Second Standing Committee on Statutory Instruments, &c.



Thursday 2 March 1989



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The Committee consisted of the following Members:

Chairman: Mr. Michael Latham

Alexander, Mr. Richard. (Newark)

Atkinson, Mr. David (Bournemouth, East)

Benyon, Mr. W. (Milton Keynes)

Bevan, Mr. David Gilroy (Birmingham, Yardley)

Bidwell, Mr. Sydney (Ealing, Southall)

Buchan, Mr. Norman (Paisley, South)

Carlile, Mr. Alex (Montgomery)

Cohen, Mr. Harry (Leyton)

Couchman, Mr. James (Gillingham)

Dover, Mr. Den (Chorley)

Evans, Mr. David (Welwyn, Hatfield)

Faulds, Mr. Andrew (Warley, East)

Franks, Mr. Cecil (Barrow and Furness)

Galloway, Mr. George (Glasgow, Hillhead)

Lestor, Miss Joan (Eccles)

Lightbown, Mr. David (Staffordshire, South-East)

Patnick, Mr. Irvine (Sheffield, Hallam)

Patten, Mr. Chris (Minister for Overseas Development)

Dr. P. C. Seaward, Committee Clerk

3 Second Standing Committee on Statutory Instruments, &c. Thursday 2 March 1989

[MR. MICHAEL LATHAM in the Chair]

Draft African Development Bank (Further Subscription to Capital Stock) Order 1989

10.30 am

The Minister for Overseas Development (Mr. Chris Patten): I beg to move, That the Committee has considered the draft African Development Bank (Further Subscription to Capital Stock) Order 1989.

The Chairman: With this, it will be convenient to discuss the draft African Development Fund (Fifth Replenishment) Order 1989.

Mr. Patten: The purpose of these orders, which were laid in draft before the House on 20 December 1988, is to authorise further subscription payments to the African Development Bank's capital stock, and to the fifth replenishment of the African development fund. In common with similar international financial institutions such as the World Bank, the bank has two main lending arms—the bank, which borrows in the financial markets for on-lending to its regional members, and the fund, which lends at concessional rates. In the jargon, these are sometimes referred to as the hard and soft windows respectively. The United Kingdom was a founder member of the fund, which was established in 1973, but it has been a member of the bank since only 1983, following agreement to open participation to non-regional members. The additional subscriptions to be authorised by the orders will strengthen the capacity of the African Development Bank to respond to the problems facing its regional members. The nature of those problems is well known—low economic growth, stagnant or deteriorating terms of trade, fiscal imbalances and budget austerity, crippling debt service burdens, explosive population growth, uncertain food security and growing environmental degradation. In the light of these harsh realities, a growing number of African countries are undertaking radical internal reforms to rebuild their economies. Almost 20 countries are implementing policy reform programmes with the help of the international community, including the International Monetary Fund, the World Bank, the African Development Bank and bilateral donors. Several initiatives designed to respond to Africa's need for substantial external resources have been put in place over the past year or so, and Britain has played a leading role in these initiatives. The IMF's expanded structural adjustment facility—ESAF—will enable it to continue to play a major role in Africa, providing concessional resources totalling SDR 6 billion in the longer timeframe required for economic reform. The United 4 Kingdom is providing the largest contribution to the interest subsidy—some £327 million over 14 years—which will subsidise about £750 million of new lending. More than $6 billion has been pledged to the World Bank's special programme of assistance—an initiative to mobilise and co-ordinate bilateral aid in support of sub-Saharan African countries undertaking agreed reform programmes. Britain has pledged £250 million of fast-disbursing aid, almost half of which was committed last year to Ghana, Kenya, Malawi, Tanzania, Uganda and Mozambique. Up to half of the International Development Association's eighth replenishment—IDA 8—totalling $12.4 billion, has been earmarked for sub-Saharan Africa, and, of that, about $3 billion is to support structural adjustment programmes. Britain's contributions to IDA 8 totals £524 million. Negotiations for the ninth replenishment of IDA's resources got under way in Washington last week, and we hope that they will be successfully completed by the autumn. We believe that a substantial replenishment is justified to maintain the World Bank's concessional lending to its poorest members, especially in Africa. In addition to these financial resources, steps have been taken to relieve African countries of their debt burden. Britain has written off more than £260 million of debt from old aid loans to 14 African countries. Aid to the poorest African countries is now entirely in the form of grants. The three-point plan put forward by my right hon. Friend the Chancellor of the Exchequer in 1987 culminated in the Toronto agreement last year for, among other things, interest relief on resheduled debt. Structural adjustment is a long-term process and an essential component of development, but an appropriate balance needs to be struck between fast-disbursing policy-based lending and project aid, especially for the maintenance and rehabilitation of intrastructure. Technical support for institution building and training is another vital ingredient. The substantial increase in the resources of the African Development Bank and Fund, which occasions these two orders, is part of efforts by the international community to provide the necessary resources for the resumption of growth in Africa. The governors of the bank have authorised a 200 per cent. increase in its capital stock, from 5.4 billion to 16.2 billion units of account, which are equivalent to SDRs. In other words, the capital base will triple from about $7.1 billion to roughly $21.2 billion, permitting a lending programme in the range of 5 billion to 6.5 billion units of account, which is $6.5 billion to $8.5 billion, for the period 1987 to 1991. The United Kingdom has been allocated 15,040 new shares. The value of these shares, at the current rate of exchange, is about £114 million, of which 6.25 per cent.—about £7 million—will be paid in over five years in equal instalments. The rest will be on call as a contingent liability. A satisfactory outcome to the fifth replenishment of the African Development Fund was secured last 5 year. Two and a quarter billion fund units of account—roughly $2.7 billion—will be available for commitment during the period 1988–1990, which is an increase of 50 per cent. over the previous replenishment. The United States made a specific pledge of £315 million. To achieve the replenishment total of 2.25 billion fund units of account, certain other donors, including the United Kingdom agreed to increase their share to fill the financing gap. Our share, at the agreed exchange rate, will be £57.8 million, which is equivalent to 3.55 per cent. of the total. This compares with 3.05 per cent. or just under £31 million, in the previous replenishment. This sum will be paid in three equal instalments in the form of non-interest bearing promissory notes which will be encashed over a number of years from about 1992. Up to 10 per cent. of this replenishment will be available for technical assistance, mainly on a grant basis, to assist countries in the preparation and implementation of projects. The United Kingdom delegation took the lead in pressing for this allocation.

