Foreign Affairs Committee on Dec. 13th, 2011

[Mark Eyking, Liberal, Sydney—Victoria, NS]

That's not a point of order.

[The Chair, Conservative, Dean Allison]

You're right.

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

—and we are assessing those things on an ongoing basis.

[The Chair, Conservative, Dean Allison]

Thank you for that non-point-of-order.

Anyway, let's suspend for two minutes and we'll get our next witnesses up. Thanks.

[The Chair, Conservative, Dean Allison]

Would everyone please come back to the table so we can get started?

Welcome back.

I do want to thank Mr. Runde from the Center for Strategic and International Studies for being here today.

Looking at your CV, I know you have spent a lot of time trying to leverage the private sector in terms of international development interests. That's what our study is all about, so I think it makes you a particularly interesting witness. You can talk to us about your experience and what you've seen and what you've actually been able to accomplish.

We will start with your opening comments of about ten minutes, and then we go back and forth between opposition and government to ask some questions and get some answers.

We apologize for not having as much time as we'd like, but we are grateful to have whatever time we have. I'll leave it at that.

Mr. Runde, I'll turn it over to you, sir. The floor is yours.

[Daniel Runde, Director, Project on Prosperity and Development, Center for Strategic and International Studies]

Thank you, Mr. Chair.

It's an honour and a privilege to be here in Canada. Thank you very much for the invitation.

I'm Dan Runde, and as you described, I'm the director of the Project on Prosperity and Development and the William A. Schreyer Chair in Global Analysis at CSIS.

When I was at AID, they accused me of working for the CIA. And I know that up here you'll accuse me of working for CSIS, and I'm guilty as charged. But in this case, it's the Center for Strategic and International Studies, which is a foreign policy, defence, and now development think tank in the United States.

I've been to Canada many times and have had the honour and privilege of participating in the Halifax security conference. This is my third year, so I'm very familiar with Canada.

I think that from my remarks you'll see that I have some thoughts for you about your study.

I have just a couple of sentences more about me. I've worked in government. I was with the World Bank Group, at the International Finance Corporation, where I managed relations with philanthropy and corporate philanthropy as part of the World Bank Group. Then I ran a significant initiative office at the U.S. Agency for International Development, which is the U.S. equivalent of Canada's CIDA, on partnerships and public-private partnerships. I'll talk a little bit about that.

I've also worked in the private sector. I worked at what's now Deutsche Bank. I worked at Citibank. I worked at the Bank of Boston when I lived overseas in Argentina for three years.

In another capacity, I'm also president of a professional society in Washington. Basically, it's the equivalent of a development practitioners association. It's called the Society for International Development.

So I wear a lot of hats, and I bring a lot of perspectives to this conversation about the role of the private sector, particularly for Canada and Canada's development cooperation.

I'm going to leave the committee with a few thoughts, and then I look forward to your questions.

First, Canada is a major global player that is poised to take advantage of a changed development landscape. One major change has been the massive increase and shift in resources to private sector economic engagement from the developed world to the developing world. Another major change has been an acknowledgement of the central role of the private sector in poverty alleviation.

Let me first talk about the shift in resource flows and bring it specifically to the Canadian case. Canada's official development assistance, as a whole, has grown from about $2.7 billion Canadian ten years ago to over $5 billion in 2010. This committee knows this very well. If you'll allow me, it is, of course, in Canadian dollars and not in U.S. dollars, so we're talking about real money, as opposed to....

[Voices]

Oh, oh!

[Daniel Runde]

As this committee well knows, in addition to massive encouragement and the massive increase in ODA, remittance flow from Canada to developing countries in 2009 was over $12 billion Canadian. Just think about that. There was $5 billion in official development assistance, more or less, and $12 billion in remittances to the developing world, just from Canada.

I think it's interesting to note that according to the most recent available data, two of the top ten countries of origin of recent immigrants, which are therefore likely to be where a lot of the remittances go, are also countries of strategic interest. Ms. Brown referenced the fact that there are 20 strategic-focus countries, and two of them overlap with where remittances are likely going. They are Pakistan and Colombia. We can come back to talk about that.

Finally, and I think most important, total foreign direct investment from Canada to developing economies in 2009 was over $120 billion Canadian. Think about it: ODA is $5 billion; remittances are $12 billion; and foreign direct investment from Canada to developing countries is over $120 billion Canadian. You get a sense of this massive shift. There has been a massive shift.

