Foreign Affairs Committee on Nov. 17th, 2011

[The Chair, Conservative, Dean Allison]

Good morning, everyone.

It's been a little while since we've met. It kind of feels like it as well. I hope everyone remembers how to behave and how to work here.

We're here pursuant to Standing Order 108(2) in our study of the role of the private sector in international development.

I want to welcome today Ross Gallinger, the executive director of the Prospectors and Developers Association of Canada. Thank you for taking the time to be here.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

I don't know if this is a point of order or a clarification.

I think we had agreed to do a study on Africa in the 21st century and the first chapter would be the role of the private sector. We would appreciate it if this could be reflected in the title.

[The Chair, Conservative, Dean Allison]

I don't know if that's the case, but let's save some time to talk about that very thing.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Okay. Thank you.

[The Chair, Conservative, Dean Allison]

Mr. Gallinger, we want to thank you very much for being here today.

I believe you have an opening statement. We'll let you start and then we'll go around the room and ask questions.

Welcome, sir. The floor is yours.

[Ross Gallinger, Executive Director, Prospectors and Developers Association of Canada]

Thank you, Mr. Chair and committee members. I appreciate the opportunity to speak to you today on the important topic of the role of the private sector in international development.

As noted, I am the executive director with the Prospectors and Developers Association of Canada, and I'm very proud to represent the more than 8,700 companies and individuals we serve.

The PDAC exists to promote the interests of the Canadian mineral exploration sector and to ensure a robust mining and exploration industry in Canada. The PDAC encourages the highest standards of technical, environmental, safety, and social practices in Canada and abroad. For 80 years our association and our members have worked hard to develop strong, mutually beneficial relationships with the communities we operate in, whether domestic or international.

My experience in the mining industry spans over 25 years in improving environmental, social, and health and safety performance in North America, South America, Africa, and Australia. My career in the mining business has afforded me the opportunity to travel the world, meet incredible people in communities, and become immersed in numerous cultures.

My first trip to a Latin American developing country in 1995 was an introduction to the harsh realities of poverty that occur today. Some 1.3 billion people in developing countries live on $1.25 or less per day. The Food and Agriculture Organization of the United Nations estimates that over one billion people are undernourished, 70 million children cannot go to school, access to clean water is a challenge for approximately 900 million people, and over eight million children will die before their fifth birthday.

Anyone witnessing poverty and understanding the current scope and magnitude of the condition is moved to think about what can be done to improve the situation. Despite efforts to meet the millennium development goals of halving the number of people in poverty by 2015, poor countries have not been able to sustain the broad-based growth that generates the jobs and incomes to get people out of poverty.

In 2008 the U.K.'s Department for International Development issued its report “Private Sector Development Strategy Prosperity For All: Making Markets Work”, which positions an exit strategy from dependency on aid to evolving inclusive economic growth driven by private investments and improved productivity.

In a speech to the London School of Economics in 2010, Andrew Mitchell, the U.K.'s Secretary of State for International Development, provided solid evidence linking economic growth with poverty reduction, using a comparison of South Korea and Zambia. In 1960 Korea had a GDP per capita of only twice that of Zambia, but by 2009, as a result of different economic growth pathways, South Korea's per capita income was nearly 40 times higher than Zambia's. South Korea's child mortality rate moved to five per thousand, compared with that of Zambia at 141. China's 10% annual growth rate per annum between 1990 and 2005 has been credited with lifting 475 million people out of poverty.

In conversations, conferences, and dialogues on international development, this question will usually be asked: what is the role of the private sector in poverty reduction? I was once asked, in a discussion on corporate social responsibility, why are companies involving themselves in community education and health care projects, which are the responsibility of the state? I replied: why are development NGOs doing education and health care projects, which are the responsibility of the state? These questions only indicate that we have a long way to go to embed an understanding of the private sector's role in development, beyond philanthropic contributions.

Private sector companies are the energy source for growth. They power long-term employment and income to yield individual well-being. Successful companies are making local investments, improving productivity, employing people, paying wages, purchasing materials, producing goods and services, generating profits, and paying taxes. In the World Bank's report, Voices of the People, 60,000 poor people were asked what they saw as their best route to escape poverty. The top options they saw were having their own businesses or earning wages.

In my travels and work in the mining sector, whether it is first nations in Ontario or campesinos of Peru, the reoccurring request is a share in the economic activity through direct or indirect employment. In the mining industry's race to articulate corporate social responsibility, we have marginalized the importance and contribution of business.

I was involved in an operation in a developing country where the country had a 5% equity interest in the operation, and employees were constantly projecting the 5% versus 95% view of country-versus-company benefit.When the company provided the figures for taxes and royalties, wages paid, and local goods and services purchased, all benefits that stayed in the country, the country-versus-company benefit became a 50-50 split.

