Evidence of meeting #20 for Foreign Affairs and International Development in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was local.
A recording is available from Parliament.
4:05 p.m.
Liberal
Dominic LeBlanc Liberal Beauséjour, NB
Thank you, Madam Chair.
Gentlemen, thank you for your presentations. I think all of us found them very interesting.
Mr. Sullivan, I find the work of your centre quite compelling. I think in a few minutes during your introductory comments you summarized in a very cogent and precise way what some of us have been thinking of and wrestling with at this table, and probably in other contexts before, which is how to help many of these countries develop durable, long-term institutions. I thought your notion was very compelling, that is, of the individual versus the institution, and the informal economy versus a more formal, regulated economy with the ability to rely on institutions and structures that protect investment, protect a whole range of business activities.
Mr. Dechert and I were in Haiti last month with Madam Laverdière, and one of the things that struck us was the total absence of a land registry system, or any kind of land title system. You can imagine the ability to raise money or borrow money informally or formally if there's no clear title or any notion of real property. That's probably one of the more chaotic examples, but unfortunately they're not alone in having institutional failings, which exist around the world.
I'm interested about whether, Mr. Sullivan, you might offer us some thoughts on how we could persuade the private sector in Canada to partner either with NGOs or centres such as yours, or other institutions, and possibly with governmental agencies directly, to fund some of the development assistance that would be geared towards institution-building, capacity-building. It's a longer-term journey than simply a six-month or a 12-month project that builds a particular piece of infrastructure. It's often a much more complicated process. In your view, can the Canadian private sector work either with our governmental agencies directly or foreign partners in helping some of these countries build those institutions—build not only the entrepreneurial culture with the individuals, but the structures that can then support that culture and hopefully help them grow their own economies? I'm curious to see how the Americans leveraged private sector participation. It's not a tradition that perhaps we have in the same way here.
4:10 p.m.
Executive Director, Center for International Private Enterprise
Unfortunately, there isn't a lot of American participation either. I hate to have to tell you that, but it is true. The program that my colleague, Mr. Eaton, described, where a mining company got together with CIDA, is one that the United States has as well. It's called the Global Development Alliance.
You do find private sector companies partnering. They tend to do it in areas that are going to be directly related to their business model, because that's what the shareholders are going to want to see a return on investment for. For example, Coca-Cola has a Global Development Alliance project where they participate in developing water resources in several countries, water being a key part of their business model.
In the longer term, companies tend to invest and participate in countries where they're invested—that only makes sense—or where they think they're going to be invested. When you're talking about a country like Haiti, for example, it's going to probably have to be largely governmentally funded programs, although there are some private sector companies. There's an American chamber in Haiti, small but there, that has been involved in some initiatives over the years. But to really create the platforms to do this—to try to answer your question as to how they can create those incentives—is the key reason they held this private sector forum in Busan during the OECD-UNDP Fourth High Level Forum on Aid Effectiveness, and they have committed to creating a platform. That work is just now beginning. The first working group meeting, I believe, is not until March. But they have committed to try to build the architecture to put that in place.
I am still somewhat skeptical that there will be a large participation of the corporate sector in countries where you don't see a large amount of foreign direct investment. When you put on your shareholder hat or your pension hat or your other hats, you say to yourself, what do I want my investment to go for? I want it to go into places where I'm getting a return on that investment.
The chamber does have another affiliate called the Business Civic Leadership Center. When I go to their conferences and programs, it's largely the corporate social responsibility arms of American companies that participate in that. That's pretty much their model. That's what they're focusing on.
4:10 p.m.
Liberal
Dominic LeBlanc Liberal Beauséjour, NB
I think that makes eminent sense.
You're right, let's stay away from Haiti, because it's perhaps the most extreme example. But in other countries, if either through a corporate social responsibility engagement or a partnership circumstance like Mr. Eaton's, there is that willingness to invest....
Everybody identifies with a piece of social infrastructure—a school, a hospital. There is a sense that hopefully we've left something that's durable—tragically, it often isn't—but there is a sense that it's a contribution that governments, public agencies, or the private sector make to a community in which often they're doing business or in a region, or so on.
But your initial comments were very interesting around building institutions—something as simple as the rule of law, which in western countries we might take for granted, or a land title system on which one can then build credit.
How can we get people to think that's as valuable a contribution—to pick up on your earlier comments—as it would be to deal with a particular social or economic or infrastructure challenge in a particular country or region of that country?
4:15 p.m.