Let me bring it to the U.S. context. This is a global phenomenon. In the U.S. case, in the 1960s resources from the U.S. to the developing world were approximately 70% ODA and 30% private resources, in various forms--foreign direct investment, remittances, faith-based giving, and charitable giving. That, in essence, has flipped. Today we're talking about 15% of U.S. resources to the developing world being ODA and 85% being foreign direct investment and remittances. If we were to put up a little pie chart for you on Canadian economic engagement and ODA remittances and FDI, you'd get something very similar, as you can see from the numbers I described to you earlier.

ODA is critical. ODA is important. But we have to think about ODA in the context of these much bigger forces going on in the world, and we have to be thinking about how we use ODA in this changed landscape. In other words, development agencies, with official development flows, have become minority shareholders in the business of development.

It's still critical, and ODA can do things that other resource flows can't. So I'm not saying we're privatizing assistance. I'm not saying we should get out of the development business. We need ODA, but we need to think about how we use it in the context of this changed world.

Let me talk about the second shift. The first one is the shift in resource flows. The second is an increased appreciation for the role of private job creation and development. DFID has cited this, and so has the World Bank group. CIDA's analysis found that development is driven by private sector growth, that nine out of ten jobs in the developing world are generated in the private sector. They're not generated in the public sector or the NGO sector.

Many of you are familiar with the Gallup organization. Gallup polled over 100 countries and found that 40% of Africans plan to start a new business in the next 12 months. Why? Here in the north being an entrepreneur is a lifestyle choice. I may go work for Barrick Gold, Scotiabank, or Bell Canada, or I may start my own business. In Africa, you have to start your own business to survive; there aren't big corporations to go into.

So this is significant. I think it should also influence how we think about how we support the private sector, because it's a critical part of the reality in the developing countries. CIDA has recognized this with its shift in priority themes to include sustainable economic growth. Canada is not alone as it shifts resources to support private development and to work more closely with the private sector. For example, at DFID, the British aid agency, one of its three areas of strategic focus is private sector development. They've put a significant emphasis on this. UNDP, the UN agency for development, has looked at a number of interventions along with what they call inclusive business models. They had an initiative for several years about growing inclusive markets. It emphasized the role of the private sector in this growth. So this is not a Canadian phenomenon; it's a global phenomenon.

Canada has much to offer the world. It has free markets married with a successful regulatory regime and careful stewardship of extractive energy resources. Canada is world renowned for managing extractive resources in responsible ways, and this is an important Canadian export that needs to be further embedded in development cooperation. I think about provincial governments that have stewarded their resources very well. This is one of the holy grails of international development.

We talk in development about the extractive curse and how to manage oil revenues. We think about a country like Brazil. They're not going to need any money in the future, but they may need some expertise in managing their resources, and they may get this expertise at the subnational level through provincial governments. I think Canada's going to have a unique role to play. It is a trusted messenger with a great track record. I submit to the committee that this is something you've all thought about, something of great importance in the future.

In respect of governance that has to do with supporting the private sector, managing extractive resources and taxes is part of economic growth, because having a good enabling environment and the rule of law is important. Canada has much to say about this.

Canada's IDRC has made moderate and clever investments in think tanks in Latin America. Many of you may be familiar with a $50-million Canadian program, challenge fund. I think it's brilliant. It's small-dollar. I'm in the think-tank business, so maybe I'm not exactly objective about this, but I think this is an incredible investment. It doesn't have to be huge-dollar. We talk a lot in the development business about policy dialogue and influence. This has been a very important and strategic investment on the part of Canada.

I also think CIDA's sustainable economic growth strategy has the right areas of focus—building economic foundations. In other words, it promotes a business-enabling environment, growing businesses by supporting the capacity and competitiveness of enterprises in developing countries. CIDA calls this investing in people.

So what do these two changes--the shift in resources and the recognition that the private sector is the engine of development--mean for Canada, and specifically CIDA?

First, it's vital that CIDA learn to build partnerships with private sector companies. Public-private partnerships, programs to facilitate them, and investments in private sector growth are not a panacea, but these approaches enable public actors to leverage non-traditional resources to address problems through market-based means. I believe that partnerships with non-state actors, including diasporas, philanthropic and religious groups, and for-profit companies, are a central part of the future of international development.

You recently heard testimony from Teck and the Micronutrient Initiative here in Canada on the global alliance that Canada has with CIDA to provide zinc for children. This is great, and CIDA should seek to build hundreds of partnerships like that, not just one.

At USAID, after ten years of making a concerted effort to build partnerships, the U.S. government now has 900 of them. We embarked on this ten years ago, and we have a long way to go. I just released a report looking at what changes the U.S. government still needs to make. It requires a cultural shift, organizational capacity changes, a small amount of resourcing--how we think about how we spend resources, how people are rewarded. The U.S. government has only made a partial shift. I think for CIDA and other aid agencies it's going to require some significant organizational change to work in a more strategic way with the private sector. Examples like the zinc initiative are the sorts of things CIDA needs to be putting on steroids, if you'll allow me to use that expression.