The accounts balance shifts in favour of the country when you add the company's contribution to local and regional community development, such as community education initiatives, health programs, provision of clean water, and livelihood improvement projects.

In 2007, at the John F. Kennedy School of Government, more than 100 leaders from business, government, civil society, and international development agencies participated in a dialogue on the role of the private sector in expanding economic opportunity. The discussion centred on the concepts of building inclusive business models and implementing complementary strategies. These concepts are important and relevant today, as the current “Occupy” protests tend to criticize business models for not being sufficiently inclusive and for placing too much emphasis on Milton Friedman's premise that the main social responsibility of business is to increase its profits.

Inclusion in the business, which can mean involving poor communities in your development, is a key to success. When you acknowledge the poor and their assets of human, social, economic, and natural capital, they become a valued partner in the development of a mining operation. Mining projects are trailblazers in the involvement of communities, with some of the first community agreements occurring in Canada in the form of impact-benefit agreements with first nations over 20 years ago.

With a projected gap of over 100,000 job vacancies in the mining sector in Canada by 2020, the mining sector is looking to partner with a variety of actors to build the skills to fill the opportunities. PDAC's “Mining Matters” program partners with education and first nations to raise awareness of the importance of geoscience and the minerals industry and allow students to consider a future career in the industry. This education model is being examined for export to developing countries where the competition for skilled workers will be equally challenging.

I have seen the positive role of multinational corporations in improving the lives of people in developing countries. On my first trip to Peru in 1997, at the start of the privatization and promotion of foreign investment, I was witness to risky safety practices in construction projects around the city of Lima. Observations included workers at heights without fall protection, inadequate barriers to prevent the public from access to hazardous sites, and very few hard hats or safety boots. In constructing a new mine in the country at the time, better safety performance was mandatory, and the Canadian owners had to build the capacity of Peruvian contractors to follow the company's safety programs.

At first, there was some resistance to the change, but they soon realized the benefits of reduced injuries to their workforce, as well as the potential business advantage. Future foreign investment in construction would expect good safety performance. They recognized that expertise and a sound safety record would give the Peruvian contractors an advantage over their competitors. Last year I returned to Lima and observed construction safety practices that rival our own here in Canada. It was a stark contrast to what was observed in the past.

The importance of the private sector has been acknowledged such that 11 donor agencies have endorsed the bilateral donor's statement in support of private sector partnerships for development. The statement seeks to engage the private sector in working to implement inclusive business models, promote responsible business practices, address operational and humanitarian challenges through corporate social responsibility programs, and to engage in public-private dialogue and advocacy on important global issues.

The mining industry has seen that company and social benefits can be maximized through partnership. The intersection of development interest between extractives and development NGO's has allowed for an organization like the Devonshire Initiative to exist and seek partnerships. We are beginning to see the expanded potential of partnerships with recently announced projects that combine the resources of the extractive sector, development NGOs, and the Government of Canada.

The concept of creating shared value, championed by Michael E. Porter and Mark R. Kramer of the Harvard Business School, describes the intersection of development interest and the move to use business markets to address social problems.

All of what I have said today points to the need to partner with the private sector to improve development outcomes. The path to breakthrough in achieving the millennium development goals will encounter a number of breakdowns. Only through a group effort by the private sector, civil society, and government can we learn from our challenges and strengthen our combined quest for poverty reduction.

Thank you very much.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We're now going to start with our first round of questioning.

Madame Groguhé, the floor is yours for seven minutes, please.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Good morning, Mr. Gallinger, and thank you for your presentation. I found it very interesting. Your remarks allow us to see the company’s entire evolution, and it is very positive.

In your view, what are the strengths and weaknesses of the Devonshire Initiative? How does it contribute to strengthening Canadian and international efforts in terms of corporate social responsibility?

[Ross Gallinger]

The strength of the Devonshire Initiative is that it's bringing the development NGOs and the extractive sector together to talk about development. Those conversations, to think about this poverty reduction aspect on a much higher level, were not occurring five years ago.

The industry had been involved with development NGOs, but more on a consulting basis to help work on either engagement or specific development projects.

What we're seeing borne from those conversations are the projects the minister announced most recently—the tripartite-type projects involving the Government of Canada, development NGOs, and the private sector to work on issues in those countries beyond the gates of the mine and to look at greater outcomes in terms of development. That's a really interesting outcome from the conversations between those two parties that weren't occurring five years ago.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

In your view, what progress has been made since the creation of the extractive sector CSR counsellor position in 2009?

[Ross Gallinger]

Certainly it's raised awareness in terms of the issues associated with, and the complications in terms of, development in developing countries. Both the CSR counsellor and private members' bills have raised awareness around that area.

