Evidence of meeting #36 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 development.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Stephen Brown  Associate Professor, School of Political Studies, University of Ottawa, As an Individual
  • Khalil Shariff  Chief Executive Officer, Aga Khan Foundation Canada

3:30 p.m.

Conservative

The Chair Dean Allison

Pursuant to Standing Order 108(2), our study on the role of the private sector in achieving Canada's international development interests, we'll begin.

I want to welcome our two speakers today. We have Stephen Brown, who is associate professor, School of Political Studies, at the University of Ottawa. Welcome, sir. We're glad to have you here today.

We have Khalil Shariff, who is the chief executive officer of the Aga Khan Foundation Canada. Welcome to you as well, sir.

We'll start with you, Mr. Brown, and have your opening comments. You have 10 minutes. Then we'll have Mr. Shariff give his comments, and then we'll go around the room and follow up with some questions from the members of Parliament.

Mr. Brown, I'll turn it over to you. You have the floor for 10 minutes.

May 7th, 2012 / 3:30 p.m.

Dr. Stephen Brown Associate Professor, School of Political Studies, University of Ottawa, As an Individual

Thank you very much, Mr. Chairman.

I'm very happy to be here to meet all of you and to have this chance to share my thoughts and analysis with you today. As you've heard, I'm a professor of political science at the University of Ottawa. I'm also a member of the McLeod Group, which is an Ottawa-based group of people interested in promoting a more proactive role for Canada in international affairs. So it's particularly fitting that I come and talk to you today.

I've been doing a lot of research over my academic career on foreign aid, especially Canadian foreign aid. I've just finished editing a book on CIDA and Canadian foreign aid, which will be coming out in September.

What I want to talk about today involves CIDA and the private sector, and the private sector's role in development. My take on this issue is very much coloured by my primary interest, which is foreign aid, so I'm interested in looking at the use of public funds for development and how that intersects with working with the private sector.

The private sector has for a very long time played an active role in foreign aid, especially as contractors. They're essential partners for CIDA. Currently, for example, a Montreal engineering firm is rebuilding the Dahla Dam in Afghanistan, and that's the kind of thing you would want the private sector to do, and not an NGO. So I just want to start by saying that I do see an important role for the private sector in development.

However, as I mentioned, I want to talk about CIDA's partnerships with mining companies, and that's something that I can't be so positive about. As all of you know, I'm sure, the international cooperation minister announced last year four projects that have to do with partnerships with NGOs and mining companies, and they totalled $27 million. The three specific projects are going to be working with CARE, World Vision, and WUSC, partnering with Canadian multinational extractive industries IAMGOLD, Barrick Gold, and Rio Tinto Alcan.

Why is CIDA entering into these partnerships with the private sector? When the minister presented it—if you look at the CIDA website—it was framed as corporate social responsibility, CSR. But much of these funds are going to obtaining and keeping the goodwill of mining-affected communities—in other words, allowing the companies to come in and stay while operating their mines.

To me, this is part of the bottom line of mining companies. If they're going to build a school or a clinic or something like that to win over and keep the support of a community, this is part of the calculation companies make when they invest. This is not something that should be covered by public funds.

The mining industry officials have defended these partnerships as being essential for Canadian competitiveness, which to me flags the fact that it's a form of indirect subsidy to Canadian mining companies if they are saying they can't compete without this kind of support.

Minister Oda, however, has responded by saying, “In no way are public funds being used to increase the profitability (of these companies).” This was in an interview with the Ottawa Citizen in January.

Thinking about the appropriateness of these partnerships, I'm not speaking out blankly against them. The mining companies admit that they lack expertise, and they claim they need CIDA to facilitate the partnerships with NGOs. But mining companies can partner with NGOs if they like; they do not need CIDA's support to do that. They're perfectly free to engage in any kind of relationship with a non-governmental organization, or in fact a private one.

What private companies do when they don't have expertise is they hire it. They can hire consultants, they can hire a smaller company, they can subcontract, they can recruit personnel. They don't need CIDA to do that work for them.

In response to these critiques, the Mining Association of Canada and the Devonshire Initiative came up with new arguments on why CIDA involvement was necessary for the CSR activities. One argument they came up with was that they needed CIDA's involvement to ensure accountability. I found this an unconvincing argument as well, because this is the same industry that opposed, en masse, Bill C-300, the corporate accountability of mining, oil and gas corporations in developing countries act. So to me this argument that companies need CIDA to keep them honest is not a convincing one.

