Foreign Affairs Committee on Oct. 22nd, 2009

[Bill Singleton, Senior Economic Policy Advisor, Strategic Policy and Performance Branch, Canadian International Development Agency]

Thank you, Chris.

As Mr. MacLennan has said, it is in quotation marks. It is a term that is used very widely, and yes, it has implications. But standing back from that for a moment, what it is intended to capture is the experience that has occurred far too often in developing countries, namely, that there have been major problems, including at the very macro level. An element of the curse, which is often the first that is talked about, is called “Dutch disease”, and that refers to the experience of the Netherlands. They discovered gas offshore. In economic terms it caused their exchange rate to rise and it caused enormous damage to their manufacturing and agricultural sectors--this was before the euro--because they could no longer export profitably.

So this is one of the elements that surrounds developing countries. There is also the fact that international prices move wildly for the products, and consequently their revenues are all over the place. It's very hard to manage that because you can't predict either...booms are wonderful, but you then have the bust to come after that.

A number of other factors combine to make up what has become known as the curse. There has also been some, you will be pleased to hear, I guess, and we will take this point into account...some have said we should talk more about the impact. There's negative impact and there's positive impact. Certainly “curse” is a term used not just by NGOs but as a shorthand expression for all the problems that can arise, but that can also be dealt with as well.

[Jim Abbott, Conservative, Kootenay—Columbia, BC]

We could carry on with this debate, but I want to make sure Ms. Brown gets a chance.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

Thank you, Mr. Chair, and thank you for being here today. I am going to carry on with that same thought in just a slightly different way.

First of all, I want to say thank you for being here, because I think all Canadians are pleased to hear what our CIDA development money is doing. This is an opportunity for them to get a little bit of insight, I think all the more when we can see that money being compounded by working with industries within countries and seeing it being put to good use.

In your intervention you noted the importance of the extractive sector to developing countries. Farther down you said that one of your responsibilities is host country capacity-building. You went on to say most of these moneys are invested in public services and social support. Our last intervenor talked about consequences, mostly in the negative form.

Mr. Singleton, I'd like to pick up where we just finished and talk about the consequences of our extractive industries in these countries from a positive perspective. We've heard about the imposition of vexatious claims against some of these companies. What would happen to these countries in which we are working if these companies had a vexatious accusation and made the decision that they were not going to pursue extractions in a country?

[Bill Singleton]

There are two parts to the question.

I'll describe the positive impact of Canadian companies operating in developing countries, and then, in a sense, if they were to pull out, it's the converse of that.

First of all, there is the investment. Foreign direct investment is going in to do the exploration and the development of the mines. We'll talk about mines, but oil and gas also come into this. We'll use mines as an example. There's the initial investment. That gives rise to long-term employment for individuals in the community and their families. What is being discussed frequently in the CSR discussions generally, in the positive sense, is that firms also provide health and education and other social services to the communities. In Canada those are the responsibilities of governments. In developing countries, the general practice is that the firm will provide that for the community, particularly in a rural area. The governments don't generally have the capacity. So there is that element to it.

There's also technology transfer. Canadian firms bring in state-of-the-art technology for the mining industry and people get trained. There's also the revenue side. Royalties and taxes are paid. They differ from country to country, but certainly some of the research I've been doing shows just how significant revenue from the sector is to countries. Take the example of Peru. Close to 50% of the revenue at the national government level comes from the extractive sector, from taxes, royalties, and other things such as that.

I won't speculate as to what would happen if the firms were to pull out because my guess is that, first of all, they have a large stake in that, 35 to 50 years for a mine sometimes, and that would be a major decision, but the benefits they have brought would go with them in some respects, yes.

[The Chair, Conservative, Kevin Sorenson]

Thanks very much, Mr. Singleton.

We'll move to Mr. Dewar, please.

[Paul Dewar, NDP, Ottawa Centre, ON]

Thank you, Chair.

Thank you to our guests.

One of the mandates of CIDA is to look at aid effectiveness and poverty reduction. I note that in your comments you mentioned that right now CIDA is “in the process of identifying an individual who will work with the World Bank on implementation of EITI in a number of countries in Africa”.

Can you just let us know where that's at? You're looking at identifying someone. Do you have a deadline for when you want to have that person identified? Can you tell us what you hope they will be doing?

[Bill Singleton]

Our target is to have it in early 2010. The approach we're taking is to work with the World Bank at this stage to identify where we can best contribute, which program we can best contribute to. CIDA will be providing the funds for this, but it will be tasked to the bank. The employee would be an employee of the bank. Those are the details of it. What we'd be seeking to achieve through this is to work with local governments in whatever region the person may end up working in.

We would work with local governments. On the implementation of the EITI, the transparency initiative, a number of countries have applied to be part of the EITI. They have to go through a significant process of validation to be certified, so to speak. This includes, in all cases, work with communities, because the whole purpose of the EITI is to increase the transparency and to enable the communities to ask the right questions of their governments.

