Foreign Affairs Committee on June 8th, 2017

[Aniket Bhushan]

Yes.

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

Let me quickly ask the question again. Is there any parallel between public funding in the OECD countries you have studied and the ability of those countries to interest private investors in funding the DFIs?

[Aniket Bhushan]

I thought I had understood that in French. To be clear, do you mean if there's a parallel between the capacity to attract private investment and provide ODA?

I'm not sure I fully follow whether you're talking about the perspective of the recipient country or the donor country.

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

No. I am talking about the ability of Canada, for example, to attract private investments to the institute.

[Aniket Bhushan]

Right.

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

Is there a link between the public funding from Canada and the ability to attract the private sector into becoming part of the institute?

[Aniket Bhushan]

It speaks to the point of clarification that I talked about before, because we don't know entirely the direction in which the Canadian DFI is heading, in terms of the set-up. I provided a table in the annex, of which the first part, “Basics on Bilateral DFIs”, has a column on ownership structure. It shows that a number are public-private, and a number are just public. There is no question of attracting private investors into the core of the DFI's capitalization, or the core of the capital base of the DFI.

But that's not immutable. That is changeable. It could be that the Canadian DFI goes differently. The only thing I can say to this committee and for the work of this committee, is that this should be pushed to the government to clarify. Is the objective here to crowd in, as it were, Canadian private sector investors—Bay Street, if you will? Then one could ask why it's not on Bay Street but in Montreal. That's a separate issue.

Leaving that aside, is that one of the objectives or not? Is it just that it is public finance to crowd in private investment in developing countries, which—in most cases of DFIs—takes place in the form really not of leverage but what I would call co-investment. That is, bringing in other DFIs and other players, and in a modest way bringing in the local private sector and some private capital.

I'm not sure if that satisfactorily answers your question or not. We just don't know if that's even part of the plan of the Canadian DFI.

[The Chair, Liberal, Bob Nault]

I'm going to go to Mr. Levitt, please.

[Michael Levitt, Liberal, York Centre, ON]

Good morning, gentlemen. Sorry, we're having some technical issues here this morning.

Mr. Runde, can you hear me?

[Daniel Runde]

Yes.

[Michael Levitt, Liberal, York Centre, ON]

Fantastic. Maybe we can start with you, because I know you've been sitting there for a little while.

In 2015, a third of DFIs in the developing world went to the BRICS countries: Brazil, Russia, India, China, and South Africa. In contrast, the least developed countries captured only 5% of country DFI. I want to compare this to the OECD figures, which indicate that the percentage of DFI financing going to LDCs between 2008 and 2013 ranged from approximately 11% to 27% in any given year.

Is this a reasonable level of DFI investment in LDCs, or could more be done to encourage investment in the countries where the need and impact may be greatest? What are the obstacles? Should we be setting a dedicated figure—a target figure? Or will the market take care of this?

[Daniel Runde]

Unless the shareholders of the Canadian DFI push the DFI to go into more difficult places, the temptation will always be to do telecoms deals in Brazil. It's easier to do. If you're the investment officer, one of the things is how you're graded. How do you get promoted? You get promoted by pushing money out the door. It's a volume business.

The new DFI has to grade its investment officers, not just on the money that it pushes out the door, but on specific kinds of projects. IFC, for example, has been pushed hard by its shareholders, including Canada, to do more in places like Haiti and sub-Saharan Africa.

The one thing I wasn't able to mention in my testimony is that I would not be surprised if the DFI comes back to this committee and to Parliament and asks for more than $300 million. If you're going to ask them to go to more difficult places, you're going to have to accept higher risk—probably less than a full market return—and you're probably going to be asked for some additional capital.

I'm not saying you're going to lose all of that money, but they're going to use some of that money either for technical assistance or for additional projects. I think you're going to have to insist, you're going to have to push, and you're not going to see full-on market returns. If you're going to be investing in Mali, it's a very different conversation from investing in Brazil.

[Michael Levitt, Liberal, York Centre, ON]

Mr. Bhushan.

[Aniket Bhushan]

It's a very good question. My thinking is very much in line with the previous speaker's.