Mr. W. Benyon (Milton Keynes): My hon. Friend has lost me. For what reason are we voting for the British taxpayer to produce 150 million of special drawing rights?

Mr. Patten: We are voting for 3.55 per cent. of the fund replenishment, which is equivalent to £57 million and compares with £31 million previously. Greater emphasis on quick-disbursing policy-based lending was also agreed during the negotiations on the capital increase of the bank and the replenishment of the fund. Up to 20 per cent. of the fund replenishment can be used for such forms of lending, which we expect to be programmed in association with the World Bank's special programme of assistance. No ceiling was set for bank lending in support of structural adjustment, but the bank's management has agreed to proceed cautiously and to work in close co-operation with the World Bank. Project lending will continue to dominate the bank's lending programme, agriculture and rural development being the main areas of sectoral emphasis. These sectors are, of course, a natural focus of attention in Africa, but they are ones where an appropriate policy framework is crucial to the success of investments. The fragile nature of the environment is another factor which must be taken into account. The African Development Bank like other institutions, is giving greater weight to the environmental impact of the projects and programmes that it is financing. There is also growing recognition of the vital contribution of women to agricultural production and rural development in Africa, and the bank is taking this into account in project design. Finally—this is a point to which I attach considerable importance—the role of the private sector as the prime mover in economic development is being given increasing emphasis by the bank. The bank is participating in initiatives with the International Finance Corporation such as the African project development facility and the African management services company. Last year, a round 6 table of African business men was set up under the auspices of the bank to examine the constraints on the growth of the private sector in Africa, and to develop solutions. The funds that are to be authorised under these two orders represent a significant contribution to our efforts to help Africa, and I commend them to the Committee.