So what we envisage happening is some combination of an individual who is comfortable and effective working in a developing country, including at the local level, and with a reasonable knowledge--or perhaps they can acquire that--of the sector itself, because the challenges that are found in the extractive sector will be different from what a person would be dealing with in the education sector, let's say.

[Paul Dewar, NDP, Ottawa Centre, ON]

One of the reasons I asked about this is that I had the opportunity last spring to go to the DRC with the World Bank to look at projects they have funded. I spoke to our embassy people. I did talk to the ambassador about concerns that she had heard on the ground around the performance of companies in general and Canadian companies in particular. Then I talked to the Congolese. I talked to their ministers and to people in the communities and looked at the big projects and the smaller ones.

What was clear was that they obviously want to see more effective aid and poverty reduction, which is complementary to CIDA's goals, but they also said very clearly that the critical piece is really that those developed countries that can actually have oversight into their corporate activities need to do more. That was not just the ambassador having an opinion, because she was passing on what she was hearing, and I talked to other ambassadors as well.

When I see us engaging on something that I think everyone would laud, that is, to increase transparency and to look at the financial benefits that accrue from any development, but particularly from extractives because they're so profound in places like the Congo and Latin America, this bill actually would complement that. I can say that and I know you're in a position where you're not really able to give an opinion, but I note that what you're laying out here in terms of the direction that CIDA's taking--and I don't think anyone would have an argument with it--is to have more effective investment and aid at the same time.

So I would say to my colleagues across the way that I don't see a problem in terms of the mandate of CIDA and this bill. In fact, I would argue that it's parallel and complements it, certainly in terms of what I've seen and heard on the ground.

When we hear from CIDA that there is a focus on reducing poverty, can you really say that you can reduce poverty without looking at direct investment from the private sector? Isn't it part of the puzzle?

[Christopher MacLennan]

That's absolutely right. As you're probably aware, the Minister of International Cooperation announced in May five thematic priorities for the international assistance envelope, three of which are specifically dedicated to international development assistance under CIDA.

One of those is sustainable economic growth, and that's absolutely within the context of the absolute and critical element of attracting investment into developing countries to produce the economic growth, an inclusive, sustainable type of growth that can then drive poverty reduction. Without economic growth, it is very difficult to have any real lasting impact on reducing poverty in developing countries.

[Paul Dewar, NDP, Ottawa Centre, ON]

So if we're going to have sustainable economic growth that's going to reduce poverty, I think it would be incumbent on Canadian corporations to obviously follow that path. Right now we have capacity building, training people on the ground, at least from CIDA's point of view, but you're not able to—and it's not in your mandate—directly mandate companies as to how they should behave. Is that correct?

[Christopher MacLennan]

That's correct.

[Paul Dewar, NDP, Ottawa Centre, ON]

I don't want to put words into your mouth, but it couldn't hurt you to have someone helping out with that.

[Christopher MacLennan]

Our mandate is to help the developing countries themselves deal with these types of problems. Our mandate, and this goes both ways.... Creating sound institutions, agencies, competencies in developing countries not only creates the type of enabling environment that will better attract investments. Extractor firms don't want to go into places where they just have no idea.... Let's face it; they're in there for the long haul. To go into really risky environments in which they have no guarantee of how regulations are going to be applied and there is corruption within local or national governments just takes a risky business and makes it that much more risky.

Our goal within CIDA is to help countries actually create those types of frames that will create the enabling environment that will not only attract investment and then get at poverty reduction in the end—that's our goal—but also better enable them to deal with problems, whether they be Canadian, Dutch, Norwegian, or Russian firms. The truth is that I don't think developing countries care much what the nationality is of the company. They actually want to have the tools in their hands to deal with these problems.

[Paul Dewar, NDP, Ottawa Centre, ON]

I would argue, I guess to finish off, Chair, that if CIDA's mandate is to do that—to help capacity on the ground to ensure that they're able to have them do the best they can do and we can lend that—then I think it's incumbent upon Canada to ensure that our companies abroad are doing the same. I think it would be enormously hypocritical if we had CIDA doing that abroad—good work and working through the World Bank and other institutions—and then we sat back and said, “Meh, you know what? We'll be voluntary, and we'll just leave it to companies to behave as they will, and we'll hope that they have aspirational goals.”

I will just finish by saying that I see the mandate and the direction of CIDA and where it's going with CSR and this bill as actually complementary, and it's something I would see as aligned. But I can say that; you don't have to, but thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Dewar, for concluding with your opinion on this bill.

And thank you to CIDA for coming and giving your perspective of corporate social responsibility, where CIDA is at, and some on the bill as well.

We are going to suspend for a few moments. We're going to move to committee business. I'm going to ask the committee.... There are a couple of items that we need to discuss: certainly the motions we're going to look at, which I would imagine we would want to be public on, and some of the committee business deals with a subject that perhaps we may go in camera on, just prior to the motion. Then we'll come back to public.

What I'm saying here, folks, is that we're going to suspend. We're going to move in camera on the first portion of the committee business. We would ask you to avail yourselves of the opportunity to leave, if you aren't with a member of Parliament. Then we'll come back to public and we'll deal with the motion.

[Proceedings continue in camera]