Just as an example, the top five Canadian mining companies--Barrick, Potash, Goldcorp, Teck, and Kinross Gold--are operating in six of the twenty focus areas and regions of CIDA, which are the Caribbean, Ghana, Honduras, Pakistan, Peru, and Tanzania. I would posit that every time CIDA does a strategic review in any of those six countries, if they're not bringing in the large Canadian mining companies at the very least to have a strategic conversation, it's a mistake and a lost opportunity. They're spending tens of millions of dollars on the social side just on philanthropy, but they're contributing hundreds of millions of dollars locally, either through paying taxes, localizing their supply chains, or supporting local jobs. There are opportunities for CIDA to leverage that, but also to shift it and channel it in ways that are different.

So I think there's a big opportunity, if CIDA and other parts of the Canadian government are thinking...specifically in those six countries at the very least. I would also posit that in Pakistan and Colombia, where there is a significant diaspora here, and other places, thinking about how we leverage these diasporas, there are lots of opportunities for synergies between these other forces for Canada.

Canada needs to develop development finance tools similar to those of the International Finance Corporation and most of the other G-7 nations. The ability to share private risk in complex contexts such as Haiti and Afghanistan will be critical in the future for Canada. These are instruments that are not currently used on a bilateral basis. They provide project finance to for-profit infrastructure projects. They support loan guarantee programs, or even make available the use of grant instruments at CIDA to share risk, especially in some of the more complicated contexts. That is going to be important.

Canada seems to be doing a better job of partnering with the private sector in developing these capacities. They are not alone. This is not just something I'm parachuting out of the blue to say; this is something that's been going on for ten years in the development community.

Second, I think Canada has a huge opportunity to develop some additional instruments and authorities. I don't think you have to develop a new agency to do this or spend huge amounts of additional moneys. There could be some additional authorities that CIDA holds within it. It doesn't have to be something for which you create a whole new bureaucracy.

Canada is uniquely positioned and has the assets and the opportunity to expand prosperity and human freedom. Globalization has meant that the role of the state is diminished, and private actors have increased their influence and ability to affect change. Canada will maximize its ability to effect change to the extent it is able to work more collaboratively with these other forces--often non-traditional forces in the eyes of the traditional development community. To succeed, Canada, through CIDA and perhaps other branches of government, will need to develop new approaches, new processes, and new instruments.

CIDA is just beginning to experiment with partnerships in a small way, as I referenced with the zinc initiative. I would encourage the committee to support the development of a greater public-private partnership capacity, and encourage CIDA to develop what I have described as development finance instruments.

By focusing on economic growth and the policies that support economic growth, supporting development finance instruments and strategic partnerships, Canada can not only advance the well-being of the developing world, but expand its own influence abroad, and its own prosperity.

Thank you very much.

[The Chair, Conservative, Dean Allison]

Thank you, Mr. Runde.

You have some great thoughts there on what we're looking at right now. I'm sure we're going to have some questions to go along with that.

We'll start with Madame Groguhé.

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

Thank you, Mr. Chair.

Mr. Runde, thank you for your presentation.

The witnesses we have heard to date have brought up important points. I would like to come back to the importance of the mechanisms for transparency and accountability and of the establishment of partnerships with the private sector.

I believe that development requires a comprehensive vision established by the various players, which are the local population, the governments in place, the NGOs and the private companies. This comprehensive vision should, to my mind, allow us to be effective and to reach the targeted populations, in their time of need.

With that in mind, how, in your view, might the private sector succeed in uniting the various groups and getting them to collaborate and cooperate within these communities, in order for the projects and programs to be effective?

[Daniel Runde]

Thank you very much.

I think many of the opportunities to work with companies--I know that CIDA works on issues around food security--are around supply chains. These are reaching to smaller farmers. So to the extent that CIDA, agri-business companies, or extractive industry players are localizing supply chains, this will allow for working with NGOs and local communities, as well as providing modalities by which local communities can benefit from investment. So I think that's one area of great opportunity.

There are many very sophisticated non-profit organizations that work in partnership with companies in local communities. There are organizations like World Vision Canada and the Aga Khan Foundation here in Canada that work with local communities but also have the capacity or appetite to work with the private sector.