10.40 am

Miss Joan Lestor (Eccles): We welcome the order, which allows us to consider the urgent problems of sub-Saharan Africa. The Minister and I know from our visits, as do other hon. Members from their visits and from reading, that the continent of Africa has endured much suffering throughout the 1980s. It has been ravaged by natural disasters and drought, and by economic recession. It is struggling, against the odds, to develop out of poverty and the crippling debt that surrounds it. Welcome as the order is, we have to bear in mind the fact that per capita gross domestic product in sub-Saharan Africa declined by 3.6 per cent. between 1980 and 1985 and fell by 5.1 per cent. in 1987 alone. Those statistics translate into lost opportunities and wasted lives. Economic decline has reversed the trend of falling infant mortality rates. According to the United Nations International Emergency Children's Fund executive director, James Grant, in the past 12 months, an additional 400,000 young children in Africa have died as a result of this reversal of progress. These tragedies are not caused by drought of famine—they are caused by economic recession, stagnation and mounting debt. Africa is facing a financial famine. Africa was too poor to be creditworthy in the 1970s. The region did not benefit from the boom in bank lending that occurred in that decade. Africa's debt, by contrast, is owed to Governments and the multilateral development agencies, including the African Development Bank. Today, the poorest African countries owe more than $70 billion to external creditors. About 80 per cent. of that debt is owed to official creditors and only 57 per cent. is on concessional terms. According to the World Bank, the debt is equivalent to 100 per cent. of their combined annual gross national product and more than 500 per cent. of their combined exports. Put in that context, we can see the enormous difficulties that these countries are facing. As a result, the low income so-called debt distressed nations of Africa are locked into an endless treadmill of debt rescheduling. Since 1976, those countries have been forced to reschedule their debts 94 times, and despite such repeated rescheduling, many of the worst affected countries contine to build up arrears. If growth and development is to be regained, Africa must be relieved of its debt burdens. The solution rquires new and more generous levels of aid, and further measures of debt cancellation, reduction and relief. The World Bank, the International Monetary Fund, and the African Development Bank, can play a vital role in tackling these twin goals of increasing capital flows and reducing the level of debt, but the major bilateral donors must also play their part. 7 I acknowledge that Britain has played a major role in the supply of aid and in debt cancellation. We have been offering debt relief to the poorest countries of sub-Saharan Africa since 1978, and I am delighted that the Government have followed Labour's example. The package of measures that was agreed at Toronto last year is useful, but against the scale of Africa's plight, it remains too little and too late. The steps taken to date, as the president of the African Development Bank, Babacar N'Diaye, confirms, will not lead to the eventual discharge of external debt nor stop the continual build up of such debt. More must be done to ensure that Africa can escape from the stranglehold of debt. The current Lomé 4 negotiations offer the chance to increase flows of aid to low income Africa. I hope that the next Lomé agreement will tackle directly issues of debt relief and structural adjustment. Outstanding loans by the European Development Fund to debt distressed countries should be converted into grants, for example. Similarly, the World Bank must gain a generous replenishment for its soft-loan agency, the International Development Association. The Labour party believes that future IDA flows should be offered as grants rather than loans, and that the outstanding IDA credits should be waived in many instances. It is encouraging that the World Bank has responded to the Nordic initiative to refinance the outstanding loans from the IBRD to low-income African debtors. As the Minister knows, I have urged the British Government to back this scheme. The fund will pay for the amortisation of some of these loans, which are unfortunately considerably less concessional than those offered by the IDA. It is time that the significant build-up of multilateral debt in Africa was tackled seriously. I understand that the Nordic fund is open to any donor to make a contribution. The Chancellor's debt initiative would be far more credible, and far more welcome, if a substantial contribution from Britain was made to that fund. The most obvious demonstration of Britain's determination to alleviate Africa's plight would be to increase the aid programme—an issue that we have raised for some time. It is appalling that, in real terms, British aid to Africa has declined throughout the period of this Tory Government. In a decade of disaster for Africa, it is shameful that the spirit of British generosity has been demonstrated much more by the people in the country than by the Government. While the public have given generously to Comic Relief—they will do so again next week—Sport Aid and Band Aid, the Government's aid to Africa has been allowed to decline in real terms. The facts speak for themselves. Answers published in Hansard show that, since 1979, measured in constant prices, British aid to Africa has fallen by 26 per cent. That is a cumulative loss to the region in real terms of £600 million—that is the extra amount that would have been provided to Africa had the amount of aid provided in 1979 been maintained. It is little wonder, therefore, that Britain endured humiliation at last year's official review of our aid 8 programme by the OECD's development assistance committee. The committee argued that the time had come to reverse the decline in Britain's overseas development aid/GNP ratio and referred to the consideration of burden sharing among the other OECD donors—a clear expression of concern that Britain is not pulling its weight or honouring the commitment to reach 0.7 per cent. of GNP in aid. I urge the Government to grasp the opportunity this year to increase the aid programme well above the rate of inflation, and ensure that the level of aid to Africa makes substantial progress back to that achieved by the last Labour Government. Given the massive surplus the Chancellor will be announcing in the Budget shortly, I hope the Minister will be able to persuade the Treasury to provide for a generous increase. After all, spending on the aid programme will not add to the inflationary own goals that the Government are currently struggling to control. The African Development Bank, of course, can offer both capital flows and, hopefully, measures of debt relief. During the next five years, the bank has an ambitious lending programme which is expected to exceed $10 billion. As an institution in Africa, it is well placed to tackle the major development problems that face the region today, but the support of Western donors is crucial and I am very glad that Britain plays a significant role in the bank and makes a significant financial contribution. Given that the bank is seeking to assume a larger role in financing development in Africa, it is important that the fund has the resources necessary for its work. I also hope that the bank can further explore the issues of debt reduction and relief as a matter of great urgency. A few years ago, some interest was expressed in a scheme promoted by the UK merchant bank, G. Warburgs, to convert sovereign debt into long-term securities. The plan attracted some favourable comments in, for example, the report of the special task force or financial flows to Africa, chaired by Sir Douglas Wass. However, I have not heard any more about that, and I wonder whether today, or in the future, we could know what is happening to that suggestion. The problem of debt and adjustment in Africa has too frequently caused major cuts in health and in education provision. The Minister and I, and others who have been to these countries have seen it for ourselves, and UNICEF has warned of the consequences of its major study, "Adjustment with a Human Face". However much we donate, it is those problems that have to be tackled, particularly debt relief. The bank should ensure that poverty alleviation remains a central objective of its work. I know and recognise that the bank has taken important initiatives to promote private sector development and enterprise in Africa, but the social dimension—investment in human capital—must not be ignored. I understand that the bank has been participating in the World Bank's social dimensions of adjustment programme. I hope that that work will be re-elected in the project lending in the future. The bank must avoid expanding too rapidly to the detriment of the quality of its project lending. Aid 9 quality and evaluation are more vital now than ever before. I know that the Minister agrees with that. Scarce aid resources must always be used wisely and be well targeted. I am pleased that bank has recently established an evaluation office. I hope that it can draw on the considerable experience of project evaluation of other donors, notably the World Bank and our Overseas Development Administration.