As I think I pointed out in my remarks, in terms of the portfolio shares of DFIs, about 75% to 80% are in middle-income, but there's another element here to keep in mind, just for the mathematical sanity of this. In 2000, there were 63 low-income countries. In 2015, that number had fallen to 31. So, what's happening here is also that the base of countries you're talking about is shrinking. We need to be aware of that, especially for the math. What that means is that, even with a smaller amount, an absolute amount, you can actually move the needle quite substantially, especially in highly investment-deficit countries, in highly information-poor contexts.

That said, I would argue that some of the DFIs that are really coming quickly to this realization are moving exactly in this direction. They are being pushed, and they are responding to the push to do more in harder places. A case in point is the CDC Group, the U.K.'s DFI. After years or decades, it recently got its first major large capital increase, but it came with the instruction or emphasis that it needs to do more to focus on the low-income, least developed countries. So, now the CDC Group has decided it will only be focusing on South Asia and sub-Saharan Africa. That's one example.

OPIC, similarly, has a mandate to privilege U.S. investment involvement in its deal-making. Even in the case of OPIC, now there is increasing push. OPIC has responded by moving a greater share of its portfolio in low-income and least developed countries, taking more risk.

The question of risk really needs to be central here. I think it really goes not just for the DFI but for the larger discussion. We know that Minister Bibeau will release the new international assistance policy, and we know one of the tenets of that international assistance policy is that it will be a feminist international assistance policy. I'd like to emphasize that all of these things have an implication for risk. Supporting a feminist approach is not riskless. Let's not mince words about that.

[Michael Levitt, Liberal, York Centre, ON]

That's fantastic. This is where we're coming into my next question, which was around a pillar of our development strategy.

The old policy—and you're hypothesizing the new as well—has been around supporting women, and supporting women in some of the most vulnerable places. That, obviously, where the DFI is concerned, is something that's important as well, moving forward.

What can we be doing? Is it training women entrepreneurs on the value of using the DFI? How can we be ensuring that this DFI has inherent strategies built in that are going to lead to successes for women entrepreneurs in some of the most high-risk areas, in terms of those who are the investors, and also that it's going to empower and support women on the ground in some of these local projects? What can we be doing to ensure a successful outcome where women are concerned, at both ends of the DFI?

That question is for either one of you.

[Aniket Bhushan]

I'll yield to the gentleman. I think I may have a difference of opinion on this.

[Daniel Runde]

Thank you. It's certainly an area of focus, but looking at IFC's portfolio, I can't imagine it's an enormous part of the portfolio. It's certainly gotten a lot of attention in the last 10 years. I think we need to operate with our eyes open. While it's something that should get a lot of attention, there are a number of ways in which IFC, for example, has worked on this. For example, it has provided lines of credit and guarantees and training to local banks in developing countries, to identify and to work with small businesses that happen to be owned by women. That's one area.

Another area would be to provide either technical assistance, which is grant-based money, perhaps in conjunction with a loan for women-owned companies that are going to provide services to oil, gas, and mining companies that happen to be Canadian. It could be a way to leverage Canadian mining investment in developing countries. There's a big push for what's called “localization”, under which many governments are asking that the supply chains for extractive activities be run by local firms. There's no reason some of that couldn't be done in support of women-owned businesses.

There's another component that IFC has often done in conjunction with the World Bank Group. This may be something that could be done in conjunction with, say, some of the Canadian research institutions, universities, or think tanks. Analysis has been done on countries that have been shown that if they change specific laws around inheritance or other rules that hold back women's ownership or women's economic activity, they could increase their GNP growth by 1% a year. If you ask countries whether they want to do that, most say they are very interested in doing that. There's an analytics component as well.

There's a TA component, a lending component, and a policy analysis component. Let's just be clear: I understand the sentiment and I share it, but I think we should go in with our eyes open about this. I can't imagine this being 50% of the portfolio in the first five years. Even if they say this is going to be their top priority [Technical difficulty—Editor]

[The Chair, Liberal, Bob Nault]

We've lost Mr. Runde.

It's one of those days.

