Foreign Affairs Committee on May 16th, 2017

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

Mr. Bertin, thank you for being here this morning.

I was struck by something you said in your introductory remarks, namely, that there are no risky investments without support. It seems that you said that to justify the importance of Canada's Development Finance Institute, which will have the power to support part of the risk of private investments.

My first question pertains to the $300 million over five years. Is that amount taken from Minister Bibeau's international development budget and transferred to international trade, or does it come from the government's consolidated revenue fund?

[Marc-Yves Bertin]

Neither. This capital will not come from the international assistance envelope or from the fiscal framework. This capital will come directly from the budget, that is, from EDC's capital.

[Robert Aubin, NDP, Trois-Rivières, QC]

This $300 million is to help Canada achieve the objectives of the 2030 agenda, which are very ambitious. How have we determined that we need $300 million to play our part internationally?

[Marc-Yves Bertin]

There are two parts to that question.

With a $300 million investment, Canada will be in the same range of investment as other DFIs, in particular those in Sweden, Switzerland, and Finland. So that investment will give Canada credibility.

The DFIs that we consulted in designing the project recognize the importance of starting off on a solid footing, walking before we run. As I said, the $300 million for the institute is to be provided over five years. There are other DFIs that have existed for several decades. We could of course evolve over time.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

In terms of transparency for these amounts, will Canada's Finance Development Institute be subject to scrutiny by the Parliamentary Budget Office, or will it be a crown corporation exempt from the PBO's review?

[Marc-Yves Bertin]

I am not an expert on dealings with this officer of Parliament. I can tell you, however, that the institute will be wholly subject to the Financial Administration Act, and as such it will have reporting requirements and have to produce an annual report that will be tabled in Parliament.

[Robert Aubin, NDP, Trois-Rivières, QC]

During discussions and in your introductory remarks, you mentioned the example of the United Kingdom. The tool we want to establish to attract private capital will have to appeal to potential investors. We know that the United Kingdom has already reached the goal of 0.7% of their GDP for international development assistance, while Canada is lagging behind in this regard at just 0.26%, which is below the average.

Will the fact that Canada invests so little prevent us from achieving the objectives we have set for ourselves in creating this institute?

[Marc-Yves Bertin]

The international and Canadian experts with whom we have discussed the matter—some of whom you will also meet throughout your study—have said they will welcome the DFI that Canada is creating with open arms. They are ready for us and people are very excited about this project. Moreover, since we have been able to draw lessons from others, we will be very flexible about the clients with whom we work. A whole range of instruments will be available to work with other DFIs in a very complementary way.

If DFIs wish to work on a project together or, in some cases, if they have equity tools only and are looking for a partner who can offer guarantees or loans, Canada could be a key partner in such discussions. Canada's expertise is consistent with the government's strategic directions.

[Robert Aubin, NDP, Trois-Rivières, QC]

In my opinion, the partners understand quite well that additional resources are always welcome. The difficulty we see is the following. Will Canada's Development Finance Institute be an additional resource, or will it make it possible for the government to withdraw or fail to increase its investment of public funds in international development? That is the question, and the proof will be in the pudding, I expect.

How specifically do you foresee the financing method of this DFI for countries that are going through or emerging from a crisis, such as South Sudan or the entire Horn of Africa?

Will it be possible for private companies to become involved, given that it will be more difficult to get a return on investment?

[Marc-Yves Bertin]

That will depend on the situation. We are not saying of course that this organization's mandate is to replace that of Global Affairs Canada. Global Affairs Canada will still be responsible for stabilizing areas in crisis or establishing the foundations for good institutional and political governance in a foreign country.

To the extent that there are private investors or business opportunities with significant social, environmental or international development benefits, this new crown corporation will be able to step in to offer help.

Will it be a silver bullet?

No. In Canada we know very well that this structure was not built on silver bullets or miracle solutions. It is made up of many pieces, which are organizationally complex, including the use of public and private funds. We are adding something very innovative to the tool box.