Many companies have a number of interests that overlap with development agencies. They're not perfectly aligned, but there's often a good alignment around training people in the developing world to fix computers or use technology in a different way. It's partially a way for them to develop business, but it's also a way for us to plug people into places like Malhi, Ghana, or Haiti into globalization--meeting global standards. So it's in our interest as development professionals to support plugging people into the positive side of globalization. It's important to help people become trained and have the capacity to participate in globalization by meeting global standards. It meets a business interest as well.

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

Thank you.

You talked, in the beginning, of transformative mechanisms. I believe that, in all cases, there must be a leader, someone must take command of the situation. It will be necessary and important that the public sector maintain this leadership role and monitor these transformative mechanisms closely.

You talked about official development assistance and you brought up the idea of changing our approach to this official assistance. How do you see this official assistance being used?

[Daniel Runde]

Thank you very much.

Let me just take the example of some of these countries where there's an overlap that's a Canadian focus area and where there's an interest in the extractive sector. I think Canadian CIDA needs to have the capacity and ability to convene and speak to private sector actors and be comfortable doing so. There are some cultural issues for the development community. Sometimes we don't speak the same language. But I do think it's very possible for CIDA to take on a convening role and do some joint planning with some of these other development actors. The private sector are development actors.

I know that CIDA does country-based planning, so every two, three, or four years there's this moment of what I'd call “programmatic agnosticism”--we don't know what we're going to do with the money for the next three to four years. We need to be bringing in these other players, whether they're diaspora groups, mining companies, or agri-business companies. There could be other multinationals, local or others, as part of CIDA's process of thinking through what they're going to do with their resources for the next several years.

So there's a convening function. There's perhaps a joint planning function, an identification of opportunities to work here. That doesn't mean you have to do everything in partnership. Partnership is an approach. It's a way to solve a problem and to bring in other assets, and to solve problems with synergies. I do think that it's currently an underutilized instrument. I think CIDA can build this capacity and needs to.

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

In summary, we must maintain this involvement, but it may have to be transformed in order to be more functional and effective.

[Daniel Runde]

I'm sorry, do you mean for CIDA?

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

Yes.

Yes, overall.

[Daniel Runde]

Yes. I've written about this, and I'll submit some articles that I've written in the OECD Observer, which is the magazine of the DAC, the Development Assistance Committee, which for those of you who follow this stuff is the National Hockey League—since I'm here in Canada—of the development community. If I were in Europe, I would say it's the FIFA of the development community. I've written something for that magazine talking about this specific issue.

I've also written about this in a magazine called The Public Manager, about the sorts of capacities and incentives that CIDA is going to need to do. I also produced a report when I was in the U.S. government on about 30 different case studies that will give some examples. I have several copies here for the committee.

Five weeks ago I released a report on current U.S. government capacity, which I think will give some sense of the sorts of capacities that need to be further improved and could speak to some of these issues you are rasing here for Canadian CIDA.

[The Chair, Conservative, Dean Allison]

Thank you very much. That is all the time we have.

We're going to move now to the other side of the table, with the government.

Ms. Brown, you have seven minutes, please.

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

Thank you very much, Mr. Chair.

Thank you, Mr. Runde, very much for being here. I've read a few of your studies online, particularly your one on sharing risk in a world of dangers and opportunities. I read your article on development in a time of diminishing foreign assistance, and I think you touched on a number of those things here this morning, such as building public-private partnerships and how important that is to going forward.

I'm going to make an assumption, and I wonder if you can clear it up. Were you part of the Legatum Center for Development and Entrepreneurship?

[Daniel Runde]

I was not, but I like them very much. I know them well. I have friends who've worked with them. Will Inboden and Mike Magan were both with me in government together in a prior administration. They're friends of mine, and they worked at the Legatum Center. They are not there any more. But the point is they do some very interesting work. Maybe you have a--

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

I will, and I'm hoping that you would have some comment on that.

For the benefit of the committee, the Legatum Center for Development and Entrepreneurship was founded on the belief that economic progress and good governance in low-income countries emerged from entrepreneurship and innovations that empower ordinary citizens. They have an agreement through MIT, where MIT students are creating enterprises in low-income countries. And this is a quote: “Our current and future Fellows seek to implement for-profit businesses that empower ordinary citizens and virally spread prosperity and development.”

You've made the comment here this morning, specifically, that 40% of Africans plan to start a new business in the next 12 months. I've been in Africa, and there are an extraordinary number of small stalls where people are selling their goods and wares, and that's how they're providing for their families.

We had Hernando de Soto here a couple of weeks ago. I'm sure you're familiar with him. His fundamental philosophy or theory is that so many of these people are extra-legal because they don't have access to real capital, first of all, because they are not on owned property and they don't have property rights.

