let me | :04:04. | :04:08. | |
say clearly no one at CDC is motivated by scale. We are motivated | :04:09. | :04:11. | |
by the quality of outcomes that we can general rate with capital. Do | :04:12. | :04:17. | |
you see then, you didn't even know was there, but turns out to be | :04:18. | :04:22. | |
latent demand, when somebody sees something done well and thinks | :04:23. | :04:25. | |
perhaps we can do that and put together a sensible case, does that | :04:26. | :04:29. | |
manifest itself? Very much so. Can you explore with us this question of | :04:30. | :04:33. | |
additionality more. Are you saying your very presence, for example, in | :04:34. | :04:37. | |
a territory that's rather marginal, would you would hope you are being | :04:38. | :04:41. | |
additional, where perhaps the economy is not sufficiently | :04:42. | :04:43. | |
diversified, where it is fragile, there isn't enough good | :04:44. | :04:46. | |
infrastructure, where there are poor transport links, a lack of | :04:47. | :04:50. | |
confidence, that your very presence is the thing that can make the | :04:51. | :04:52. | |
difference potentially to other investors over a period of time? | :04:53. | :04:56. | |
There is an element of that. But we haven't really even fully explored | :04:57. | :05:01. | |
that yet. You will have seen in the report that our local country | :05:02. | :05:03. | |
presence is still at a latent stage presence is still at a latent stage | :05:04. | :05:09. | |
and we want to increase that. Actually I think the demand has been | :05:10. | :05:13. | |
generated because the teams have gone out in a very focussed way, for | :05:14. | :05:17. | |
example, the direct team from scratch, and said these are our | :05:18. | :05:21. | |
seven priority sectors, what's the need in those sectors and | :05:22. | :05:24. | |
particularly if you look at Africa and the poorest cases of India, | :05:25. | :05:30. | |
there is enormous need, and what's the best way to get companies going, | :05:31. | :05:35. | |
get companies growing and what can we invest in? They've gone out and | :05:36. | :05:40. | |
knocked on doors and found really high quality aligned partners to | :05:41. | :05:45. | |
invest in. So in many ways, certainly on the direct side where | :05:46. | :05:48. | |
we had to start from scratch we generated our own pipeline. In funds | :05:49. | :05:52. | |
where we have been doing it since 2,000 or before 2,000, we were a | :05:53. | :05:57. | |
pioneer of this industry across Africa and south Asia, we now have | :05:58. | :06:01. | |
such a reputation in funds in that any high quality fund manager will | :06:02. | :06:05. | |
want to come to CDC first and get the seal of approval. It would help | :06:06. | :06:08. | |
a project to have your name alongside it, good, yeah. One more | :06:09. | :06:12. | |
question. You have had recruitment and retention difficulties, what are | :06:13. | :06:16. | |
you going to do about that? We will be working very hard to make CDC a | :06:17. | :06:22. | |
place that high quality people want to come to and to stay in, | :06:23. | :06:26. | |
long-term, and that's about selecting the right people, but it | :06:27. | :06:31. | |
is also about creating an environment of, say inspiration, | :06:32. | :06:37. | |
that people really enjoy and we all know that the next millennium group | :06:38. | :06:40. | |
of great graduates are coming in out of business school, this is the kind | :06:41. | :06:44. | |
of thing, this is the kind of work that inspires them. They don't just | :06:45. | :06:47. | |
want a financial bottom line, they do want to make the world a better | :06:48. | :06:51. | |
place and CDC can offer that to them. Thank you. | :06:52. | :07:05. | |
Recapitalisation decisions, particularly the CDC DfID | :07:06. | :07:11. | |
relationship. In 2015 the decision to recapitalise by 735 million was | :07:12. | :07:15. | |
made by DfID. According to the National Audit Office the DfID | :07:16. | :07:20. | |
report arguing the case was quality assured internally. It is | :07:21. | :07:25. | |
potentially a dangerous statement. So, was the DfID recapitalisation of | :07:26. | :07:33. | |