In an interview last month, Minister Oda stated, “There's nothing wrong with the private sector, and particularly our Canadian private sector. They're responsible. They're good.” This was in response to some of the critiques of the CIDA partnerships with NGOs and Canadian mining companies.

Many mining companies may be outstanding corporate citizens, but such blanket statements are not difficult to contradict. In fact, those comments were made simultaneously when the scandal regarding SNC-Lavalin was unfolding. In fact, it still is. The CEO and other executives have resigned over corruption accusations. The RCMP is investigating and raiding the company's headquarters.

I don't want to say that all companies are evil, because I certainly don't believe that, but at the same time, I don't think it's helpful to say they are all good or they are all responsible.

In fact, a recent report from the organization, RepRisk, entitled, “Most Controversial Mining Companies of 2011”, listed 10 companies worldwide that had the most controversial reputations and recommended that organizations engage with them only with high levels of caution, given the reputational risk to working with then. Among those top ten companies were two of the three companies that CIDA has chosen to work with: Barrick Gold and Rio Tinto.

One question that is very important to ask is whether these are the right partners for CIDA. CIDA claims these partnerships will improve the effectiveness of aid, but I have not seen any convincing arguments yet. The projects themselves were not approved through the regular competitive process that other NGO-backed projects have to go through, and very little information has been released on what the contents of these agreements are. Perhaps as MPs you are able to access this information much more easily than I am, but so far, including through an access to information request, I have been unable to get copies of exactly what is contained in these agreements.

One argument that has also been made by CIDA is that it's about leveraging additional funds. This is a good use of CIDA money. The question I would raise is why only seek it from Canadian companies. If it's only about leveraging more money, and it's not about helping these companies be more competitive, why not also get money from, say, Chinese companies, or give money to Chinese companies that partner with NGOs, according to that logic.

What are these companies bringing to the table other than some funds? In some cases, the funds they bring are only a very small proportion of the total funds. For instance, with respect to the project in Burkina Faso, IAMGOLD is contributing $1 million, and CIDA is contributing $5.7 million. The lion's share is still being contributed by CIDA.

To me, this signals that corporations are setting the agenda. This is only a small proportion of CIDA's total spending, and I will be the first to admit that. However, if this is being touted as the kind of partnership of the future, to me, having those kinds of fast-tracks for approving projects just because corporations are putting in some money is a perversion of the idea of aid effectiveness and the government being in charge of its own aid agenda.

It also risks contradicting the very definition of official development assistance, which, according to the OECD definition to which Canada subscribes and which is part of the legislation, the Official Development Assistance Accountability Act, aid must be primarily for supporting economic and social development in developing countries. That would exclude support to Canadian private companies. It also risks contravening the provisions of the Official Development Assistance Accountability Act. If Canadian mining companies working with CIDA are responsible for human rights violations, as they have often been accused of, this would be in direct contravention of the Official Development Assistance Accountability Act.

To conclude, Canada should be very cautious when partnering with the extractive industry for development activities. There are a number of ethical issues at stake, as well as Canada's international reputation. Minister Oda admits that she makes no distinction between Canadian commercial and development objectives, and I think this is a major problem for a minister who is in charge of an international development agency. Foreign aid should focus primarily on fighting poverty and inequality abroad, regardless of Canadian commercial or corporate interests. That is the law.

If the Canadian government wants to support Canadian companies abroad, it has many other instruments it can use to do so. For instance, there is Export Development Canada. We do not need to use foreign aid to do so.

Thank you very much.

3:40 p.m.

Conservative

The Chair Dean Allison

Thank you.

I'll turn it over to Mr. Shariff.

3:40 p.m.

Khalil Shariff Chief Executive Officer, Aga Khan Foundation Canada

Thank you, Mr. Chairman and members of the committee. It's a great privilege to have the opportunity to be here and to share the experience of the Aga Khan Development Network in the area of the private sector's role in achieving international development objectives.

I want to begin by commending the committee for taking up this issue, because it is both important and difficult. I think you've already heard in previous testimony that there is now a very strong consensus around the pivotal role that economic growth plays in reducing poverty, and of course a central role that a robust private sector plays in underwriting economic growth. But you have also heard—and I think correctly—that not all economic growth is the same and it does not always translate into poverty reduction.

So your study, I think, allows us to explore the different dimensions of the issue and to figure out exactly how it is that the private sector can support growth, which in turn will support important development objectives across the entire spectrum of private sector actors: from large multinational firms to small enterprises, from commercial banks and insurance companies to microfinance institutions that reach remote villages, and from a business owner employing thousands of workers to an enterprising small farmer.