It's a whole lot of things mixed up in here. But coming from that perspective, how do we help, as Canadians, to build that opportunity for this 40% of Africans who want to initiate a business and be prosperous, and yet they struggle with the problems within their own countries of getting property rights; of access to capital; of the tax system; of the judiciary; and all of those things? Can you shed a little bit of light on that?

[Daniel Runde]

I have a couple of things. There are several legatums. There's the Legatum Center at MIT. Let me just speak to that as well. Iqbal Quadir is the founder of the Legatum Center at MIT. He's from Bangladesh, and he started 15 years ago, when no one thought it was possible to have the first real cellphone business in Bangladesh. It made a ton of money, but more importantly it brought the power of cellphones to poor people for the first time. This was before East Africa. Maybe you're familiar with Celtel, by which Mo Ibrahim--one of my personal heroes, who brought cellphones, cellular power, and cellular connectivity to poor people in Africa--is a billionaire as a result. I'd like to see more African Mo Ibrahims, frankly.

Iqbal Quadir's a great man and a hero for our time and he leads the Legatum MIT Center. The other Legatum Centre I referred to, in London, has a metric around a prosperity index. There are a number of indices around the world around development, and it in essence mimics an index that I think is the most successful of all of them, which is the World Bank's “doing business” index.

I'm going to come back to what this means for Canada.

The World Bank's “doing business” index is one of the most significant things that any development agency has ever done, because when the country of Georgia is compared to Azerbaijan or Armenia and they fall short compared to Armenia, the Georgians don't really care how they compare to the French or the Canadians, but they sure as heck care about how they compare to their neighbours; they're really sensitive to that, and it forces.... Leaders in those countries say “I don't want to be 50 points behind those Azerbaijanis; we always thought we were better than those guys anyway.” They don't say it this way, but I think that's sort of the undertone, so it forces significant change by naming and shaming.

Getting into formality is very important around this issue and Hernando de Soto talks about that. People need to be able to pay taxes and participate in a society—to be able to get loans beyond micro-financing, to graduate into the banking system, to be "bankarized". This isn't really an English-language word, but in Spanish it works. I don't know if it works in French, but I suspect "bankarized" probably works better in French than in English. So the formality is very important.

What does that mean for Canada? As I was saying, Canada has this sustainable economic growth strategy. Building economic foundations is one of the sub-themes in the sustainable economic growth strategy for Canada. I think asking hard questions of CIDA on how they are supporting think tanks, how they are supporting a strong rule of law, how they are supporting countries.... If countries want to move up on the “doing business” rankings that the World Bank produces, how is CIDA at a bilateral level helping governments to do that?

That's what CIDA can do. They can provide this sort of policy dialogue. We talk in the development business about policy dialogue. They can provide capacity-building and support policy. It's not a huge amount of money. Canada has a significant role to play, and CIDA has recognized it. It's very important that they hear this committee say “We're really glad that you're building economic foundations; we want to hear more about that, and we think you've got to turn up the volume on that.” That's how I think CIDA could play a role and how this committee could play a role in some of its reporting.

Let me just come back to one other thing. I want to underline this issue of development finance instruments. Canada is the only G-7 country that doesn't have a development finance agency. This is a moment of austerity. I'm not suggesting to this committee that you ought to go and build another bureaucracy. I don't know if there's an appetite here in Canada for that at the moment. I cannot imagine that there is. I do think that CIDA could perfectly well have some additional instruments that can allow for this, to help to share risk, especially in places like Afghanistan and Haiti, in these particularly more difficult places that Canada has chosen as some of its areas of focus. I don't think you should be using it in Ukraine, which is one of your 20 countries of focus. They've got plenty of money.

I'll stop there.

[The Chair, Conservative, Dean Allison]

No, finish your comment.

[Daniel Runde]

I just want to say that I think this committee, in terms of its reporting and asking questions, should be saying they support building economic foundations, which is something CIDA is talking about. This is exactly the sort of thing that Hernando de Soto was talking about in terms of supporting people and getting them into the formal sector, which is what we should be wanting. If they get in the formal sector, they can access bank loans and participate in the legal system.

I do think there's an additional step in which, through sharing risk and encouraging financial organizations, either crowding in or catalyzing private investment, if you've read in that report.... And thank you for reading it--you and my wife and my mother and two or three other people.

The point is, it is very important for Canada not to miss this opportunity. In addition to looking at the policy dialogue, this committee has a big opportunity of looking at this issue of development finance instruments. It's not a huge amount of money, but it will require some additional authorities.

[The Chair, Conservative, Dean Allison]

Thank you very much.

Moving back over, Mr. Eyking, you have seven minutes, sir.