the CDC by 735 million in 2015 first suggested by DfID indly or was the | :07:34. | :07:38. | |
matter looked into upon question by CDC? As the chairman said, since | :07:39. | :07:45. | |
2012 we have been, certainly I personally have been making the case | :07:46. | :07:49. | |
and when Andrew Mitchell, when he was the Secretary of State, was | :07:50. | :07:51. | |
encouraging us to think this through. We weren't ready to do it | :07:52. | :07:56. | |
at that stage. So, I don't think it is the case that the shareholder was | :07:57. | :08:01. | |
pushed by the company to do this. I think the shareholder wanted to | :08:02. | :08:04. | |
encourage the company to have a bigger ambition, to make a bigger | :08:05. | :08:10. | |
distribution because we do think the CDC is a very unusual, got an | :08:11. | :08:15. | |
unusual capability. London obviously can be the capital market for | :08:16. | :08:25. | |
Africa. Other countries have DfIDs bigger. There was an opportunity not | :08:26. | :08:28. | |
being taken. We basically challenged the company to build a capability, | :08:29. | :08:33. | |
to absorb more resources and to use them well, that was basically the | :08:34. | :08:39. | |
direction of the conversation. So the recapitalisation, DfID produced | :08:40. | :08:44. | |
a report find ago strong case for recapitalisation. Because this was | :08:45. | :08:48. | |
quality assured internally, why did the department deem an external | :08:49. | :08:52. | |
analysis and audit on the report unnecessary? Why was it internal? | :08:53. | :08:56. | |
Well, there was quite a lot, Rachel may want to speak. There was a lot | :08:57. | :09:02. | |
of external dialogue. We had experts like Paul Collier, for example, | :09:03. | :09:06. | |
advised us on the future direction for CDC. The reference to the | :09:07. | :09:10. | |
quality assurance is part of a general system we have in the | :09:11. | :09:14. | |
department, so that the case put to ministers for spending large sums of | :09:15. | :09:17. | |
money doesn't come just from the team who would be spending the | :09:18. | :09:21. | |
money, there is an independent assurance from a group which is run | :09:22. | :09:27. | |
by the chief economist who has to - who is dispassionate, doesn't mind | :09:28. | :09:30. | |
which team gets the money, if you like, but provides a different point | :09:31. | :09:34. | |
of view inside the department to justify the case. But there was a | :09:35. | :09:39. | |
lot of external collaboration and dialogue, as well. You can see | :09:40. | :09:44. | |
because of the relationship between DfID and CDC there is a certain | :09:45. | :09:50. | |
discomfort when the watchdog is watching itself effectively. If DfID | :09:51. | :09:55. | |
felt it was ail to analyse the merits of the recapitalisation | :09:56. | :09:58. | |
itself but does not appoint a board member as it considers it not with | :09:59. | :10:02. | |
the depth of commercial investment and experience, can you explain why | :10:03. | :10:08. | |
DfID felt it was ail to analyse the recapitalisation case itself if it | :10:09. | :10:12. | |
does not feel it is capable of appointing a board member? Well, two | :10:13. | :10:17. | |
different things happening here. The job of the board and the board | :10:18. | :10:22. | |
members is to review proposals put forward by the executive team, Diane | :10:23. | :10:25. | |
and her colleagues, on each particular investment. Is it a good | :10:26. | :10:31. | |
idea to invest in this company? That is not a skills set that we are | :10:32. | :10:35. | |
hiring people to have inside the department. What we are hiring | :10:36. | :10:39. | |
people to be able to do inside the department is understand and make a | :10:40. | :10:43. | |
broader case for whether investing more in CDC versus other things we | :10:44. | :10:48. | |
could spend the money on is going to be conducive to achieving the | :10:49. | :10:52. | |
strategic goals that ministers have set. So, the report does explain - | :10:53. | :10:57. | |
explains and we talked this afternoon about the sort of pros and | :10:58. | :11:01. | |