I'd like to start by saying a few words of background about our institutions and the experience we're drawing on in making this submission.

The Aga Khan Development Network, or the AKDN, is a collection of individual non-governmental development agencies established by His Highness the Aga Khan, each of them with a specific mandate ranging from health, education across the spectrum from pre-primary to higher education, microfinance, rural development and livelihoods, culture, and the promotion of private enterprise.

In Canada, Aga Khan Foundation Canada is a not-for-profit charitable Canadian international development agency that has been working for over three decades with Canadian institutions and individuals, including CIDA, to support high-impact initiatives in Africa and Asia that improve sustainably the quality of life of poor, marginalized communities. We have also been involved in Canada in establishing the Global Centre for Pluralism in Ottawa as well as the Aga Khan Museum in Toronto.

We have prepared a written submission with our key perspectives, so I'm going to limit my remarks here to just some of the key highlights, but I'll be happy to go into any of the details in our question period.

Before I get into any of the specific lessons around the private sector and development, I want to make one general point that is a conclusion from our many decades of work in Africa and Asia. That lesson is that there are very few silver bullets in development. We take a multi-input approach, where we try to take initiatives and interventions that span social, cultural, and economic development. We think that's the most promising way to underwrite sustainable change.

The work we do in the private sector that I'm going to focus on today is one of several areas of activity that also include substantial commitment in not-for-profit areas of health and education and microfinance, etc., as I've talked about.

I would like to focus today on the one AKDN agency that is singularly focused on that issue, and that is the Aga Khan Fund for Economic Development. It has the distinction of being the sole AKDN for-profit institution, but it is equally dedicated to international development. The fund is known as AKFED and it is dedicated to promoting entrepreneurship by building viable enterprises in the developing world, with a focus on fragile or complex regions that lack foreign direct investment.

AKFED's profits are reinvested in future development efforts. It is involved in more than 90 separate project companies, directly employing more than 30,000 people, but with a downstream employment impact many times that. It had revenues in 2010 of over $2 billion and spanned a range of sectors integral to the developing economies of Africa and Asia: from agro-processing and infrastructure to financial services, tourism, aviation, telecommunications, and manufacturing.

The experience of AKFED over the last half century has suggested some important principles of maximizing the development impact of private sector engagement in the developing world, and I want to share three of those lessons with you today.

The first lesson is for private sector actors to find ways to maximize the multiplier effects of their investments. Growth is spurred when investments, whether public or private, create multiplier effects. Economies are interdependent, which means that the growth of a particular sector relies on the availability of certain services or products from other sectors. This means that certain large-scale investments in key sectors such as power generation, telecommunications, and hard infrastructure can help businesses across sectors to grow and unleash new economic opportunities. It turns out, of course, that some of the investments in those infrastructure issues are also essential to public and social services as well.

Let me give you an example. In 2003, AKFED established a mobile phone company in Afghanistan called Roshan. It was an early investment to help kickstart the nascent and rebuilding Afghan economy. Roshan today is now reaching close to four million subscribers, many in remote rural areas, and employing over 1,000 people directly, and more than 30,000 indirectly through activities such as selling airtime credit. The infrastructure of a strong national mobile telephony has also allowed Roshan to seek to maximize its multiplier impact across the economy. For instance, Roshan now provides mobile money transfer services, which extends financial services to the 97% of Afghans who can't access banks. We're also using Roshan today on the not-for-profit side to support telemedicine, allowing Afghans to access health expertise from around their own country, and indeed from around the world. Another measure of Roshan's multiplier effects is the fact that it is one of the largest taxpayers in the country, contributing approximately 5% of the government's total domestic revenues.

So the first lesson is to maximize multiplier effects.

The second principle is for the private sector to look for ways to promote new business models that innovatively combine sustainable commercial and development objectives. With a full understanding of the full value chain of a targeted sector such as tourism or agribusiness, there are many opportunities that can be created for local development impact. Again, I will cite an example. AKFED's tourism promotions services owns and manages a series of high-quality hotels under the Serena brand name that have an explicit policy of minimizing environmental impacts while maximizing the socio-economic fallout benefits to the region. Each hotel seeks to work with the community in a variety of ways, such as investing massively in training for local residents for employment, the reinvigoration of local designs and craft industries, locally sourcing goods and services, and cooperating with the community to recycle waste.

