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Economic Development and future of development capital

Statement made on 16 July 2015

Statement UIN HCWS122


I am pleased to announce that I have agreed with my Rt. Hon friend the Chief Secretary to the Treasury (Greg Hands MP) to inject new capital into CDC Group plc – the UK’s development finance institution – to create jobs, boost growth and in doing so help end aid dependency across the developing world.

A new investment of £735 million over the next three years represents the first capital injection the Government has made into CDC in 20 years.

It will place CDC’s investment expertise at the vanguard of our efforts to eradicate global poverty by creating jobs, long term economic growth, better access to basic services and increased tax revenues in developing countries.

This is not only the right thing to do, it is firmly in Britain’s own economic interest as it will help build future markets for British and other businesses to compete in.

Our new investment will allow CDC to support many more businesses throughout Africa and South Asia, building on its already considerable successes. CDC’s latest Annual Review, published last month, showed that CDC-backed business have helped create nearly 1.3 million direct and indirect jobs in developing countries last year, while the companies in which CDC invests in Africa and South Asia paid more than £1.5 billion in local taxes.

This investment comes at a crucial time. There remains a considerable shortfall of investment capital across the developing world, particularly in countries and sectors where there are higher levels of risk. This is stifling the potential of promising businesses and keeping countries locked into poverty. Estimates for total investment needs in developing countries range from £2.1 trillion to £2.8 trillion every year.

We know that CDC is ready to take on this challenge. The changes the Government made to CDC in the last Parliament have ensured CDC’s support is now targeted to countries and investments where it is needed most and where it can have the greatest impact. CDC will target job-creating sectors in areas where the shortage of capital is particularly acute and the investment climate is challenging.

In time, this new capital will be redeployed as successful investments deliver financial returns back to CDC to be reinvested in further promising businesses, making every pound go even further in delivering development impact.

This investment is an important element of my Department’s strategy to end aid dependency through job creation, economic growth and tax generation, and will form part of the £1.8 billion we will spend on economic development this financial year. There is clear evidence to show that economic development is the only way we can ultimately defeat poverty. Wherever long-term per capita growth is higher than three per cent, poverty falls significantly.

No single Government or donor can solve this problem. The finance needed to achieve the new Sustainable Development Goals is estimated by the UN at approximately £1.6 trillion every year, but current investment levels are less than half of that.

The Financing for Development Conference, which concludes today in Addis Ababa, has shown global recognition of the importance of public money leveraging private investment. CDC will play an important role in making this happen.

Britain is a nation that stands tall in the world. This new investment will ensure the best of British expertise in finance, development and investment can create a more prosperous world and make a real and lasting difference to people’s lives. This is the right and the smart thing to do, as we help countries to end poverty while building markets that British businesses can benefit from in frontier and emerging markets.

Linked statements

This statement has also been made in the House of Lords

Department for International Development
Economic Development and future of development capital
Baroness Verma
The Parliamentary Under Secretary of State for International Development
Conservative, Life peer
Statement made 16 July 2015