cons of us appointing a civil servant to be on the board and our | :11:02. | :11:06. | |
view is that we appoint the chairman as the chairman has said, you know, | :11:07. | :11:11. | |
we can unapoint a chairman, but while they're accountable to us, we | :11:12. | :11:15. | |
don't think in addition to that we need to appoint civil servants on to | :11:16. | :11:20. | |
the board. The contradiction if you like in | :11:21. | :11:23. | |
what you are trying to do, on the one hand you said it was basically a | :11:24. | :11:28. | |
political decision massively to expand the balance sheet of CDC. Yet | :11:29. | :11:33. | |
on the other hand, you are saying that you don't want any oversight in | :11:34. | :11:40. | |
terms of how the new entity with expanded balance sheet potentially | :11:41. | :11:46. | |
will run. Well, I am trying to say something else. What I am trying to | :11:47. | :11:52. | |
say is there could be a strategic case for investing in the business | :11:53. | :11:55. | |
which is what the business case for the 735, which the NAO were | :11:56. | :12:02. | |
convinced by was, that's completely different to once you have a capital | :12:03. | :12:06. | |
base, how do you pick the businesses in which to invest? What I am saying | :12:07. | :12:09. | |
is the Government doesn't think it is a very good idea for civil | :12:10. | :12:12. | |
servants to be taking those decisions. You said that the demand | :12:13. | :12:15. | |
for more capital was something that was coming from the department, it | :12:16. | :12:18. | |
was coming from ministers. You mentioned Ministers, it wasn't the | :12:19. | :12:22. | |
CDC asking for more capital. It was the policy decision. Was it not? | :12:23. | :12:26. | |
Yeah, that's exactly right. We saw a bigger opportunity in these markets | :12:27. | :12:30. | |
for the reasons I have tried to run through. And those were politicians | :12:31. | :12:34. | |
and civil servants. Yet, at the same time, you are saying that you don't | :12:35. | :12:40. | |
wnt to get involved in that. Having identified the opportunities and | :12:41. | :12:43. | |
being... I am not doing very well... What I am trying to do is draw the | :12:44. | :12:50. | |
distinction between the strategic and the individual investment. Thank | :12:51. | :12:55. | |
you. You said earlier the previous Secretary of States supported this | :12:56. | :12:59. | |
idea. Isn't it true that the previous Secretary of State to that, | :13:00. | :13:02. | |
Mr Benn, who was the Labour Secretary of State, said, I remember | :13:03. | :13:06. | |
hearing him saying it on the radio, said explicitly that trade and | :13:07. | :13:09. | |
business and the private sector ought to do more to lift people out | :13:10. | :13:16. | |
of poverty than anything else, you mentioned Paul Collier, his book was | :13:17. | :13:21. | |
given that title because two billion people above that had been lifted | :13:22. | :13:25. | |
out of poverty by the private sector but until they've been lifted | :13:26. | :13:29. | |
they're still in that grey zone that you were talking about, is that | :13:30. | :13:33. | |
fair? I think that is fair. I don't normally help witnesses by the way! | :13:34. | :13:42. | |
Thank you very much. From the company side we think we | :13:43. | :13:48. | |
have an engaged active shareholder. We have quarterly shareholder | :13:49. | :13:52. | |
meetings, we have AGMs, committees within the board who interface with | :13:53. | :13:56. | |
relevant counterparties across DfID. We have a series of relationships | :13:57. | :14:01. | |
with DfID as a partner level, trying to create investments and work in | :14:02. | :14:04. | |
harmony together. I think CDC is a fundamentally | :14:05. | :14:15. | |
long-term business. We are the oldest DFI in the world, and I will | :14:16. | :14:19. | |
give it a couple of examples which goes to this incredibly important | :14:20. | :14:23. | |
point about the governance of CDC and how it must work over the decade | :14:24. | :14:29. | |
and a cross-party consensus. Kenya team was set up in 1964 by CDC. 20 | :14:30. | :14:39. | |
years later in 1983 there was 145,000 smallholder farmers giving | :14:40. | :14:45. | |
