Foreign Affairs Committee on Feb. 13th, 2012

[The Vice-Chair, NDP, Hélène Laverdière]

Good afternoon. Welcome to the 20th meeting of the Standing Committee on Foreign Affairs and International Development today, February 13, 2012. Today we have two distinguished witnesses. I will ask them to be patient, as I see all these little smiles around the table. This is the first time I am chairing the work of the committee.

In the context of our study of the role of the private sector in achieving Canada's international development interests, we have the pleasure of having with us today Mr. John Sullivan, executive director of the Center for International Private Enterprise, as well as Mr. Chris Eaton, executive director of the World University Service of Canada.

Thank you for being with us today. We are eager to hear what you have to say to us. I am going to give you both 10 minutes to make your presentations, though the agenda is somewhat flexible. Gentlemen, you have the floor.

Mr. Sullivan, please proceed.

[Dr. John Sullivan, Executive Director, Center for International Private Enterprise]

Thank you very much. I really appreciate the invitation to be here. I'm thrilled that your committee is holding these hearings and looking into the subject, as you might expect. It's our life blood, so we're thrilled that you're doing this.

By way of background, I should mention that the Center for International Private Enterprise is an affiliate of the United States Chamber of Commerce. As you may know, the U.S. Chamber is one of the largest associations of private sector business. Our centre is funded by the U.S. government principally through the National Endowment for Democracy, which I will return to in a moment.

As we saw recently at the High-Level Forum on Aid Effectiveness in Busan, South Korea, it is becoming generally accepted that the private sector needs to be at the centre of development. It drives economic growth, job creation, innovation, and opportunity. However—and this also came out to some extent at the private sector forum that was held at the Busan meeting—many of the international development initiatives that are going on, including many of the ones of the U.S. government, really focus more on individual entrepreneurs rather than the institutional reforms needed to remove barriers to doing business and create the kind of enabling environment that drives entrepreneurship.

You have already heard from Hernando de Soto. He was here testifying before you. Hernando was our very first project in 1984. We helped him get started, and we continue to work with him. We just finished up a project working with Hernando in the indigenous regions of Peru, but we've also worked with him in Egypt and a number of other places. I wholeheartedly endorse what he's saying, which is very similar to my message.

I'd like to tell you what somebody said who taught both Hernando and me a great deal about this, and that's the Nobel Laureate, Douglass North. Doug has summarized the entire history of economic growth and development in one sentence. Now forgive me; it's a very long sentence. It should be.

Doug said that economic growth is about going from personal exchange, to where you can only do business with people you know, are related to, have some personal tie to, and therefore can trust, to being able to do business with strangers, and to get from here to here you have to put in place a whole set of institutions, and that's the enabling environment: a court system that will enforce contracts; property rights that can be enforced—as Hernando was talking about to a great extent; and bankruptcy.

A whole range of institutions needs to be in place, yet all too often in our development programs we focus more on trying to teach entrepreneurship. That's very important. We do it ourselves in Afghanistan, Peru, and elsewhere. But if you're just teaching entrepreneurship, you're not putting in place the institutions.

What you really need is the kind of institutional environment that Canada, the United States, and much of western Europe have. Yet in much of the developing world, as we see, corruption, red tape, favouritism, the lack of a voice, and the ability to affect policy and decisions really constrain the entrepreneurial sector.

Reducing poverty comes down to the policy reforms that expand access to opportunity and instill confidence in these market institutions. As Doug says, ultimately the rule of law binds a lot of this together in different ways, but for much of the world that has meant fully functioning democratic institutions creating that rule of law.

As I mentioned, we're an affiliate of the U.S. Chamber of Commerce, so you won't be surprised that our method of working is to partner with business associations, think tanks, sometimes with chambers of commerce, and other civil society organizations in the developing countries to build their capacity to affect law and regulation in public policy in areas like anti-corruption, advocacy, the management and strengthening of business associations, and corporate governance, which is incredibly important but, as we found out ourselves the hard way, is missing in so many of the developing countries.

Until the early 2000s, when the coalition that we were part of helped create it, there were no words for corporate governance in the Arabic language. It took two years to get that translated, and now we have an official seal issued by an Islamic institute with a stamp with the translation on it, and the translated words are now being used throughout the Middle East. That's a game changer.

Why do we do this? Well, because we found that these barriers to entrepreneurship are really what is keeping the majority of the population in so many countries trapped in that informal sector that Hernando talked about.

