Thank you very much, Mr. Chair.
It's always a pleasure to be back in front of the committee.
I see my original strategy of speaking for 55 minutes and leaving five minutes for questioning is not going to fly. So I'll try, as every witness has endeavoured, to keep my remarks brief, with all that means, given the past history we've seen here.
As I mentioned, it's a pleasure to be back. You can always tell which witnesses have been here before; they bring their own coffee. It's not because the coffee here is not good; I'm just never sure it's fair trade. I wanted to make sure I stick to fair-trade coffee.
Before I begin, I have a bit of a shameless self-plug. You'll have a handed-out announcement of an event we're doing at the University of Ottawa with the senior Financial Times correspondent for the Andes, Hal Weitzman. Before he speaks publicly, the distinguished member of Parliament from Prince Albert, Saskatchewan, Mr. Randy Hoback, is hosting a morning briefing for MPs here somewhere on Parliament Hill for Mr. Weitzman.
Given that this is the week before the Prime Minister travels to Cartagena for the summit of the heads of state of the Americas, it is a great opportunity to hear a really incisive and unique perspective on the current situation in the Americas and the changing dynamic among Canada, the United States, and Latin America.
It's the Financial Times, so it's one of the more sobering and one of the more sober analyses. I think you'll actually be pleasantly surprised; this is a new perspective for the Financial Times. It's something you wouldn't expect to hear from them. I urge you to contact Mr. Randy Hoback's office if you're interested in coming to that briefing.
In addition, I would like to note that we have some students here from the University of Ottawa. Now that I'm at the university, I thought to bring some of the graduate students. I originally had 30 or 40 students signed up, but I had to give them a briefing as to what parliamentary committees are like: a very erudite, serious, sober, informed discussion and nothing at all like question period. As soon as I said that it was nothing like question period, the numbers dropped from 30 to a few. Still, we have the hard-core students here with us today.
On to the role of the private sector in development. The committee has heard quite a bit. I've been here for some of the hearings. I've seen the testimony from the others. You've had NGOs talking about their role in development, a quite deep discussion on microfinance, and a bit on what some of the larger private sector entities are doing. What we've heard a bit less of is a discussion of public-private partnerships on the ground. How do they work? What are the benefits? What have been some of the issues from an official government bilateral development agency in implementing and running partnerships? What are some of the issues in terms of implementing policy, in terms of creating an agency, in terms of running a division of an agency that works on public-private partnerships?
You had Dan Runde here, a former colleague of mine from USAID, who ran the Global Development Alliances. I talked with Dan after his testimony, and he said he really didn't talk about the battles at USAID or some of the policy issues. He said he didn't talk about the partnership with Glamis Gold, with Placer Dome, with Scotiabank, and with other Canadian companies. He said he got too caught up in his current work with CSIS--that's the Centre for Strategic International Studies, not that other group that shares the acronym.
I worked with Dan when he was at USAID. I ran, managed, created, brokered, and funded public-private partnerships using official government bilateral assistance with private sector companies and with NGOs in Haiti, the Dominican Republic, and the Commonwealth. I also worked on policy issues on this with the U.S. government, with the multilateral agencies. I've spent ten years doing that in Washington, in addition to research on the history of private sector development and different aspects of the enabling environment. I spent six years in Canada trying to download that experience to CIDA, the Department of Foreign Affairs, the Canadian private sector, Scotia, mining companies, and other groups and working with NGOs.
I'd like to talk a little bit at the end of my speech about some of the policy.... I won't call them recommendations, as that is too presumptuous, but I'll talk about some of the policy ideas that have emerged from that six years, things that had been shared with CIDA, with the Department of Foreign Affairs, and with others up here.
First, on defining the private sector, the committee has heard much about NGOs—which is one private actor—and they've heard much about for-profit enterprises, which is another. The committee has not heard that much about one of the principal private sector actors, and that's the diaspora. That's where I'd like to begin my discussions this morning.
If you take a look at exhibit B, definitions, there are essentially three types of private sector actors. We define “private” as that which is not public. It seems fairly simple and straightforward, but when you unpack that statement and start to think about it, there are three principal actors.