10.50 am

Mr. Den Dover (Chorley): I congratulate my hon. Friend the Minister on his past few years of extremely hard work in this sphere. I do not agree with the hon. Member for Eccles (Miss Lestor) that we have not been doing enough. I accept that Africa has been going through a very bad time, so I welcome and fully support the orders. I have no financial interest in the matter, but I am, and have been for six or eight years, the parliamentary adviser to the export group for the construction industries. Are we right to continue membership of this fund and bank almost as an outsider? Could we play a more instrumental part in it? If there is a return to this country in terms of jobs for the construction industry, are we ensuring that we are following that line; or is the aid designed more to help locals to help themselves, perhaps with advice from Britain and other countries? I do not doubt that the money will be wisely used—it is desperately needed—but can my hon. Friend assure us that we are right to back this horse? Are there more effective ways of ensuring that our financial contribution benefits the locals in Africa?

10.52 am

Mr. Norman Buchan (Paisley, South): Every now and then, a card plops into the parliamentary mail and we are invited to one or other of these statutory instrument Committee meetings, but in the dull atmosphere of the Committee Room, we suddenly realise that we are dealing with immense human problems. It is good that those of use who may never have been involved in such matters in the House should be here to learn of the dimension of the problem. We are all touched when we see it on television, but we sometimes forget that we have a responsibility beyond putting our hands in our pockets to contribute to various campaigns. Of course we are pleased that more money is being provided, but how pitifully small is the sum. We should recognise that countries as well as individuals have an immense responsibility and that, sometimes, direct aid is more useful than adding to the major debt of the Third world. I hope that Governments will put their heads together to ascertain how we might decrease that debt because it is a ball and chain on each of those struggling countries. I am especially worried by the approach of 1992. To what extent is consideration being given to the prospects of not just Africa but the African, Pacific, and Caribbean countries? We have not seriously examined that issue. We may have considered the problems facing British industry, but I am not sure 10 that we are giving enough attention to the problems that might arise for the Third world from a free and open market in Europe. I hope that the Government are taking initiatives in that respect. I have no expertise whatever in this matter. I can only add my voice to those who express anxiety about Third world debts and the problems that might be caused by 1992. It is a matter which worries my wife, who is involved in such issues. I recall the Prime Minister's analysis of the story of the good Samaritan. She said that the moral of the story was that the good Samaritan was wealthy enough to be able to help. In my view, that was not an especially good moral to draw from it, but if it was correct, let us apply it to countries as well as to individuals. We are wealthy beyond dreams compared with the sub-Saharan area where, I believe, 400,000 children have died as a result of economic recession, to say nothing of immediate disasters. We have a responsibility, and I hope that the Minister will do all that he can to develop out thinking.