[Robert Aubin, NDP, Trois-Rivières, QC]

If Canada becomes a key partner in achieving the objectives of the 2030 agenda, how do you foresee the management of the projects submitted to the bank?

Once they have been submitted, will they be assessed on their merits to decide whether or not we will become involved?

If not, will the approach be more philosophical, with a focus on various geographical regions, problems or themes?

How will these matters be addressed?

[Marc-Yves Bertin]

That is a very good question.

First, it will be up to the government to determine the main direction of the institute. As I mentioned earlier, we already know the priorities. They pertain to renewable energy, young entrepreneurs and women. We already know that the government is starting to indicate the entity's direction. Will the government add other priorities? We will see that in due course.

Then, once the entity's areas of focus have been defined, it will in a sense market its objectives and its services, nationally and internationally.

The entity will promote its directions and abilities to other DFIs, regional banks, and, as I said earlier, to clients, that is, to the private sector in Canada and abroad.

It will be able to cultivate its relationships. Through those relationships, it will also be able to develop its pipeline. That is the term we use for the list of potential projects and investments. That means that the entity will be required to and will do a lot of networking, as all banks do, in any case.

The entity will also liaise with key government departments, such as Global Affairs Canada and the Business Development Bank of Canada as regards trade and development. The BDC has a good list of potential clients. In particular, SMEs might be interested in international trade or trade with developing countries that offer development benefits.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Aubin.

We'll go to Mr. Levitt.

[Michael Levitt, Liberal, York Centre, ON]

Good morning.

When this committee studied international development early last year, we heard of some of the challenges we have in getting our ODA money into the places it was needed most, the challenges of not having access to local actors, of not being able, where women and children are concerned—and this committee travelled to Guatemala—to get the money into the right hands. It's a struggle.

Can you tell us a little bit about the challenges and opportunities this type of initiative will have in trying to better meet those needs? How are we going to advance our development goals through this type of an approach?

[Marc-Yves Bertin]

Inherent in your question is the focus on ODA. This is not ODA. This complements and is additional to ODA. What we're talking about is an initiative that will seek to partner up with the private sector and enable the private sector, in its pursuit of growing its businesses, to have a high development impact where development outcomes are most needed.

Earlier, for example, I alluded to a Nigerian project and FMO. The same could be said for Guatemala. This new entity could very well establish a Guatemalan-based investment fund that can support job creation and wealth creation in the country's agricultural sector. It could place emphasis on certain client groups: youth, women, entrepreneurs, and farmers or agricultural producers. This way you are helping these individuals to build a livelihood through commercial pursuits while building the agricultural market locally, which will in turn support greater food security in the country.

[Michael Levitt, Liberal, York Centre, ON]

I was saying that getting ODA where it needs to be has significant challenges, as we found out, including the difficulty in accessing local players on the ground who have the ability to get the money where it needs to go. My colleague MP Aubin raised risk aversion. There are other experiences of using this type of approach. Other countries are doing it. Risk aversion, whether it's in areas coming out of conflict or in areas where local actors are hard to access, is a problem in getting the money where it needs to be.

How does the private sector, in your experience, react to these challenges? Is this a more effective way than ODA to meet those needs, or does it run up against the same walls?

[Marc-Yves Bertin]

It's important to distill it down to its essence. In many respects, the private sector.... These are individuals. These are human beings. These are human beings who actually don't know a lot about these markets, so ignorance is a huge issue to overcome, on the one hand. On the other hand, there are real risks that the private sector faces in these countries.

What does the DFI do, and what have DFIs been able to do? By having a local presence, this DFI will be able to leverage because it will be working with EDC as a wholly owned subsidiary of that crown corporation. It will be able to leverage its expertise as well as its network around the world, which is present in certain developing countries and therefore gives it access to regions. It will also work with other DFIs, which will obviously have offices in some of these countries. Over time, it will need to establish its own operational footprint globally.