The industry's response in terms of the Devonshire Initiative was a definite result of those kinds of conversations that happened. There has been great progress by the industry in addressing the aspects in the round table's report of many years ago. And there is a lot more discussion going on with a number of actors in terms of how to improve engagement, and how to improve community development as well.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

In terms of corporate social responsibility, you talked about the inclusive approach that yields good results.

Could you give us one or two examples of projects in developing countries that contribute to reducing poverty and to promoting pro-poor growth?

[Ross Gallinger]

Let me give you an example that kind of pulls this all together, and it's to do with clean water. I was involved with a project with a company in exploration in Tanzania. Part of that process was looking at what we could do for community development. Water was an issue, and the exploration manager immediately budgeted to drill some wells and wanted to rush out to start drilling wells immediately.

We pulled that back and started to have conversations with the communities about this concept and to work with them to basically build the capacity for them to actually own these projects moving forward.

In the end we were just a partner in that process. They decided where the well was going to go, what it was going to be like, and what the construction materials were going to be. They were actually the project manager of that process. At the end of the day, they mustered the resources to contribute to that. They brought in stones, etc. They were definitely a part of it. So at the end of the day it was their project, not the company's project, and those wells still stand the test of time because it was their project.

From that experience, they started to look at other business opportunities. They now understood how to deal with government. They now knew how to deal with other companies. It was their opportunity to leverage that experience for other opportunities.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you for raising this very interesting point, which speaks volumes about the fact that we cannot just go somewhere and tell people that they need this or that, that we are going to build wells for them in places that we think are suitable, and so on. That usually does not work. However, when we engage in real dialogue with communities, chances are that we will get better results.

I am very interested in the Devonshire Initiative. Could you tell me which NGOs are involved?

[Ross Gallinger]

There's a lengthy list. You can get it on the website, but let me try to go through the ones I can recall.

CARE, Plan, World Vision, UNICEF just joined… I'm going to be abused by the Devonshire Initiative for not knowing all of them. There are over 13 NGOs involved in the Devonshire Initiative. I can get you that list if you like. I can send it to the clerk.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

If we could pull it from the Internet, that would be useful.

[The Chair, Conservative, Dean Allison]

You have 30 seconds.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

I have 30 seconds left. I am going to share them with Sadia.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

In your view, what are the main factors—for example, local capacity, infrastructure, the rule of law—that might hinder private sector investment in the poorest countries and that would prevent your involvement from having a positive and beneficial impact on development? What solutions do you suggest?

[Ross Gallinger]

The biggest obstacle to development is capacity building. Whether that is enforcement from a regulatory side…generally what we see is that laws in the world can have a lot of equivalency to Canadian law. The gap is in terms of capacity and enforcement, and the resources that government has.

The areas where the mining companies go have very little government oversight. Government programs are few and far between because of the remoteness aspect. Part of the process is also having to build that component so that government is involved in whatever developments follow. Because growth will come, communities will grow, and there will be a need for the typical government services required there. How the private sector can be involved in helping that and make it sustainable for the long term when business, especially the mining business, has completed their aspect is kind of the challenge, really building capacity both of communities and in terms of governments themselves.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We're going to now move to Mr. Goldring. You have seven minutes.

[Peter Goldring, Conservative, Edmonton East, AB]

Thank you very much, Mr. Chairman.

Thank you for appearing here today.

My questions are along the line of social and corporate responsibility, and what benefits there are to the local people you employ.

You had mentioned in your comments that 1.3 billion people in developing countries live on $1.25 a day or less. I'm kind of construing that to be a minimum wage. For example, I was in Haiti and they talked of $2 a day as a minimum wage there. How would you characterize the salaries paid to the local people hired in the mining industry, and how would that be relative to the minimum wage? For their family well-being, would it be double the minimum wage, or possibly more? We know the mining sector in Canada, for example in Sudbury—I've been in the Inco mines there—I think the wages are in the neighbourhood of two and a half to three times the minimum wage.

[Ross Gallinger]

As in any industrial operation, there are various levels of expertise required. There is huge competition in developing countries for skilled labour, so companies have to pay higher rates than the minimum wage, especially for skilled labour, because there is such a competition between mines, much like here.

[Peter Goldring, Conservative, Edmonton East, AB]

Are we talking bare minimum wage, or are we looking at improving the lot of the people in the country? For example, I'm sure hiring at Inco would be double the minimum wage, in the range of $18 to $20 per hour.

[Ross Gallinger]

Generally the salaries, especially for the technical skilled people, are way higher than any minimum rate in the country itself. In terms of specifics, I'm sorry, I don't have the specifics.