We've also found that top-down reforms tend not to work. We found something we called the reality gap. When fly-in experts come to a country, help create these institutions or write the laws, they then get translated into the local languages and passed by Parliament. They sit there like a hovercraft on water, never really touching it. We've actually measured the reality gap in some countries. It's the gap between what the law says on paper and what the real practices are. Unless you get the local business associations and private sector engaged, you can't see that gap; it just isn't visible to you.

One of the things that came out of the Busan meeting was a recommitment to public-private dialogue. In the joint statement between the public sector and the private sector that was issued during the Busan forum, they committed to five principles, and I'd like to just end by mentioning those: an inclusive dialogue for building a policy environment that is conducive to sustainable development—and by policy dialogue I mean dialogue, a two-way conversation between the public and the private sector; collective action, strengthening the associations and other CSO-NGO operations; sustainability, so that we know these institutions will stay in place; transparency; and finally, accountability for results.

I could give you lots of examples of programs that drive this kind of reform. My personal favourite is something that a coalition of Pakistani groups did, with which we were involved, where we changed the law. It was called the Trade Organizations Ordinance, basically the law on associations. Beginning in 2006, for the first time women can now form and be on the boards of trade associations in Pakistan. They have seven of their own, they're building more, and all of a sudden they have much more of a voice. Without voice, one doesn't get to accountability, one doesn't get these policy reforms, and there is no room for the private sector to move in and participate.

Thank you very much.

[The Vice-Chair, NDP, Hélène Laverdière]

Thank you for a very interesting presentation.

Please go ahead, Mr. Eaton.

[Chris Eaton, Executive Director, World University Service of Canada]

My comments will, I think, complement yours, John, but will be focused on a specific sector and an issue that is currently quite topical in the media, and that's mining and the role that mining plays in the development strategies of many of the countries in which my organization works.

My organization is a non-profit development organization that works on formal and non-formal education, livelihood, health, and governance issues in Africa, Latin America, and Asia. We have a particular focus on social and economic inclusion of marginalized women and youth. We also do a lot of work with the private sector, particularly with the tea industry in Sri Lanka, and on technical and vocational education and training in Sri Lanka, Vietnam, Afghanistan, Southern Sudan, and Haiti.

We are also one of the organizations that has received funding from CIDA and from a mining firm for development activities. Rio Tinto Alcan is the mining firm co-funding our project, which is located in the Bibiani District of Ghana, where Rio Tinto Alcan had a controlling share in the Ghana Bauxite Company. I'm going to talk a little bit about that, because I think it's important for the context of my presentation. This company is co-owned by the Government of Ghana, and, interestingly, as our project was commencing, Rio Tinto Alcan sold its share of this firm to a Chinese firm named Bosai but decided to continue funding our project nonetheless.

In my comments today I would like to draw upon our programming experience in Ghana and suggest ways in which the private sector, and the mining sector in particular, should be engaged in social and economic development issues. I would like to suggest a few things that I don't believe the government is or should be doing. I would also like to put forward an agenda of additional issues that I think CIDA should start tackling in ways that would contribute to the resolution of substantive development issues.

First of all, I'd like to emphasize that our project in Ghana is relatively modest in size, duration, and scope, and is focused on the development outcomes of just one of Ghana's over 200 districts. Ours is a three-year project with a planned budget of $927,000, which comprises a $500,000 contribution from CIDA and a $427,000 contribution from Rio Tinto Alcan and WUSC.

I would also emphasize that this is a WUSC project, not an RTA project and not a CIDA project, although both RTA and CIDA are important funders of our initiative. As well, I would say that if Rio Tinto Alcan had not funded this project, it would still be worth doing, but it would be much smaller than it already is.

Our on-the-ground stakeholders for this project are the assembly and local government officials of Bibiani District, the communities in which we are initiating development activities, and the Ministry of Local Government and Rural Development. Given the size of our project and its focus on just one district, it needs to be thought of as a pilot in the sense that the lessons that are learned from this project should help to inform policies and practices at a national level and in other districts of Ghana.

Second, I would say more specifically that our project is focused on building the capacity of the district government to do three things: strengthen the quality of education in public schools, improve water and sanitation at public schools and community sites, and improve the employment outcomes of out-of-school youth through technical and vocational education and training.

Through these more tangible outcomes, however, our project is attempting to do a few broader things, specifically to improve the ability of the district government to plan in a more open and participatory way, essentially helping the local government to establish ways in which it can integrate the ideas and priorities of community members with district plans and services, and be more accountable to local communities for the decisions they make.

As well, we're helping to establish a forum at a district level, through which the local government can better engage all mining companies operating in its district in order to resolve conflicts, enhance collaboration, improve local accountability, encourage greater investment, and ensure that the specific investments of mining firms are well integrated within the district's development plans, thereby reinforcing national policies and strategies in Ghana.