Executive Director, Center for International Private Enterprise
Mr. Eaton may have some ideas as well, but I imagine the thing to do is a demonstration example where you can show the corporations that are invested in a country and where the country itself would like to see this kind of public-private dialogue occur....
For example, Botswana—a country you mentioned earlier—was one of the leaders in Africa in creating the public-private sector forum, and many of the foreign direct investment companies participated. The gentleman who ran that program, Elias Dewah, works for us now and is helping us try to replicate that in Kenya and a few other countries in Africa, because it is a terrific example. If you bring people together annually during a large-scale forum where the private sector has a seat....
But to the point on capacity-building, which was mentioned earlier, you really have to work with these companies before that occurs, through their associations, through other mechanisms; otherwise they simply come in and complain.
We have put a program called the national business agenda into place in a number of countries, including, surprisingly enough, Iraq and Afghanistan, where we bring together the private sector—in this case, the indigenous firms, but in some cases in other countries the multinationals or foreign direct investment companies have participated as well—to identify specific challenges and changes. Don't tell me, change the tax code. You could say it, but it's not going to have any effect. You have to have specific examples of reforms that could be put into place that are going to build these institutional changes that unlock value and will lead me to be able to invest more, will lead a firm to hire more, and will lead to greater production.
4:15 p.m.
Liberal
Dominic LeBlanc Liberal Beauséjour, NB
And presumably lead those governments, then, to think that's a valid public policy initiative they can undertake for those same reasons.
4:15 p.m.
Executive Director, Center for International Private Enterprise
You have to be sure to give them credit. After they put in—
4:15 p.m.
Liberal
Dominic LeBlanc Liberal Beauséjour, NB
You're not saying that politicians are looking for credit, Mr. Sullivan. That's a very cynical thing to say to a group of politicians. I can't believe I'm—
February 13th, 2012 / 4:15 p.m.
Conservative
4:15 p.m.
Liberal
4:15 p.m.
Conservative
4:15 p.m.
Executive Director, Center for International Private Enterprise
I hope I haven't offended you, but I tell the private sector that all the time—
4:15 p.m.
Liberal
4:15 p.m.
Executive Director, Center for International Private Enterprise
—because they tend to forget.
4:15 p.m.
Conservative
The Chair Conservative Dean Allison
That's all the time we have.
We're going to start our second round now, with Mr. Van Kesteren. You have five minutes, sir.
4:15 p.m.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Thank you, Chair. Thank you both for being here.
The purpose of this study is multi-faceted. One of the things we all share—as a committee, and I think as people in general in western civilization—is wanting to help those who are less fortunate, or who aren't as far developed, to at least have a decent lifestyle. That's been frustrating. When we look at Africa, in general, there's been so little of that advancement that's taken place.
When we had Mr. de Soto here, he pointed out the very obvious fact that we expect them to be where we are, having gone through that whole process of history. We've obviously been through the parliamentary system and government in general, but also we've evolved with technology. We're expecting them to be at this plateau, when he had to discover all those discoveries and make our way up.
I, for one, am frustrated because I also went to Ghana. If we go back 100 years, most of us came from farms and lived on farms. But when you go to any African country, or any third-world country, the vast majority of people live in villages or live in cities, so they missed that key ingredient. I believe entrepreneurship is innovation, and innovation is taught on the farm better than anywhere else. We have a lot of very clever people who are good at selling wares, but lack that training. The horse is out of the barn.
The question goes to both Mr. Sullivan and Mr. Eaton. Have either of your organizations examined that? We know where the problems are, but now that we're in this situation, how do we get them to start to operate on the same economic scale and the same structural scale that we have in western civilizations—now that all those things have happened and you can't put the genie back in the bottle?
4:20 p.m.
Executive Director, Center for International Private Enterprise
I'm not quite sure I followed all of your question.
In Ghana—since we're using that country as an example—we work with the private sector foundation, which is an umbrella group that brings together the Chamber of Commerce, Chamber of Mines, and other associations. They, in turn, have reached out to the farmer associations, particularly in the northern part of the country, because so much public policy in Ghana is holding back farming innovation.
Particularly, one of the things.... The United States made this conditional in the Millennium Challenge Corporation program. You could not import the best seed varieties. You had to use locally grown seed. Guess whose idea that was? The seed manufacturers, of course—the domestic ones. They were putting up trade barriers that were inhibiting the natural process of innovation and growth in Ghana.