product for 39 factories which made one in four cups of tea in the UK. | :14:46. | :14:52. | |
20 years for that investment. 20 years later, sell Pell, the first | :14:53. | :14:57. | |
big mobile phone company in Africa, was sold, and it has transformed the | :14:58. | :15:06. | |
economy in Africa and that was a CDC investment -- Celltel. And over a | :15:07. | :15:11. | |
long period, this is six years, if you look at Sierra Leone today, | :15:12. | :15:15. | |
which you asked earlier, it is a poor country, last year I was in | :15:16. | :15:25. | |
Freetown with the president and he thanked me, I did not do any of the | :15:26. | :15:29. | |
work but I was happy to hear the praise, about the work the teams at | :15:30. | :15:36. | |
CDC had done with the Ebola facility with Standard Chartered. There was | :15:37. | :15:40. | |
an amazing amount of work done by NGOs and DfID that we can't | :15:41. | :15:46. | |
contribute to but we did our bit to create the straight facility and | :15:47. | :15:50. | |
keep businesses going. He said, the thing we need now is power. Last | :15:51. | :15:58. | |
month CDC announced it is part providing the debt and the majority | :15:59. | :16:04. | |
amount of equity in a $150 million investment in plant which will give | :16:05. | :16:11. | |
49 megawatts of electricity which, in the low season, will double the | :16:12. | :16:15. | |
amount of electricity given to the whole country. And that is a | :16:16. | :16:26. | |
country, we have one 200th of the electricity they use. If we work on | :16:27. | :16:31. | |
it for two years and it is a long time, so it is incredibly important | :16:32. | :16:38. | |
that we have an institutional relationship which goes over the | :16:39. | :16:43. | |
years. I get all of that. I think you have described it very | :16:44. | :16:47. | |
persuasively and in a way I'm trying to use that to say, quite suddenly | :16:48. | :16:53. | |
ramp up the balance sheet? In theory we are custodians of taxpayers | :16:54. | :16:57. | |
money. I look at your balance sheet and it is very conservatively run, | :16:58. | :17:02. | |
you have 10% of your assets in cash. I think you are slightly | :17:03. | :17:07. | |
underinvested in terms of the extra 735 million. You have this | :17:08. | :17:10. | |
incredible track record of success and all of a sudden we are saying | :17:11. | :17:15. | |
we're going to transform this thing and completely expand the balance | :17:16. | :17:18. | |
sheet and you can see why we would be concerned about it. You're asking | :17:19. | :17:24. | |
the question I'm asking of the team in the Department and the company | :17:25. | :17:30. | |
about why can explain to me the business case for another | :17:31. | :17:32. | |
capitalisation. We will not be recommending another capitalisation | :17:33. | :17:37. | |
even if Parliament gives us the authority to, unless we are | :17:38. | :17:44. | |
persuaded that there is a case. Can I probe on that? This has puzzled | :17:45. | :17:52. | |
us. As Mr Kwarteng said, it seems like a policy decision to have more | :17:53. | :17:56. | |
available capital but it could go up to 12 billion. You go to CDC and | :17:57. | :18:00. | |
asked them to put a business case to see if they can spend it question of | :18:01. | :18:03. | |
CDC comes to you with a business case but would you ever say no. I'm | :18:04. | :18:09. | |
not sure who starts the process. If you have an opportunity in a | :18:10. | :18:16. | |
country, do you say to DfID, we think we can invest 2 billion in | :18:17. | :18:19. | |
something could you let us have the money and then put the business case | :18:20. | :18:27. | |
to DfID? No, that's not how it works, this is a long-term business | :18:28. | :18:32. | |
and the teams go out and generate pipelines of opportunities that are | :18:33. | :18:35. | |
sometimes a year, two years in the cooking. I would recommend the | :18:36. | :18:43. | |
committee looked at the rate of investment we have already achieved, | :18:44. | :18:48. | |
that is highlighted in the report, the ?1.2 billion a invested in these | :18:49. | :18:55. | |