An important aspect of this work is the training and support that will be provided to district officials on the extractive industries transparency index, which Canada supports and which Ghana as well is a signatory to at a national level and is seeking to extend down to regional and local levels. Through our piloting of this training in Bibiani, we're hoping to contribute to this national effort but also to help the district's understanding of the taxes, mining royalties, and revenue sharing that could take place.

There are, of course, many things that need to be done to maximize the benefits that the Bibiani District and Ghana receive from mining operations, including two sets of issues on which we believe Canada could take a lead.

First, in Ghana, the national government notionally sets aside some of the royalties it receives from mining operations to fund the development plans of districts in which mining occurs. Unfortunately, the mechanism through which districts can call upon these resources is not yet established or operational. The framework, policies, and mechanisms that would allow this to happen need to be established, and this is an issue that the Ministry of Local Government has raised itself.

Canada has taken the lead on district planning, district capacity-building, and financing in Ghana in other areas. It could do so here as well, and in a way that reinforces efforts to extend this extractive industry's transparency initiative to the district level.

Secondly, there is no national level forum through which government, civil society, independent voices, and the mining community can regularly come together to discuss issues related to mining operations and practices, community relations and local development, corporate social responsibility, and the strengthening of district governance. There are forums of mining companies, separate networks of communities affected by mining, and disparate government and donor research and policy initiatives, but not a forum that brings all of these stakeholders together on a regular basis. We believe that such a forum would be helpful in unpacking and addressing mining issues and in setting a transparent agenda for action around which all stakeholders could invest.

Next, it's important to understand what our project is not doing. This is I think particularly important in the context of some of the media around this issue over the last several weeks. Specifically, this project is not taking on the mine site corporate social responsibility of Rio Tinto Alcan or of any other mining firm. Indeed, we do not believe it is the Canadian government's role to fund the necessary corporate social responsibility that mining firms must undertake in their catchment areas. CIDA-funded projects are not a substitute for this. They are not an alternative to the kind of CSR that a company must engage in around its mining operations. Mining companies can and should fund these activities themselves and build this within their business plans.

However, I would note that when a company contributes—such as Rio Tinto Alcan has done—to a larger common good beyond the immediate interests of its operations, this is a good thing. This is something that can be encouraged and supported by the government, particularly when it's linked to the better governance of the mining sector as a whole. In other ways, if we think about our own country, our own universities, hospitals, and arts communities would be smaller and fewer if it were not for good corporate donors. Ghana is no different.

Lastly, I'd like to suggest a few areas for further attention and investment by the Canadian government. Most importantly, I think we need to expand our support to the broader set of governance and capacity-building issues in the mining sector, tailored to the specific needs of civil society and national and local governments where mining occurs.

Second, we do need to invest in exploring and resolving issues related to small-scale artisanal mining, both near to and far from large mining operations, such as those of Canadian companies. This is a critically important and under-supported area affecting large numbers of artisanal miners, the communities of which they are a part, the royalties that governments receive—or do not receive, in this case—from mining, and the reputation of the mining industry as a whole.

Third, we need to continue to encourage Canadian mining companies to invest in public goods beyond, again, their specific mine site areas in the world in which they operate. We need to link this, I think, as much as possible, to the better governance of the mining sector itself, something in which Canada and Canadian firms have a strong vested interest, especially as business ethics come under greater scrutiny around the world.

Thank you.

[The Vice-Chair, NDP, Hélène Laverdière]

Thank you very much.

I will now give the floor to Ms. Sims for the first round of questions.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thank you very much.

And thank you, to both of you, for your presentations.

I think all of us realize there is a role for the private sector to play, and you articulated it beautifully when you went on to talk about the corporate responsibilities that businesses have. In my community a few of the banks have gotten together and are doing amazing things with programming for our youth. It's really great to see that, but it's in addition.... It's not education. It's funding a lot of the extra-curricular activities that happen in the community, such as community soccer, community hockey, that kind of thing.

I was interested in something you mentioned, and I'm going to go to Mr. Eaton first, if I may. What really grabbed my attention was when you talked about the role that Canada could be looking at giving more attention to, that we could expand in. You talked about expansion in mining; in other words, supporting the development of small mines near where there might be large mines.

I think that's what you were saying. They are more family run—much, much smaller mines than your big mining companies. When I heard that, the question that came into my mind was whether that is the role of Canadian international cooperation development, or is that a role for international investments and work that mining companies would do or government would be doing with them? It just doesn't seem to be to be the kind of work that would tie in with international cooperation, with the kind of work we do through CIDA and all of those projects.