The second lesson, then, is looking for business models that combine both sustainable economic returns but also sustainable development impact.

A final principle I want to share today is for the private sector to look for ways to target marginalized segments of the population in order to amplify development impact. Many marginalized groups, such as the very poor, women, uneducated or undereducated youth, and rural and remote populations, are often excluded from private sector activities because the obstacles to sustaining growth for these populations are often poorly understood or addressed. The combination of entrepreneurial energy and a development mindset can unlock real gains. An example here would be Frigoken, an AKFED company that has sought specifically to create a sustainable business model geared toward income generation for small-scale farmers in Kenya by identifying and responding to the key obstacles these farmers face in marketing their surplus produce. In this instance, Frigoken provides a range of services to Kenyan bean farmers—price guarantees, the provision of seeds, quality control, processing, transportation, and marketing. Today, Frigoken is the largest exporter of processed green beans from Kenya, most of which are sold on European markets. The impact is that not only does the company provide direct employment to 2,700 people, most of whom are women, it also now supports over 45,000 small-scale farmers in rural Kenya.

Focusing on maximizing multiplier effects, creating innovative business models that combine both development and commercial objectives, and seeking ways to target otherwise marginalized populations can, with the right mix of entrepreneurial energy and solid development thinking, provide both sustainable profits as well as meaningful development impact.

Absorbing these principles may have some implications for the private sector here in Canada. I thought I would share with you some early thoughts on what some of those implications might be.

First, of course, there are opportunities for direct investment by Canadian firms in the market opportunities in the developing world, especially if they are structured along the principles I have discussed today.

Second is opportunities for knowledge transfer. After all, the Canadian private sector is a leader in a number of areas that are essential drivers of the future of the developing world: agriculture and fisheries; financial services; international trade; aviation; and the sustainable management of natural resources, including mining, oil and gas, forestry, and hydro power. There is much capacity in the Canadian private sector, including management approaches, knowledge, and technology, that we would consider simply standard forms of competent practice here but are simply not available in the developing world.

Third is financial contributions. Through corporate social responsibility and philanthropic budgets, the Canadian private sector has long been a major driver of civil society here in Canada, supporting important efforts across a spectrum of social and cultural activity. As Canadian enterprises become more globally integrated, their philanthropy will also have opportunities to make thoughtful contributions to civil society in other parts of the world, and indeed should be encouraged to do so.

The final implication is that we could all become a more active part of the global conversation and experimentation on this set of issues. There are multitudes of experiments under way in many parts of the world: new innovative financing mechanisms to spur these kinds of enterprises, different business models, and interesting public-private partnerships. Launching some experimentation ourselves, as well as learning rigorously from others, could be a major boost to Canadian efforts.

Before I end, I want to simply extend an invitation to the committee and your colleagues to visit some of these initiatives in the developing world. It would be a privilege to be able to share the experience on the ground from the people who are managing these efforts as well as benefiting from them, in both the work the Aga Khan Fund for Economic Development is engaged in and in some of the other not-for-profit work that is significant for us.

Let me thank you again for providing the opportunity to share some thoughts. I very much look forward to learning from the results of your study.

Thank you, Mr. Chairman.

3:50 p.m.

Conservative

The Chair Dean Allison

Thank you.

We'll start with the opposition for the first round.

Mr. Saganash, you have seven minutes, please.

3:55 p.m.

NDP

Romeo Saganash Abitibi—Baie-James—Nunavik—Eeyou, QC

Thank you, Mr. Chair.

I'd like to take this opportunity to thank both of our witnesses for their testimony today and for their contributions to our committee.

I have a question for Professor Brown. We know you've written extensively on CIDA and have some strong criticisms about the department and the government's approach to how they are spending CIDA's funding. In January you were quoted extensively in the Ottawa Citizen article written by Elizabeth Payne. In that piece you called the shift of aid dollars to support the work of Canadian mining interests overseas as an effort to “whitewash the negative effects of their resource extraction”.

We are concerned on this side of the table about this approach. I believe Canadians are also pretty much concerned about this new approach. We seem to be partnering with for-profit multinational corporations and non-profit NGOs to promote projects that seem to be doing more to promote clean extractive industries than to reduce poverty, which is the mandate of CIDA.

Could you expand on this? The committee would benefit highly from your comments on this one.

3:55 p.m.

Associate Professor, School of Political Studies, University of Ottawa, As an Individual

Dr. Stephen Brown

Thank you for the question.