markets in 2016. Even if we only stayed at that level and didn't grow | :18:56. | :18:59. | |
at all, we would need some money, and quite a large amount, to fund | :19:00. | :19:04. | |
that step up. Because we are such a long-term investor, it'll only be | :19:05. | :19:09. | |
when those seven, ten year investment start returning money | :19:10. | :19:14. | |
that we become... You've got a lot of cash, this promissory note, you | :19:15. | :19:21. | |
can actually expand your investments without additional capital. Do I | :19:22. | :19:30. | |
make a point, a broader point -- can I make a point? In relation to the | :19:31. | :19:35. | |
investment needs of Africa and South Asia over the next generation or | :19:36. | :19:44. | |
two, which are calculated in the trillions, what CDC is able to do at | :19:45. | :19:50. | |
the moment is very small. As we said earlier, CDC, although it has four | :19:51. | :19:54. | |
times as much of its business in Africa than the IFC does, it is | :19:55. | :20:01. | |
still small in aggregate terms. The investable opportunity and the | :20:02. | :20:07. | |
taking of it is what will get Africa beyond its a dependency and give | :20:08. | :20:11. | |
people their jobs and livelihoods and better futures. The investable | :20:12. | :20:14. | |
opportunity is going to be dramatically bigger than what CDC | :20:15. | :20:19. | |
can do. The question for us is, not how many good investment are there | :20:20. | :20:26. | |
out there, the question is, what is the rate at which CDC can sensibly | :20:27. | :20:30. | |
absorb more capital and spend and use it in a way that does not repeat | :20:31. | :20:34. | |
some of the mistakes of the pass? That is what we're focused on. That | :20:35. | :20:40. | |
is very reassuring. The fact you are focused on that is reassuring but | :20:41. | :20:42. | |
can I ask Mr Wrigley another question? You emphasised the | :20:43. | :20:48. | |
long-term nature of what you do so would you say the role for CDC | :20:49. | :20:52. | |
potentially in and invest the country where the conditions were | :20:53. | :20:56. | |
right to be assisting in the creation of a development | :20:57. | :20:59. | |
Corporation locally with you investing with other partners over a | :21:00. | :21:04. | |
long period of time? We have a whole series of ideas about how you can | :21:05. | :21:10. | |
take an idea to a country and creating development banks like in | :21:11. | :21:17. | |
the UK, the old three I invested in history, we have been thing about | :21:18. | :21:20. | |
that as one of the platforms we might do. So the only criterion | :21:21. | :21:27. | |
would be a political one, which is, if it within your remit? Are we | :21:28. | :21:34. | |
going back to St Helena here? I'm very glad you said it first, but | :21:35. | :21:39. | |
yes! If the remit were OK, that is the sort of thing, in a territory, | :21:40. | :21:43. | |
let's call it that, that would be among the many things you would | :21:44. | :21:46. | |
discuss question mark potentially, but can I add an important point? | :21:47. | :21:51. | |
You were nodding, can you put that on the transcript? And can I add one | :21:52. | :22:01. | |
incredibly important thing to this point about the absorptive capacity | :22:02. | :22:07. | |
of CDC and its ability to invest? I got asked a question in the select | :22:08. | :22:12. | |
committee about if the board of CDC will take capital from its | :22:13. | :22:14. | |
shareholder evicted nothing it could invest it in high development | :22:15. | :22:19. | |
impact. Meeting our return requirements and doing that well and | :22:20. | :22:23. | |
thoughtfully and I said absolutely clearly, no. The point I've been | :22:24. | :22:28. | |
trying to make is that we have been developing this business | :22:29. | :22:30. | |
operationally, all of the things they talked about with the teams | :22:31. | :22:34. | |
from the last five years and the conversations with the shareholder | :22:35. | :22:37. | |
about how can fund it, hopefully over the last five years, it is a | :22:38. | :22:42. | |
mutual decision. The shareholder has to want to provide the cash and the | :22:43. | :22:48. | |