First, non-governmental organizations are groups that are not run by the government and not under the command and control of the government. Even though they may take substantial sums from the public sector, they are not under the control of the public sector.
The next group is the diasporas. These are immigrants and migrants who identify themselves with a place other than that in which they reside—and most importantly, act upon this origin. So simply being Irish and living in Canada does not make you part of the Irish diaspora. You have to act upon that in some way, by engaging in your historic origins or policy, sending money back home, promoting Irish causes, culture, language, or any of those things.
The other group is the for-profit private sector. If you look at the graph on sources of development assistance underneath the definitions, this comes from USAID. They've done work for the past decade, examining the sources of U.S. development assistance, public and private. For the Americans you can get a pretty good breakdown of how these different components of the private sector compare with official U.S. government development assistance. You see that remittances are a substantial amount, but the private and voluntary organizations, corporations, and foundations—which are normally corporate foundations—play an equally large role. But the point is that the private sector plays an extremely large role and is an extremely large component of U.S. development assistance.
In terms of the role of the private sector, there are three points. One, the private sector is the dominant and arguably the most important actor in development. Theoretically, if you want to do sustainable poverty alleviation to improve the standard of living and the conditions of living for people, it's about creating jobs and wealth. If you don't have that, you have nothing to share; you have nothing to use to lift people out of poverty. Development is fine for keeping people from starving to death, but in terms of sustainably moving people out of poverty, giving people the power to make their own decisions and the resources to actually effect their own decisions, their own choices about health care, schooling, nutrition, and housing--that comes from the private sector. Governments are essential in this process to making sure growth in an equitable and proper enabling environment is there, but without the private sector creating wealth, the government would have nothing with which to work. This is a key point.
While it may be subjective that the private sector plays the dominant role, it is not subjective to say that the private sector is and has been the largest funder of development activities. If you take a look at exhibit C, the graph showing foreign direct investment and remittance flows to the developing world versus official development assistance, you'll see this point graphically. It's important to note about this graph that the amounts in the Y axis are in billions of dollars. That's not hundreds of thousands or millions, it's billions. Every point of difference is huge on that graph.
The other point to note is that the last year for the graph is 2009, the height of the financial collapse in the global financial crisis. Since 2009, remittance flows and FDI flows have returned to earlier levels.
If you look at 2008, at the difference between private flows for development and the remittances—this is money sent back home by immigrants and migrants to their communities of origin—and foreign direct investment, these were collectively about six times higher than all forms of official development assistance. This has been going on since back in the mid-nineties. So for over a decade now, the private sector has been the largest funder of development activities, broadly defined.
Also, it's not just sustainable poverty alleviation; it's other activities in which official development actors are engaged, such as disaster relief. A great deal of time, effort, and money from CIDA goes to responding to natural disasters. If you look at the figures for what the private sector is contributing, including diasporas, again, it's many times larger than official development assistance.
If you switch to exhibit E, the series of bar graphs, I've actually done some original work and have taken a look for the CIDA priority countries in the Americas. Jamaica stands in for the English-speaking Caribbean. You can look at the relative contributions to development in each country from all forms of official development assistance, all forms of foreign direct investment, all forms of remittances, and Canadian official development assistance.
Unfortunately, we still, years after working and pressing, don't have figures for remittances from Canada, and that's something that really needs to be addressed. But you can look at the relative importance in Bolivia, Colombia, and Haiti. The interesting thing about Haiti is that these figures are for 2009, so obviously development assistance has gone up, but it is still not as important, still not as large, as remittances to Haiti. Even after the earthquake, even after the massive increases in funding through official development assistance, remittances are still a larger source of income in Haiti. Katleen Felix talked briefly about that, but she could give you stories that would underline the importance of this.
The simple fact of the matter, though, is that no country has ever aided its way out of underdevelopment, but countries have grown their way out of underdevelopment. Look at the Asian tigers: in those countries, this was done with the private sector and a strong national government that was able to implement policy and set an enabling environment. Development agencies played a marginal role in this—if any. So in terms of the private sector, foreign assistance is important, yes, but the crucial element is having the private sector.