Colleagues, we'll wrap up with Mr. Bhushan making comments on Mr. Levitt's question, and then we'll wrap it up from there.

Mr. Bhushan.

[Aniket Bhushan]

I'd just echo the points the previous speaker just made.

I think there's a danger. If I may, I think you're falling into that danger of this idea I posited of the risk of asking the leopard to grow stripes. In my mind, the DFI is not going to be in villages, supporting in a very direct way. In no sense is that going to be, as the previous speaker said, a big proportion of its portfolio.

For some of the bigger financial institutions, some of the bigger DFIs, their portfolios and their footprints, as it were, are so large that if you wanted to show a focus on women and girls, or if you wanted to show a focus on climate, or if you wanted to show a focus on agriculture and climate, it would be pretty easy to show that. IFC is an example. I'm not saying that there isn't a substantive focus there—there is—but it's also scale that's at question here, in terms of how much and what you're going to do.

Really, again, I'll push back with the element of risk. There is this danger of pushing DFIs to act more like aid agencies than like institutional investors. We should try to remember or at least keep in mind, when we're thinking about mandate, what we are aiming for here. Are we aiming for another aid agency, and if so, why? Or are we aiming for what DFIs really do? They catalyze private finance, which is a limited-use case, if you will.

Really, there are points I made about supporting local capacity, specifically in the financial sector, building the financial sector capacity, even something like building land titling and so forth so that you have better tenure systems. Those are a prerequisite to having a property market that is stable, and that's a prerequisite to having a mortgage market, which is a prerequisite to having future investment in real estate investment trusts. These things don't exist in most of the developing world, so we have to think in a long-term, big-picture sense. We have to pick areas in which that gestation is long and broad rather than giving in to the temptation that, just because we're calling one thing “feminist” we should try to show the direct one-to-one linkage that every investment is feminist.

We need to remember that with the macro impact of DFIs, there's a potential to move the needle in terms of driving investment, driving productivity, and driving growth over the long term. That ought to be the focus, rather than looking to just celebrate projects.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Bhushan.

Mr. Runde, are you back on?

[Daniel Runde]

Yes, I am. I apologize profusely for the technical issues.

I want to second what the gentleman just said. I think that a DFI is not another aid agency, so there are limitations to what it can do. There are strengths, and it can do other things that a traditional aid agency cannot. I think of the example of the Commonwealth Development Corporation in the U.K., that has gone through a major rethink in the last five years, in addition to getting this additional capital the gentleman referenced before. There is an understanding that it has a different function than, say, DFID, which is the bilateral aid agency of the United Kingdom.

[The Chair, Liberal, Bob Nault]

Thank you.

Colleagues, we'll have to wrap it up there today.

I want to thank Mr. Bhushan and Mr. Runde, and as well, apologize for the frustration of the technical aspects, including the translation, which is supposed to work.

We'll wrap it up today. We do have both of your briefs. They weren't handed out simply because they're not in both languages, so we're going to translate them and submit them to members of the committee.

Mr. Runde, I think we are going to try to see if we can get you back. We'd like to have this conversation in a much more robust way since you were basically sidelined through the whole process, and that was not much use to us. We think we could learn a lot having this conversation. I'm going to attempt to see if I can get you back here in the next little while, probably not until the fall, so that will give us lots of time to fix our technical problems.

[Daniel Runde]

I'll come to Ottawa.

[The Chair, Liberal, Bob Nault]

All right, we'd love to have you. We always like to have you in Ottawa, so I appreciate that very much.

Colleagues, we'll take a break and we'll go to our next witnesses.

Thank you very much, Mr. Bhushan and Mr. Runde.

[The Chair, Liberal, Bob Nault]

Colleague, we'll bring this meeting back to order.

In front of us this morning is James Haga, who's the vice-president of strategy and investment from Engineers Without Borders Canada. He's video conferencing out of Toronto. Also we have Rod Lever, vice-president of Cowater International.

We're going to hear from both of our witnesses in short comments and statements, and then we'll go to questions. I want to start with Mr. Haga on video conference. Let's see if it works better for this witness than the last.

James, the floor is yours.