10.45 am

Mr. Chris Patten: This has been an interesting, albeit short, debate. Several issues have emerged, and I shall attempt to respond as fully as hon. Members' patience allows. The hon. Member for Eccles (Miss Lestor) quite properly referred to the debt problems of the poorest African countries and to the Chancellor's debt initiative. The Chancellor launched the scheme, in the spring of 1987 and he and the Government followed it doggedly and imaginatively for 18 months until he got agreement at the Toronto economic summit last autumn. I am pleased that the Toronto consensus is now being implemented through the Paris Club. Seven countries in Africa have so far benefited from the Toronto convention. Britain offered interest rate reductions to poor indebted countries that are pursuing sensible economic reforms. I stress the condition at the end of that sentence. I agree with the hon. Member for Eccles that there is still some way to go. Nevertheless, we have made a useful and important start in tackling a severe problem. I hope that the Committee will not consider me too partisan if I say that I am pleased that, these days, we can take initiatives in the IMF and other international financial institutions rather than being dependent on initiatives taken in those institutions. The hon. Member for Eccles referred to the possibility of the Lomé convention, which we are renegotiating, dealing with the problem of debt. I do not wish to be unduly legalistic, but I think that the wife of the hon. Member for Paisley, South (Mr. Buchan) would make this point if she was in Committee. The issue of debt goes well beyond the Community's competence. It is right for the African, Caribbean and Pacific members of the convention to urge European countries to do more to tackle the indebtedness of the poorest developing countries. Although measures have been taken by the Community and by individual member states, the Community has no competence here, so on debt, 11 there are limits to what we can write into the convention. I am pretty chary about the proposition that all loans through Lomé should be converted into grants. They comprise much the smallest amount of money dispersed through Lomé The consequence would be to prevent the better-off developing countries from repaying loans that are being recycled to help the poorest countries. The conversion of loans into grants would in practice reduce the amount of money available for some of the poorest beneficiaries. The same is true of the suggestion that we should cancel IDA loans, or rather turn all outstanding loans into grants. IDA funds are already concessional. The proposal of the hon. Member for Eccles, which is supported by the World Development Movement and others, would make less money available for the poorest countries. The hon. Member for Eccles referred to the volume as well as to the quality of our aid programme. I am pleased to say that our aid programme is now growing again in real terms, reflecting the strength of our economy. Our aid programme will amount to about £1,430 million in the coming year. If loan repayments are included, it will exceed £1.5 billion for the first time. The figure will rise from £1,430 million to £1,513 million next year or in the second year of the public expenditure period, and will rise to £1,574 million the year after that. The figures represent an 18 per cent. increase in cash terms or a 5 per cent. increase in real terms. To those sums we must add our contribution of nearly £50 million in the first year to the Nigerian economic reform programme. Two thirds of the ߞ100 million that we have pledged is new money, so our increase in aid will be even more substantial in real and cash terms during the next three years. Since 1981 we shall have spent about £3 billion bilaterally and multilaterally in Africa, which is no bad record. The hon. Member for Eccles referred to out discussions with other members of the high-level development assistance committee of the OECD in December on Britain's aid programme. She forbore to mention—had time allowed I am sure that she would have done so—that the high-level DAC conceded that our aid programme is now growing again in real terms, that it has considerable quality and that it is directed much more to the poorest countries than is the average aid programme of OECD members. The hon. Member for Eccles referred to proposals from commercial banks for debt reduction. The Midland bank's welcome initiative in Sudan in association with the United Nations Educational, Scientific and Cultural Organisation provides recent evidence that this is an important factor in Africa, but the problem is much greater in Latin America. Proposals for debt reduction involving commercial banks must avoid two pitfalls. First, it would be wholly wrong to shift the risks from banks to taxpayers. Secondly, proposals should not have the long-term result of deterring future bank lending to developing countries. 