One of the best ways we found to begin this process was to try to diagnose and answer the same question Hernando asked: “Why do people do things the way they do?” All too often international development experts fly in; they have the model of the international best practice. They assume that the people in the country don't know that model, so they begin teaching it.
In reality, you have a whole variety of reasons that people do what they do. Hernando did his experiment. I'm sure he told you about it when he was here. He went around and tried to register a small business, and it took over 290 days. Well, if you go out and talk to people, particularly in the informal sector or in the small and medium enterprise sector, they'll tell you why they're doing what they're doing. And it often comes back to the lack of something. It's either the lack of an enabling factor....
In Egypt, for example, small businesses have to sign 26 post-dated cheques. The banks force them to do that. Why do they do that? Well, because the bankruptcy legislation is so bad that it can take half a year to get the collateral back. You can put up collateral; you just can't get it through the court system, whereas if you bounce that bad cheque, you're going to jail. So there's a real incentive to keep your loans paid up, or not take any out, but it has the effect of inhibiting people from moving into the formal sector or the formal sector firms getting any access to credit.
Our first step in almost all of these projects is simply to ask why it is being done this way. Often we find it isn't a simple question of lack of education or lack of exposure, but often a structural impediment, sometimes a very simple one.
Another one that Hernando found—I use him as an example all the time, because he's so brilliant at doing this—is the proliferation of notaries. The notaries form a lobby like the seed manufacturers. Even after he got a lot of his reforms through in Peru, they came out into the streets and tried to undo them, claiming it was alien to Peruvian and western civilization. “Look at France as our development model”, was their point, or “Look at Germany”, which is a country built at a very different level of development, using notaries and other kinds of things, whereas if you simplify the process, which is what he did in Peru, of course it costs the notaries a lot of money.
So analyzing the political economy and asking people why they're doing this is our first step in so many cases.
4:20 p.m.
Conservative
The Chair Conservative Dean Allison
Thank you.
You were way over time, my friend. But the good news is we have these guys for two hours. So we'll circle back around.
4:20 p.m.
Executive Director, World University Service of Canada
Could I add an example to that, though?
4:20 p.m.
Conservative
The Chair Conservative Dean Allison
We're going to have to come back. I'm sure the question will be asked, because there's a good train of thought there.
Ms. Sims, five minutes, please.
4:20 p.m.
NDP
Jinny Sims NDP Newton—North Delta, BC
Thank you.
As I'm listening to this conversation, it's all very fascinating, but I sometimes think I am at a business development meeting, because when I really look at the purpose of our aid—and I'm talking about international development here—it is to reduce poverty. That's the primary driver. At times of crisis and otherwise, that's where Canadians want their funding to be going—to reducing poverty. I don't think its goal is to further private sector interests or short-term trade priorities. If that happens, that's wonderful. Yet a lot of the focus I've heard today has been on putting infrastructures in place or institutions in place that will help the mining companies or other companies that should go in.
When I've looked at public and private working together—and I've seen some projects in which they have worked well together—they've gone in and actually looked at the human rights issues. They've looked at the rights of workers. They've looked at the environmental impact. They've also looked at advocacy.
When I look at a wonderful institution like yours—I'm trying to learn more about it as well—you do work out there, but when I look at the report you did, the annual report for 2010, you're primarily funded through government sources and the National Endowment for Democracy, which in turn also receives money from the government. I'm not saying that's a bad thing, by the way, in this case, because it's what you do with that money.
Canada's aid budget has been frozen. It cannot go up. We're actually falling behind, and that's what we're hearing from many of our partners. We are anticipating further cuts in the budget. There is a budget coming up. We're worried. We're not sure if that's going to happen. Really, with such a shortfall in our aid budget just because we're frozen—and by the way, we haven't gone up to our commitment of 0.07%—my biggest fear is that the government will look at ways of doing work with the private sector in such a way as to mask some of the underfunding and in a way that will not actually put into place long-term development. It will not be addressing poverty in a long-term, sustainable way, but rather with what could be very short-term interventions. You go in with a mining company. You're there for four, five, or ten years maybe. Then you're gone.
I have a lot of fears about our aid being so closely tied to one particular industry. It's not being driven by the community, as you said. It's not coming up from the grassroots. It's once again coming from here, and with a very corporate agenda and softened social responsibility.
What role do you think the public sector has to play in our international work, or do you think the private sector can do it all? Expand on that for me.
4:25 p.m.
Executive Director, World University Service of Canada
Who would you like to speak?