Now, in taking a look at exhibit D, looking back to the map of South America, you can get an idea of the importance of diaspora contributions in Latin America and the Caribbean. In Mexico it's $22 billion; in El Salvador it's $3.6 billion; and in the Dominican Republic it's $3.3 billion. This is money that goes to pay for nutrition, education, health care, and housing. This is not wasteful spending, as some of the more paternalistic elements of the academic community view remittances. These are investments in human capital development. This is the same sort of thing that CIDA is trying to fund. If you improve human capital there's a direct impact on development; it's extremely important what the diasporas are doing.
Also, from research by Dr. Manuel Orozco at the Inter-American Dialogue—he's the grandfather of remittance work and the person who got me started on this stuff—we know that 5% to 15% of the total flows, depending upon country, also go for collective development projects. If you flip back to our definitions, you'll see a definition of “collective”. I won't waste any of my dwindling time going into that. But the important thing about this, for diasporas and for the for-profit private sector, is the following. Back in Washington in the early 2000s, when we first got wind of these numbers—and it's only been about 16 years since we noticed remittance flows in the development community—our jaws hit the ground and we started salivating. Look at all this money, we said; if we could just leverage a small percentage for digging wells and a small percentage for maternal health, we'd be able to greatly increase the impact of traditional development activities. Very quickly we were disabused of that notion. The early lessons were that this is money sent by poor people to poorer people, and interfering with it has only negative consequences.
Our work focused on facilitating transfers: making it easier, lowering the costs, and giving people options so that they could decide what to do with their money. We focused on getting them away from a reliance on Western Union—and paying 22% to send the money—and having groups like Fonkoze, which was here testifying before you, to be able to work with groups. That has been highly successful.
The larger lesson, though, was that money was probably the least important thing being transmitted, and I say that looking at figures of $22 billion and $5 billion. Money's the least important thing. We found that the money being remitted was only one thing that was being transferred; ideas, knowledge, skills, and markets were also being transferred.
I'll give you an example. I was talking to a USAID governance project officer in El Salvador years ago. He said to me that all the money we spend on seminars, on getting NGOs to do democracy promotion, on getting academics to host seminars, on getting people down here, and on sending people back to the States is not worth half as much as a planeload of Salvadoreans who've spent years living and working in the United States getting off that plane, going back to their home communities, and saying to the local authorities, “What do you mean I have to give you a bribe for a driver's licence? What do you mean we can't see the local municipal development plan? What do you mean we can't comment on the forestry plan or the new agricultural plan?” This has had a huge impact on democracy promotion. This comes not from me but from governance project officers.
It comes out in other ways too. Think about knowledge and skills. There's a great example in California, where migrant workers from Oaxaca are working in Napa Valley. They're exposed to some really new, high-tech irrigation techniques; the latest is drip irrigation. They learn this technology, they become familiar with it, and little by little they start adapting it and taking it back with them to Oaxaca. They pay for the technology not with money from CIDA, not with money from USAID, not with money from the Inter-American Development Bank, but with the money they earn working in Napa Valley. Eventually, years later, they revitalize the peach industry in Oaxaca. They're no longer travelling up to the States. They have a booming industry. They're hiring locals to work in it. This is knowledge transfer.
One last example is markets. You had a great presentation by Scotiabank about the mobile wallet and the cellphones to transfer money in Haiti. This will have a profound impact in development in lowering costs and barriers to entry for financial services. You get this, of course, from the private sector. Development agencies aren't going to create this sort of thing. Private sector actors do.
But the point is this: did you stop to consider how a country where the majority of people earn $2 a day could have cellphones? When I first started working in Haiti over a decade ago, no one had a cellphone, and yet, average person, $2 a day, cellphones. It's because of the diaspora.