12 The hon. Member for Eccles properly referred to the social dimensions of adjustment. She will be aware of our effort through the World Bank and of our contribution to the social adjustments in Ghana, which is one of the success stories of structural adjustment in Africa. I endorse everything that the hon. Member for Eccles said about the importance of aid quality. I wholly concur with her remarks on the merit of the evaluation unit set up by the African Development bank. If we are to persuade taxpayers to provide more help for developing countries, we must be able to show high quality programmes and prove that aid in support of sensible economic policies actually works. That is vital. We have been pressing in the OECD for a set of performance indicators, agreed by all aid donors, that would show to us and to those who provide the funds in donor countries that taxpayers' money was going to a good and effective cause. I am extremely grateful for the flattering remarks of my hon. friend the Member for Chorley (Mr. Dover). As Adlai Stevenson said, flattery is fine so long as one does not inhale, so I held my breath while my hon. Friend was speaking. Our national interest is in good hands with the African Development bank. There is a degree of vanity in my observation because I am the bank's British governor and hope to attend its 25th annual general meeting in Nigeria in May. We have a director of the bank and work in a constituency with Germany, the Netherlands and Portugal. We take it in turns with our German friends to provide the director, and the assistant director is usually from the Netherlands or Portugal. The arrangement works extremely well. My hon. Friend the Member for Chorley properly spoke of procurement, on which our record is almost embarrassingly good. British firms have always been successful in winning competitive orders for goods and services financed under bank and fund project loans. In total, we have gained orders worth more than £228 million as against expenditure so far of £55 million. In 1987, our procurement was £43.4 million against expenditure of £9.4 million—a ratio of 4.6:1. That shows the competitiveness of British industry in developing countries, including the competitiveness of our civil engineering firms, many of our construction companies, our firms working in the water sector, our consultants and many other branches of British industry and commerce. The hon. Member for Paisley, South raised the extremely important issue of 1992 and the single market. It may surprise him to know that 1992 throws a shadow—I do not necessarily mean that pejoratively—over the renegotiation of the Lome convention. Many of our African, Caribbean and Pacific friends are concerned about the consequences for them of the creation of the single market and the consequences of greater trade liberalisation within and outside the Community in the context of the GATT round on their present advantages and concessions in the European Market. It is of special concern to our banana suppliers, about whose interests I feel particularly strongly. I have tried to explain to other ACP countries that provided that they are competitive, the single market 13 should help them, and that one of the consequences of the single market should be to raise the growth rate in Europe and provide a greater market for them to sell into. I agree, however, that we shall need to help ACP countries to develop their own processing and manufacturing capacity, and to become more competitive, if they are to do well out of 1992, as we would like. I hope that I have dealt at not too great length with the issues that were raised. I commend the order to the Committee.

Question put and agreed to.

Resolved, 14 That the Committee has considered the draft African Development Fund (Further Subscription to Capital Stock) Order 1989.

Draft African Development Fund (Fifth Replenishment) Order 1989

Resolved, That the Committee has considered the draft African Development Fund (Fifth Replenishment) Order 1989.—[Mr. Chris Patten.]

Committee rose at eleven minutes past Eleven o'clock.


Latham, Mr. Michael (Chairman)

Alexander, Mr.

Benyon, Mr.

Bevan, Mr.

Buchan, Mr.

Couchman, Mr.

Dover, Mr.

Evans, Mr. David

Faulds, Mr.

Lestor, Miss

Lightbown, Mr.

Patnick, Mr.

Patten, Mr. Chris