Firstly, thank you for inviting me to appear before the Standing Committee on Foreign Affairs and International Development on this important issue related to aid, the private sector, and development.
As Mr. Allison mentioned, I work for the Canadian Council for International Co-operation, which is a national platform of 92 Canadian voluntary sector organizations working globally to achieve sustainable human development. I am also the vice-chair of Reality of Aid, which is a network of 172 organizations that do independent assessment of aid policy and practice globally. We have a flagship report that we produce every two years. This year it will be on aid and the private sector.
CCIC has three messages for this committee that we feel complement a number of the previous interventions you have heard so far.
Firstly, the private sector is an important player in development, but it is not the new silver bullet. Secondly, we feel that ultimately it is the development of the local private sector that must be prioritized in the context of aid. Finally, the private sector is often seen as a promising means of leveraging additional resources for development, but the committee should not lose sight of other substantial sources of development finance.
On my first point, the private sector is without a doubt essential, but it is not the new silver bullet for development, nor, we would argue, is it the engine of growth—at least not of equitable and inclusive growth. Rather, the private sector is one of a range of players central to development, alongside multiple layers of government, elected officials like yourselves, civil society, media, and citizens. Yes, the private sector contributes a lot through investments, loans, and production and job creation, but to contribute to truly sustainable development, country-specific checks and balances are also key.
In this vein, let us not forget the role of the state in promoting growth. The 2008 Commission on Growth and Development, which looked at 13 countries with sustained periods of growth over 25 years, put a number of key state functions at heart of this success: political leadership, industrial policies, managed exchange rates and capital controls, effective institutions and governance structures, a talented public service, strong domestic savings, public investment in infrastructure, health, and education, job creation, and social protection. Each country context is different, of course, but in all cases the state was the primary engine and the driver of growth, and the private sector merely the fuel, if you will.
But what kind of growth? The Africa Progress Panel report, which came out two weeks ago, noted that several countries in Africa—Ghana, Ethiopia, Uganda, and Tanzania, among them—are outpacing many of the emerging economies.
While this is very slowly helping to create a middle class, disparities are also growing. Still, half of Africa—386 million people—lives below the poverty line, so it's the equitable redistribution of growth and job creation that is the real challenge, and government, elected officials, the media, and citizens are all key to this, not just the private sector. In this vein, we would urge the committee to encourage CIDA to put equitable growth and job creation at the heart of its own growth strategy, in particular for smallholder farmers and for the 74 million young Africans who will need jobs in the next decade.
A second key message that we want to underscore is the notion of which private sector. This committee has heard from a number of individuals who have talked about different types of private capital flows and private enterprises.
For us, the private sector in the context of aid and international development should address two key issues. The first is using public resources like aid to stimulate growth and development of the local private sector, and more specifically, a diverse range of enterprises and producers in the informal and formal economies, as well as small and medium-sized enterprises and co-operatives engaged in market activities—all with a view to creating jobs and sustainable livelihoods. In fact, this what CIDA's own 2003 private sector development strategy proposes. We fully agree with this vision.
Secondly, aid must promote financial and developmental additionality. In other words, it must ensure that what aid resources bring is something that is otherwise not available through commercial lending practices. Aid needs to fill a financial and development gap. It also requires a robust framework to anticipate, track, monitor, and evaluate expected positive development outcomes in terms of private sector development—as some donors already do, but most do not.
Ultimately, then, it is about integrating the local private sector into a sustainable development framework, and it should not solely be about promoting the interests of Canadian companies overseas. Why? We need to separate Canadian self-interest in promoting Canada's economy from what is in the interests of developing economies. The two may not necessarily be mutually exclusive, but they are often very different.
Furthermore, putting Canadian private sector interests front and centre of Canada's development strategy contravenes the Paris Declaration on Aid Effectiveness, something that Canada prides itself on meeting. It also runs the risk of tying Canadian aid to development, just as Canada has ended this practice. Untying aid is a good thing, and we should not backtrack on this.
The Canadian public also believes this. In an Angus Reid survey that came out last week, while Canadians agreed that both the private sector and NGOs had an equally important role to play in development, 76% of Canadians in the poll felt that large multinationals should not be getting government funding for this.
This does not preclude the private sector from partnering with organizations where the core main mandate of both partners coincide, and you've heard from a number of organizations that do that. Desjardins' international development fund to support local credit unions is a good example, as is Teck Resources' project with the micronutrient initiative, or—I'm not sure if you've heard of this one—CARE Canada's initiative in Peru to promote small and medium-sized enterprises by working with Export Development Canada and using its expertise. These are all efforts that help advance long-term development outcomes and demonstrate the additionality I referred to above.
The difference between these projects and typical corporate social responsibility initiatives is good practice versus good intentions. CSR initiatives, as many have concluded—including the OECD and John Ruggie, the special rapporteur on business and human rights—are at best limited, in particular when they respond to corporate dynamics rather than development dynamics, as several witnesses have already noted.
Finally, donors have been quick to recognize the potential of the private sector for leveraging additional resources for development, but other sources of finance offer just as much potential. Using the private sector to leverage resources may work well when it fills real gaps in a market. For example, Canada's advanced market commitment for the pneumococcal virus is largely seen as having created an affordable market for vaccines in the developing world that would have not otherwise been filled. This is not the only way to leverage further finance for development, and we would argue that it too has its limits.
A few presenters have already talked about domestic resource mobilization, or generating revenue through progressive taxation, royalties, and tariffs. To illustrate this point, while aid in Africa rose from $12 billion in 2000 to $36 billion in 2008, natural resource rents rose from roughly $40 billion in 2000 to $240 billion over the same time period. Such resource rents are a logical and substantial source of revenue. In December of last year, roughly half of Africa's mining ministers met in Addis Ababa and declared their intention to assert greater control over private sector mining operations and transfer the revenue to weaker areas of their economy.
Equally, addressing capital flight could seriously enhance the amount of revenue that stays in the continent and is put to use for sustainable development outcomes. In Africa alone, the continent has lost $1.2 trillion to capital flight over the past four decades. In a 2008 report, Christian Aid estimated that the developing world loses approximately $160 billion every year in corporate taxes through transfer mispricing and false invoicing—one and a third times more than global aid for that year.
At home the government could also formalize its matching arrangements around humanitarian assistance, or leverage the Canadian public's support for development through Imagine Canada's suggestion of a stretch tax credit. If donors are serious about ending the aid dependence of countries, in particular as aid budgets decline, then building effective institutions, promoting local private sector development, and addressing domestic resource mobilization and capital flight should be priorities.