That intrigued me a bit. Could you expand on that for me?

[Chris Eaton]

Sure. There are hundreds of thousands of people already involved in the mining sector, in artisanal small-scale mining. It's generally not a family-run business, but rather large numbers of individual people often mining alluvial fields that are close to the surface. It's often in the diamond sector, but it's in a number of other sectors as well.

This is a largely ungoverned area. It's an area in which the infrastructure is not there for the mining to take place in socially or environmentally sustainable ways. It's an industry in which there's a high degree of exploitation. It's not well organized and, importantly, governments themselves, particularly in Africa, receive no revenue from it. There's no revenue gain that they get from the mining that people undertake, and there's no way to support and regulate the people who are actually involved in the industry.

It's about treating it like any other business sector that you would be involved in supporting. As a government, we are often supporting the development of various sectors of the economy. This is a sector that, if we think about it creatively, could impact upon large numbers of people who would benefit greatly in terms of income they would receive from mining practices.

I would suggest thinking about it in the governance context, not in terms of supporting the operations of small-scale miners, but for setting up the regulatory framework, the institutional arrangements through which artisanal mining is better governed.

[Jinny Sims, NDP, Newton—North Delta, BC]

So when you're talking about governance, and I've heard that a few times throughout your presentation, you talk about the training of community officials. In this case you're talking about not only developing institutions but putting some checks and balances in place. Capacity-building for self-governance is what you're actually talking about.

In that context, would that include training local officials? As you know, we're putting institutions in place in the area of human rights standards, the rights of workers versus the rights of the corporations, and also the kinds of environmental ups and downs...and I'm going to say both sides, the pros and cons in terms of the impact on the community.

Would that training of civil society be included, and would the training of the officials be in that broader spectrum of governance rather than just supporting that narrow vision?

[Chris Eaton]

I think it has to. It does and it has to. In the case of our project, it needs to look at all of the broad operations and impact that mining has within local areas and to help local government officials and communities understand how to negotiate. What does the law say in their country about these issues? What are the rights they have? What are the ways in which they can resolve conflicts before they become acute or violent, for example? And how can they foster ways of collaborating that are helpful to the benefits they get from the mining operations that occur in their areas?

[Jinny Sims, NDP, Newton—North Delta, BC]

So in this context there would be not just institutional training and establishment; there would be advocacy training as well.

[Chris Eaton]

There could be. Ours is really focused on the district level government itself and is more embedded there, but it certainly can and should, in many instances.

[Jinny Sims, NDP, Newton—North Delta, BC]

I think for me what really came home is that without advocacy, developing institutions and just letting them be is like that example you talked about of having some kind of a gap. I call it the top and the bottom, and then you get the middle, the vacuum in the middle.

So unless you have the advocacy part as an integral part of it, and you're just looking at institutions, what will happen is a lot of those policies will stay on paper, but they won't be given any legs.

So how do you ensure...as in Ghana, where the mining company has a wonderful policy of giving a percentage of the royalties to help developing communities where mining is occurring, but nothing is happening probably because very little is known about advocacy, about how to access that money and how to use it.

[Chris Eaton]

I would say that Ghana is relatively well governed, in general, on these issues, although—

[Jinny Sims, NDP, Newton—North Delta, BC]

I'm talking about the advocacy part because the money is not used.

[Chris Eaton]

There's a lot that still needs to be done. I guess our approach to this issue in the context of Bibiani, this district where we are working, is to help the local government establish that platform where they can actually regularly interact with mining firms on these issues. As well, it's to help the local government know what the law suggests they have the right to. What can they expect? And what are some of the mechanisms through which they can collaborate more effectively with mining firms and identify problems that need to be resolved?

[Jinny Sims, NDP, Newton—North Delta, BC]

Is my time up? I thought I'd only begun.

[The Vice-Chair, NDP, Hélène Laverdière]

Yes.

Ms. Brown, please.

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

Thank you very much, Madam Chair.

And thank you very much to both of you for appearing before us. Just so the committee knows, I had the opportunity to meet Mr. Eaton in Botswana and to see the WUSC program that's going on there.

I want to commend you for the work you're doing. My son-in-law is from Kumasi and he's finishing his Ph.D. in electrical engineering. He has a physics background. You may want to have a chat with him at some point—a brilliant young man.

My observation is that it's opportunity for education that is going to change Africa. And putting these kinds of things in place to ensure that they have the opportunity for education is going to move those countries forward.

When I was in Ghana I actually had the opportunity to meet a young man who is a hydrologist. Ghana is undertaking to map all of their underwater resources because they know there is going to be great potential there, and I'm sure WUSC has some interest in seeing that happen.

