Commonwealth Development Corporation Bill 2016-17

This paper has been prepared for the Second Reading debate of the Commonwealth Development Corporation Bill 2016-17 which is scheduled for 29 November 2016.

CDC Group plc (henceforth “CDC”) is a public limited private equity company owned entirely by the Department for International Development (DFID). CDC is a major component of the support that DFID provides to the private sector in developing countries, and its remit is to invest in private enterprises (typically enterprises which struggle to attract investment from elsewhere). DFID has a statutory requirement to spend development assistance on poverty reduction, and in line with this CDC’s objective is to:

• 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 as part of the mission of the DFID to fight world poverty.

Prior to 2012, CDC made no direct investments but instead invested through fund managers, which in turn invested in businesses. In 2012, a new investment strategy meant that in addition to investment in funds, CDC now invests directly in businesses. The new investment policy also included a new and exclusive geographical focus on Africa and South Asia as well as an increased focus on the poorest countries.

The Commonwealth Development Corporation Act 1999, the most recent Act of Government setting the operational rules for CDC, imposed a limit on the financial assistance that the Government could provide to CDC of £1.5 billion. In July 2015, the UK Government invested £735 million in CDC, over five times the net amount invested in it since its inception in 1948. Total assistance has thus reached the limit allowed under current legislation.

The Commonwealth Development Corporation Bill 2016-17 proposes increasing this limit to £6 billion. It also makes provisions for a further increase to £12 billion without the need for further primary legislation. A statutory instrument containing regulations under this section could increase the limit if approved by a resolution of the House of Commons.