company is to believe it can execute it well. I think we are reassured by | :22:49. | :22:55. | |
that, but turning to figure 18 on page 39, which gives the operating | :22:56. | :22:58. | |
costs as a percentage of portfolio value and no doubt those costs are | :22:59. | :23:04. | |
also have costs which figure 19 and others cover. And actually figure 20 | :23:05. | :23:11. | |
is also useful. You have a projection, operating costs as a | :23:12. | :23:18. | |
percentage of portfolio value. You can read behind that there is a | :23:19. | :23:21. | |
portfolio value prediction you are making so you have a plan, but when | :23:22. | :23:31. | |
do you go to DfID and say, we are sure it is on track so we need to | :23:32. | :23:35. | |
draw down some money and he is our business case, will you do it? And | :23:36. | :23:39. | |
when do you think, we are not going to manage that? What assurances do | :23:40. | :23:43. | |
you put in place? You have this extra staff that is ready to do this | :23:44. | :23:47. | |
which is a cost and unless you are doing the business but they are a | :23:48. | :23:52. | |
dead weight cost. The process for that is that we in the middle of | :23:53. | :23:57. | |
concluding the strategy for the next five years and after that has been | :23:58. | :24:01. | |
approved and with the Secretary of State, we would work to create a | :24:02. | :24:06. | |
business case to provide any funding going forward. The reason that | :24:07. | :24:10. | |
metric is in there, by the way, something that we have developed | :24:11. | :24:13. | |
ourselves over the last three years, and it is thinking of the purpose of | :24:14. | :24:19. | |
this committee, value for money. And one of the things we will be doing | :24:20. | :24:24. | |
with the business case and the strategy discussions is saying to | :24:25. | :24:28. | |
the shareholder, here are a range of options of what we can do. Different | :24:29. | :24:32. | |
activities have different costs. Investing in high impact, people on | :24:33. | :24:37. | |
the ground, not through intermediary vehicles is much more expensive than | :24:38. | :24:41. | |
working in providing debt from London. Those numbers with the | :24:42. | :24:49. | |
illustrative forecast to show the NAO how we are strategically | :24:50. | :24:53. | |
thinking about costs. And on the staffing issue, we touched on this | :24:54. | :24:56. | |
earlier, but there will be a pressure on salaries because of | :24:57. | :25:01. | |
competition out there. You made a cogent case for how people want to | :25:02. | :25:04. | |
do this because they are not just after the bottom line, but figure | :25:05. | :25:13. | |
A19 highlights some of the issues around celery and we are worried | :25:14. | :25:20. | |
that there is a pressure on salaries. How are you managing that | :25:21. | :25:25. | |
risk to the business? When you need the people to do the job, but you | :25:26. | :25:28. | |
also don't want to go back to the bad old days when salaries went | :25:29. | :25:32. | |
exponentially to ridiculously high levels. I think the report paints a | :25:33. | :25:39. | |
clear picture of the changes being made as a result of the | :25:40. | :25:42. | |
recommendations, it was one of the first things I did as a new CEO. Now | :25:43. | :25:49. | |
we have to look at the sustainability of the organisation, | :25:50. | :25:52. | |
we have hired a lot of people quickly and it is a fantastic team | :25:53. | :25:55. | |
with a lot of different skills in it but matched to us being a long-term | :25:56. | :26:02. | |
business is we need long-term staff. We don't want to be a revolving door | :26:03. | :26:04. | |
and this is something that takes... I beg leave to ask the question | :26:05. | :30:34. | |
standing in my name on the order paper. We already have domestic law | :30:35. | :30:39. | |
that safeguards the environment. The great repeal bill also to be | :30:40. | :30:43. | |
introduced in the next parliamentary session will incorporate EU law | :30:44. | :30:51. | |
relating to environment and biodiversity into UK law. The UK | :30:52. | :30:52. |