You have two factors here. One, if you go to Unitransfer, Bobby transfer, or CAM in Montreal, you'll see a little glass case with cellphones in it. If you want to send back $150 or $200, for an additional $20 you can send a cellphone with minutes on it. If I were to call a cousin in Haiti—if I had a cousin in Haiti, which I don't—or a friend in Haiti, I'd get off the phone and a month later get a bill from Rogers for some obscene, outrageous amount for having called back to Haiti. I'm going to pay that amount. My cousin in Haiti is not going to get a bill. He's not going to see any charge for this. Yet the money I pay to Rogers they will take, and Rogers will take a percentage of it and ship it down to Haiti.
Those shared fees account for hundreds of millions of dollars. This is how the mobile cellphone infrastructure has been built out in most of the developing world. It's not USAID, it's not the World Bank, it's not the IDB, it's the diaspora that enables this.
The difficulty for the development community, though, in working with diasporas is that it is very expensive and very difficult. Now that I'm married, I don't think I could go back to working on diaspora issues; I spent so many Sundays and Saturdays and evenings in church basements in Brooklyn and north Miami and Chicago and elsewhere, working with groups.
It's also a high cost. These are not professional development actors. They require a lot of hand-holding, a lot of training, and the results do not appear very strong. It requires a great deal of flexibility and creativity, and a real difference in the type of development people you have working with them, something that's been very difficult for the development community to do.
The cost-benefit also appears skewed. You're paying a lot of money and taking a lot of time to develop projects that aren't building a hundred schools or a hundred health clinics, but what you are doing is creating new development actors. You're helping to professionalize diasporas, enabling them to play a role. They know the communities better than your average NGO does; they're connected to communities in ways your average NGO is not, and they'll be there for decades when your average NGO has moved on to something else that CIDA has decided to fund.
So in terms of creating new partners, the money with diasporas is crucial. It's the same thing with the private sector and the for-profit private sector.
Very briefly—and this is an extremely important point—I had a grant in Santiago in the Dominican Republic. A group of architecture students came in. They wanted to work with poor-income communities to help people refurbish their houses, to build extra rooms, so they could gain income by renting out the rooms to people coming into town to work in the maquiladora and the plants. It was a brilliant idea.
I asked them if they had talked to the private sector to see if they could get support. They hadn't. I had a grant with the chamber of commerce of Santiago to do work with micro-entrepreneurs. I was able to use that grant to get this group to come into the chamber of commerce and present their project.
What did we get—money? No, we got something that was more important. One of the four major banks in town contacted us afterwards and said, “Why do you have this group of architects running a micro-enterprise loan fund for this project? They know nothing about it. They're going to have to hire someone. We do micro-enterprise. We have branches in the communities where you're funding the loans. We'll run the loan fund for you. We'll train our staff to deal with it. We'll develop forms and use our micro-enterprise stuff to work with these people. We'll provide extra training and advice on how to manage money when it comes in.”
The money I would have had to give to this group from the grant to hire a micro-enterprise expert was instead taken and put back into the loan fund. In essence, the bank was subsidizing a line item in the project that the U.S. government's development agency was going to do with this group anyway.
We also heard from a local hardware company, again a Dominican company. They offered a 10% or 15% discount to anyone getting a loan who came into the hardware store. They didn't contribute money, but that discount, again, gave an additional 15% to the project.
They also asked what sorts of supplies people were using and how we were sure they were using what they were supposed to, and whether they were getting any additional help. They said they could provide that.
What you see with the private sector is not just money; it's creativity, dynamism, entrepreneurialism, and new ideas. In places like Haiti, where you don't have architects, you don't have accountants, you don't have project managers, and you don't have engineers running around society, the private sector contains these resources. Being able to leverage these resources is key.
The wealth of the private sector is its ideas, its talents. It's not just money. The committee is focused very much on money, but from the decade or more of experience we have, that is not what you should be thinking about.
I'll get to the policy suggestions now.
Also, if you think about this.... You had Scotiabank here. They have won awards for their mobile wallet program in Haiti, not just from the development community and from the Gates Foundation, but also from technology folks. You've had Placer Dome, which decades ago won an award from the World Bank Development Marketplace in a competition with NGOs, with development actors, with people who do nothing but development full-time. They won an award not just for building schools or doing nice stuff but for innovation in development.