There's no doubt that resource extraction can generate revenues that can be used well by a developing country. This is something that has been touted by CIDA, and in fact by the Prime Minister, as sort of the wisdom of relying on resource extraction as a development model. The Prime Minister, at the Summit of the Americas, just recently touted Canada as a great example of this.

But we also know that great destruction can go along with resource extraction. In Canada we have laws that, though imperfect, do provide a certain degree of safeguards, which a lot of developing countries don't have. We also know there are a lot of ills associated with development based on resource extraction. Just to name a few, there are corruption, conflict, HIV/AIDS, drug abuse, alcoholism, conflict within communities...and the list goes on. In fact, we've seen this in Canada in many aboriginal communities as well.

What is needed is a better understanding of the two sides of resource extraction as a development strategy, and effective ways to minimize the harm while maximizing the benefits. One potential way to maximize the benefits would be to improve the regulatory framework in a developing country to regulate the foreign mining companies as well as the domestic ones. CIDA has been involved in this in the past, for instance, in Colombia. However, the new regulations were very much in favour of the mining industry, especially the Canadian mining industry. In fact, the rate of royalties going to the government went down. There have been many criticisms of collusion between CIDA and Canadian mining companies against the interests of people in developing countries.

There's also this facile argument that more revenues means fighting poverty. This often is not the case. I've mentioned that corruption is one possible side effect. Just because a government has more revenue does not mean it chooses to use it for poverty alleviation, so any argument that's based on that actually partakes in a leap of logic.

3:55 p.m.

NDP

Romeo Saganash Abitibi—Baie-James—Nunavik—Eeyou, QC

One of the issues you raised in your presentation was the funding for four projects, totalling close to $27 million, I believe, that will, according to the department—and I quote the department—“help developing countries in Africa and South America manage their natural resources to ensure they are the source of long-term sustainable benefits to their people”. It turns out that CIDA will provide, as you mentioned, help to Canadian companies like Rio Tinto Alcan, IAMGOLD, and Barrick Gold. A lot of these companies that we find in South American or Africa are also in my riding. We have to wonder what compels them to do the right thing in this country while doing the opposite elsewhere, in other countries.

You were quoted as calling this support to highly profitable companies “scandalous”. I must say we agree on that point. When we talk about the role of the private sector in achieving Canada's international development interests, is that the direction this country should take?

4 p.m.

Associate Professor, School of Political Studies, University of Ottawa, As an Individual

Dr. Stephen Brown

I very much believe that it is not the direction we should take. In fact, it was interesting listening to the presentation of my colleague here, Mr. Shariff. None of that, as far as I noticed, involved any use of public funds. The other thing I wanted to underline was that this was support to local companies, especially as start-ups. A lot of the debates about public-private partnerships and the role of the private sector tend to conflate local start-ups and multinational Canadian companies. This is a very important distinction to make.

I do still believe it is scandalous that such large companies as the ones we've been discussing get millions of dollars from CIDA to undertake activities that they could very well fund on their own. Barrick Gold is an incredibly profitable company. It does not need CIDA money to do reforestation in South America.

4 p.m.

Conservative

The Chair Dean Allison

Thank you, Mr. Brown.

We're going to move over to the government side.

Ms. Brown, seven minutes, please.

4 p.m.

Conservative

Lois Brown Newmarket—Aurora, ON

Thank you, Mr. Chair.

Gentlemen, thank you very much for being here. It's really great to have your investment in our discussions here.

Mr. Brown, I had the opportunity to read your paper, “CIDA Under the Gun”, a paper presented at the Canadian Political Science Association annual conference in June 2008. I would very much like to discuss some of the comments you made here.

First of all, I don't think we would disagree at all with your statement that there need to be regulatory processes in place in the countries. I know from my many visits to Africa that we are doing those things. We are helping build capacity in these countries. It's not our place to go in and tell them how to do it. We need to work with the governments of the countries and ensure that they help to build their own processes and their own plans. But Canada is very much involved in a consultational process with many of these countries.

Have you been to Burkina Faso?

4 p.m.

Associate Professor, School of Political Studies, University of Ottawa, As an Individual

4 p.m.

Conservative

Lois Brown Newmarket—Aurora, ON

Have you been to Botswana?

4 p.m.

Associate Professor, School of Political Studies, University of Ottawa, As an Individual

4 p.m.

Conservative

Lois Brown Newmarket—Aurora, ON

So you haven't seen either of the WUSC projects that are going on there.