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CDC Group

In a statement to the House on 8 January 2004, Official Report, column 14WS the then Secretary of State for International Development, my right hon. Friend the Member for Leeds, Central (Hilary Benn), described the investment policy for CDC, formerly called the Commonwealth Development Corporation. The 2004 investment policy set out CDC's investment targets, which were that all new investments should be in developing countries; those with an annual GNI per capita of less than $9,075. Within this, CDC should make at least 70 per cent. of new investments in countries with an annual GNI per capita of less than $1,750 and at least 50 per cent. in sub-Saharan Africa and South Asia. Under this policy some 47 per cent. of CDC's total investments were in low-income countries in the four years since 2003, to end 2007. CDC has outperformed these targets and other objectives agreed by Government by considerable margins. I am now making a further written statement to inform the House of a revision to CDC's investment targets and its investment code to enhance further CDC's contribution to the Government's objectives of reducing poverty in developing countries. The Government's objectives for CDC, which were set out in the 2000 White Paper and remain unchanged, are two-fold: CDC should invest in the creation and growth of viable private businesses in poorer developing countries to contribute to economic growth for the benefit of the poor; and mobilise private investment in these markets both directly and by demonstrating profitable investments. The Government rely on the CDC board both to oversee management's investment decisions in meeting these objectives and to maintain an adequate and responsible investment risk profile. The Government continue to believe that economic development, which is impossible without a thriving private sector, is among the most important drivers of poverty reduction. It is private businesses that will create the bulk of the new jobs, income and taxes that the poorest countries need to generate for their people. A major reorganisation in 2003-04 restructured CDC. CDC remained 100 per cent. owned by the Government but it was restructured into a fund of funds investment company with a remit to establish relationships with a range of fund managers which would then invest the capital of CDC and other investors in companies in developing countries. For the first five years, the majority of CDC's capital was to be managed by a new fund manager, Actis, which was itself spun out of CDC. CDC's role therefore is to make responsible investments in private businesses in poorer countries. It does this by investing through investment funds, which then provide capital and other assistance, such as improving governance, to build value in the companies in which they invest. The signalling power of investment that is both decent and profitable in these countries is significant, both in encouraging local businessmen to keep their money working locally and in attracting interest from international investors. At some point, the investment fund managers investing CDC's capital judge that they have added sufficient value, and then sell their interests in the investee companies. The net sale proceeds are returned to CDC and so are available for reinvestment in other businesses. In this way, the Government have created a self-perpetuating engine of development. The Government have committed no new money to CDC since the mid-1990s. Yet since then CDC has invested typically several hundred million pounds a year, at no additional cost to the UK taxpayer, into countries that are badly in need of investment. During its 2003-04 reorganisation, CDC also produced a clear set of ethical, environmental and social business principles—its investment code—to which its investment fund managers and investee companies must also subscribe. With DFID input, the company has now updated its investment code. The investment code forms a core part of CDC's new investment policy. I will place copies of both in the Library of the House. CDC's results show that the 2003-04 reorganisation has been a success. Since then, CDC has:"Grown in value from £1 billion to £2.7 billion at the end of 2007.""Made 74 per cent of new investments in the poorer developing countries and 64 per cent in sub-Saharan Africa or South Asia.""Committed £2.4 billion in the poorer countries of Africa, Asia and Latin America.""Attracted some £1.5 billion of third party capital to invest alongside CDC's own capital.""Realised investments that have returned £2.3 billion to CDC for reinvestment.""Committed funds to 58 investment fund managers and 123 investment funds.""Is supporting some 600 businesses employing almost one million people directly, supporting the lives of approximately four times that number indirectly, and paying an estimated £250 million in taxes and other charges to the local Governments each year." I have decided to build on CDC's success to date by approving new investment policy targets for the company. Under the new targets, for investment funds that CDC backs from January 2009 through to 31 December 2013; more than 75 per cent. of total investment by CDC over the period must be in low-income countries (those with an annual GNI per capita of less than US$905) and more than 50 per cent. must be in sub-Saharan Africa. In addition, CDC will be able to invest up to £125 million in small and medium size enterprise funds in other developing countries during the five-year investment policy period. Investment funds to which CDC has already committed capital will continue to follow the investment policy targets prevailing when those commitments were made. The Government recognise that the new investment policy targets alter the risk and return profile. An independent assessment found that sufficient unmet demand for investment capital in low-income countries exists to make the identified targets achievable and we want CDC to be at the forefront of investing in such countries. Further, CDC's greater concentration in low-income countries will strengthen its development impact both directly through increasing the supply of finance for business and indirectly through demonstrating that private sector investment is possible in underserved markets. Establishing CDC's new investment targets now comes at an important moment during the current financial turmoil. It is more important than ever that countries such as the UK demonstrate continued commitment to our development partners in poorer countries. Alongside these new targets, I am also announcing the appointment of a new Chairman for CDC, Richard Gillingwater. Mr. Gillingwater has had a distinguished career in investment banking, was the first chief executive of the Government's shareholder executive, and is Dean of Cass Business School. He will take over from Sir Malcolm Williamson who, after nearly five years, is stepping down as chairman. Sir Malcolm has made a major contribution in overseeing CDC's substantial growth since the company's 2003-04 reorganisation.