This is what you get from the private sector. This is why DFID, if you want to take a look at their private sector development strategy from last year, is focusing on this and why they've mentioned diasporas—that's an important element in it—and other groups too.
Very quickly, these are some ideas.
First, don't reinvent the wheel. You have DFID, USAID, GTZ, BMZ from Germany, Dutchaid. If you look at the very last diagram, you'll see a list of development agencies and what they're doing. This is a small list. Oscar is still working on compiling more data.
Don't reinvent the wheel. You can learn from what other agencies are doing. An idea is to partner with development agencies. DFID has identified areas that match very closely with those of CIDA in terms of weaknesses and strengths. It would be very easy to simply partner with them on their centre to study the enabling environment for the private sector. Partner with USAID on how to do public-private partnerships. Take advantage of their decades' worth of experience.
I have two last points.
Staff are key. I can't stress that enough from the lessons we learned at USAID, which the Germans worried about and have written extensively about, and which my own agency learned about. I was hired because I had an affinity for working with the private sector. There was a whole cadre or cohort of us who were brought in: it was fundamental in changing and enabling the agency to work with the private sector. It's a particular skill set. Development agencies do not have this. It has to come from outside or it has to be trained.
If you're not going to bring in staff, you will fail. If you're not going to change the staff, if you're not going to change the people, you might as well open up that window behind you, take the money that you're going to put into this, and throw it out onto Sparks Street. You will meet with failure if you don't bring in people. This is a lesson that has been learned, a lesson I personally lived through.
Second, you have to protect any public-private entity. The Germans have written extensively about this. If you had asked Dan Runde when he was here, he would have told you this: the agency must be protected. This is a disruptive technology. If you're familiar with the literature on disruption—out of Harvard Business School and elsewhere, and out of Silicon Valley—and how it impacts enterprises, you understand this point. But the entity must be protected.
Finally, I spend a lot of time talking to the private sector about this issue. The fact is that they are doing these partnerships. They're extensively engaged. Heck, they're winning awards for doing this. They'll continue to do it, but it will be the large Canadian enterprises that do this, those that have resources to go to Washington.
As for those that don't, it's questionable, but they often come to me and say that they want to go to CIDA, and they ask what they should think about and how they should present to them. My response is, why do you want to go to CIDA? I mean, it's a great agency for doing some things, but public-private partnerships are not its forte. You're going to spend an enormous amount of time, money, and effort to convince them to work with you. Then, when you do, you're going to have to expend even more effort to hold their hands and to bring the staff along on how to do public-private partnerships. Let's get on a plane, go down to Washington, D.C.—and I've done this with companies—and make the rounds, not just of the U.S. government, but of the World Bank, the MIF, and the IFC. There are tons of opportunities. You'll deal with people who have decades of experience, who are expert in this, and who you won't have to convince to do this. You'll have a partnership. That has been successful to some degree.
I can't understand why the companies would want this added cost, and then it occurs to me.... I remember seeing Dan Runde sitting with Glamis Gold at the CSR Americas conference and talking about the project, and I remember the guys from Glamis looking around when he talked about what the U.S. government was doing. I've talked to Scotia and others. These are companies that are proud to be Canadian. They don't want to sit up there with USAID. They'll sit there if they have to, but they're Canadian. They're proud to be Canadian. They want to extol that virtue and enhance the Canadian brand, and they want to bear the cost. You're not doing them a favour. They're already doing these projects. They're doing CIDA a favour in terms of bringing them along.
Lastly, it's the smaller Canadian companies. We worked a lot with small and medium-sized enterprises from the U.S. that were investing in Latin America. Our ability to work with them and help them really helped to advance CSR work and to have the U.S. and U.S. companies doing more. That will be the loss. The large companies are doing this already. Heck, they're winning awards, and they're going to continue to do it.
It's the smaller Canadian companies that won't be able to benefit as much, and I think that will be a real loss. You don't have to do this. It will continue without you. It will continue with or without CIDA, and the Canadian companies will continue to do this, with or without CIDA. It's only the smaller companies, I think, that will be hurt.