[Chris Eaton]

Very much so.

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

Mr. Sullivan, if I may just bridge from where we were talking about what WUSC is doing, we had an intervention here some weeks ago from Jack Mintz. He said that Canada can contribute leadership for the economy, finance, and the extractive resources, and can help countries with public policy. That's not a direct quote; that's kind of my synopsis here. The handling of their natural resources is imperative. The right fiscal and regulatory policies will make this the most important part, and Canada has such a great record.

I just came back a few weeks ago from South Sudan, a brand-new country. They have no institutions in place whatsoever and yet they have huge resources in oil, in Abyei, and they know there are gold resources there.

Let's use South Sudan as an example. How would you see Canada helping, right from the ground level—no pun intended—to build the capacities that are going to give them the institutional resources they need, to put these things in place so that WUSC, as an example, could come in and work?

Can you comment on that?

[Dr. John Sullivan]

It is a huge job and a huge undertaking.

One of the things that could be done, if Canada were interested in providing the support and working with the Government of South Sudan, is to take a look at the program they've put in place in Ghana for the oil industry. They've created a national committee, which is a public-private sector committee and has NGOs, private sector, and government officials, and what they're responsible for doing is to try to prevent Ghana from becoming Nigeria. In other words, it's to try to manage those resource flows in such a way that it benefits the country and is not just an occasion for massive corruption and leakage, and also for the kind of damage that happens when local communities don't see the benefit of what's happening in their community.

There's a clear example of a country that I think is doing a pretty good job. It could become a model for others.

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

Could you enlarge then for us on the whole aspect of sustainability? That is going to be the most important.... I mean, accountability falls into that, but the whole sustainability part of what we see happening in these countries is what is going to really move them forward, is it not?

[Dr. John Sullivan]

Sure. I'm convinced that's true.

Another dimension of sustainability is what you do with the resources. If you just use them for distribution and you just hand them out to the population, as they do, for example, in so many countries in the Middle East, you end up with nothing being invested.

Another thing that we hope this committee will do is to take a look, for example, at the Norwegian fund, which is one of the best and one of the first sovereign wealth funds created, and the way in which it invested the funds, in order to generate a resource flow, in order to see some return on the investment, rather than just using the funds as current income.

Sustainability comes a lot in that dimension, but it also comes in not allowing—I hope the Dutch don't mind this—what is known as the Dutch disease. It's what happens to a country when the resource flows distort the relative prices. What happens then is that the rest of the economy does not develop. That's a big danger for a country like South Sudan, which has to open up its entrepreneurial capacity and begin to see other types of industries develop. If the relative prices get distorted and the government uses the funds just to pacify the population, you don't get sustainability. You end up in a worse position than you were.

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

Mr. Eaton, we see countries, particularly African ones, attending conferences like we have in Toronto annually for the Prospectors and Developers Association of Canada. I've been there, and I see that countries, not just African but many of the South American countries and many countries in Southeast Asia, are there en masse with all of the material that can present their country in the very best light possible. They're asking for Canadian extractive industries to come in and be of assistance to them.

Are we seeing that same kind of investment that WUSC is making? Are we seeing that same kind of collaboration in other places?

[Chris Eaton]

Mining is going to be an important sector for many countries. It already is for many countries and many more in the African context.

On mining, or resource extraction more broadly, I think the case of South Sudan is quite illustrative of all of this. To make the best out of that, to ensure that benefits the societies in which that occurs, is going to require a lot of things. It's going to require a lot of foreign investment on the part of Canadian companies and other companies around the world—hopefully by the kinds of Canadian company, of which we have very many, that are responsible mining companies. They are companies that are socially and environmentally responsible, and responsible in their relationships with the governments themselves.

It will probably require more than that, and I think there is a role here for both civil society organizations—and not just ones like ours, but ones that also relate to private sector particularly or private sector associations or industry associations—and also for government to invest in those institutional capacities that are necessary for the better governance of that sector.

Many people will ask whether that is in the interest of Canadian companies. They're going to deal with partners that are going to ask more of them. There are going to be more stringent regulations in terms of what they might have to do in countries. It will involve all of those things. But I think Canadian companies have a vested interest in the better governance of the mining sector in the countries in which we operate, particularly in the context of global competition.

I think you'll find that Chinese companies don't really care about the kinds of things we care about around this table, and that Canadian firms are particularly able to adhere to, to advance.... I think Canadian firms in particular have that vested interest in better local governance, and that is something that is going to require contributions from the mining sector itself, government, and civil society as well.