It will be interesting to see how this evolves, but I can tell you that by being on the ground, you dispel and deal with the ignorance factor. By the same token, by being on the ground, you're actually able to more properly appreciate and gauge the risks—political or otherwise—by knowing who the actors are, knowing the regulatory and governance contacts, and so forth. You are then able to cost your services in the appropriate manner.

If I can draw a comparison with a commercial bank, commercial banks tend to want to see the return over a certain period of time, whether that's a three- or five-year horizon. DFIs have tended to use loans in a very patient manner, so this notion of patient capital—expecting a return after 15 years, so the time horizons are quite far—is the type of support that these organizations require. They are operating in fluid situations, if we can call it that, in developing country contexts and so forth, and they need that type of long-term support and partnership.

[Michael Levitt, Liberal, York Centre, ON]

This DFI is going to be coming into an arena where, again, you have other key Canadian development actors—Global Affairs, obviously, the IDRC, and lots of NGOs—working in this space to achieve positive outcomes.

Talk to us a little about the relationship. How's that going to work? What will be the level of co-operation? Is it formal? Regarding NGOs in particular, you have private finance that's going to be coming in, that has certain mandates. What, in other jurisdictions, has that relationship between DFIs and NGOs been like? We know they are a key contributor to success on the ground. What does that look like, in your estimation?

[Marc-Yves Bertin]

Let me break that down into two: first, the Government of Canada community, if we can call it that, other government departments or agencies; and second, the issue of non-governmental organizations and civil society organizations.

On the other government departments, the relationship will need to be variable, and it will be variable for at least two reasons. The first is that this is an organization that will be privy to great market intelligence and therefore great opportunities that need to be relayed and shared, but it also is going to want market intelligence that exists in other parts of the Government of Canada family.

When I think of the trade commissioner service, and even at times when we look at development programs in other countries, for instance, it may come across in consultations with the governments in Africa that they want to build an electricity grid. That type of information is a development issue, but it's the type of thing that can be beneficial to give a line of sight to a broader community of players in Ottawa.

The trade commissioner service is obviously on the ground and is working with the private sector trying to find business-to-business opportunities. You have EDC out there as well, and BDC domestically, looking at SMEs. You have a community of departments that's going to want to bring in this new DFI and create a community of interest around it. I think, on the one hand, from a market intelligence perspective, there's going to be a strong desire amongst the federal family to bring this new member of the family into the fold.

I say “variable” relationship because this is an organization that, from a development perspective, can be—and obviously, we're talking about it here—a huge partner for the development program.

One of the things we're going to be working on over the near term is more of an institutionalized relationship between the development programming at Global Affairs Canada and this new DFI, new crown corporation, over the issue of technical assistance. Technical assistance is something that Global Affairs Canada does extremely well. It knows where to find expertise that can be brought to bear to help bring about, and buttress perhaps, the development outcomes—environmental outcomes, for example—of a given project that the DFI might want to be pursuing, or that the DFI, in pursuing something, may want to augment and amplify, and therefore, would go over to Global Affairs Canada to seek that. We'll have to formalize that arrangement and codify it in some manner.

With respect to NGOs, generally speaking, DFIs work with the private sector, and NGOs are not-for-proft organizations. However, within that context CSOs, have been able to work closely with DFIs. Just as I mentioned from a technical assistance perspective, CSOs, particularly Canadian CSOs, have tremendous expertise in various areas, whether that's environmental issues, gender issues, social policy issues, and so forth, that they can bring to bear to complement a private sector initiative on the ground. It's not something that would be “part of”, but definitely coordinated and paralleled with the activities of DFI.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Levitt.

Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Mr. Chair.

Thank you for your testimony.

You're putting $300 million into this, over how many years?

[Marc-Yves Bertin]

Five.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Over five years, so that's $60 million a year.

Whose money is it? Is it the Department of Finance's money, or is it Foreign Affairs?

[Marc-Yves Bertin]

It's neither.

It's EDC, so we are—

[John McKay, Liberal, Scarborough—Guildwood, ON]

But EDC reports to Finance.