Foreign Affairs Committee on June 8th, 2017

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

James.

[James Haga]

The example you're raising, to me, sounds like a flagrant misuse of the intention of the DFI. That's not to say mining companies are bad. That's not my point. It's simply that the intention of this is not to be a quick and easy way for corporates to access financing that they otherwise wouldn't be able to access, and treat it as corporate welfare. Nobody wins in that situation, and particularly not in the context of what the DFI was built and established to do, which is, first, to have a development impact. I would say that's not a good and foreseeable investment.

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

Thank you.

[The Chair, Liberal, Bob Nault]

Mr. Aubin, s'il vous plaît.

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

Thank you, Mr. Chair.

My thanks to the witnesses for joining us. If ever there is a problem and you lose the interpretation, do not hesitate to let me know.

My first question goes to the two witnesses. For us, the DFI project is in its infancy. Even before the institute sees the light of day, I wonder, given the positions you hold, whether you have an opinion on, or even any discomfort with, the fact that the organization is going to report to the Minister of International Trade rather than to the Minister of International Development.

[James Haga]

I apologize. My French is okay, but not the best, and I'm not getting translation, but I think I understand the question.

I'm not uncomfortable with that by design. I think that a DFI is first and foremost a financial institution with a development mandate, so it is important that structurally this be something that is adherent to it and ultimately accountable to the appropriate ministry in that case.

I think, having said that, it is paramount that the DFI.... It's such an exciting opportunity right now in setting the mandate that development principles be established very clearly in the guidance and governance of this institution and that the development side be represented well, not only by the Minister of International Development and Global Affairs Canada, which will have a very significant role in helping to support and guide elements of this institution in my view, but outside expertise as well. That's something I want to reaffirm.

Our organization has spoken about this in the past, and from what I understand, it's part of the plan to have an independent board of directors that oversees and essentially green-lights or red-lights each of the investment opportunities. On that board we need to have a range of skills and expertise and very much so have a development perspective reflected.

I don't think the fact that it's going to not be accountable directly to the development minister is a problem. I think if you look to institutions like the CDC in the U.K., the world's oldest DFI, they have a very close and intimate relationship with DFID. By design, the government of the U.K. sees the two as part of its tool kit towards accomplishing its development priorities and aims.

I think Canada should take that same type of enlightened approach where we're not trading these things off against one another but instead seeing the potential to operate with a fuller strategy in view of the fact that we're now engaging a range of different assets and opportunities to contribute to market development and human development goals in countries where they are vitally needed.

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

Thank you.

Go ahead, Mr. Lever.

[Rod Lever]

I will answer in English.

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

No problem.

[Rod Lever]

Not only do I not think it's a problem that the accountability is to the development minister, but as in my remarks, I think that more should be done in terms of developing a mechanism to integrate strategy. To the point on an innovative tool kit, for me, it only makes sense because we have this continuum of instruments.

We have what we call early-stage interventions in development that can lead to outcomes that the DFI can look at. I think the development department's strategy should seek to integrate where the DFI should play. Then more than that, what is the mechanism for engaging with, call it the private-sector arm of GAC?

I think there are a lot of good things that can be done with GAC and the DFI with development.

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

Thank you very much.

I have a second question. A number of witnesses have told us about the priority given to Canada's strategic interests. It seems to me that, when we take that approach, we perhaps end up somewhat dismantling the work that we are doing, compared to the approach where countries are targeted, or better yet, compared to one of the sustainable development goals, SDGs, where the stipulation is that priority must go to local needs, not to the investing countries.

Does that cause a problem for you?

What do you think, Mr. Haga?

[James Haga]

Sorry, I apologize. I didn't get translation there, and I would ask if Rod wants to take the question first and I could follow on and interpret from his answer.

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

Okay.

[Rod Lever]

The question, James, is around doing work in terms of targeted countries' approaches and to the SDGs. I'll just start.

I understand your question to mean that—and tell me if this is accurate—because the DFI is doing things that are commercial and not in the same vein as more traditional development, this could distort some of our efforts in development? Is that the question?

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

Yes.

[Rod Lever]

No, I don't think so. The reason is that, as I see it, the private sector is the most important catalyst for and the most important way to unlock employment growth and livelihoods creation anywhere, and the DFI is a means to be able to really build the private sector in developing countries. If we all agree that's important, then we need the appropriate instruments to be able to scale up the private sector and fill gaps that existing financial sector players do not, at the current time.

Also you can definitely vector the DFI onto the SDGs. For example, with the SDG around access to energy—I think that's number seven, but I may be wrong—how are you going to approach access to energy and making sure that...? Energy is important because it's a building block for economic development, for industrial development, etc., and as I sort of talked about in my remarks, these are capital-intensive projects and you're not going to be able to tackle that with traditional development. You need to bring in, you need to crowd in the private sector, and the DFI should try to do that.

[The Chair, Liberal, Bob Nault]

Thank you.

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

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning, gentlemen. It doesn't seem I have that much time, so I'm going to ask you both this very specifically. We know what success looks like because we know that in Britain they haven't gone back to the public purse in 15 years. We know that for every dollar OPIC invests, $8 comes back. We know of the successes in the Netherlands and Spain. As a general question, because I think we exhausted some of the other questions—I had a whole bunch of other questions but limited time—what do you think should be two or three points that we should make sure we include, because we don't want to reinvent the wheel at this point when we've seen so many successes with other countries? What best practices can we learn to make sure we include those best practices in our own DFI?

[James Haga]

I think I'll use this as an opportunity to reaffirm some of the things I was recommending in my initial remarks because at least two of the three of them are based on best practices. I think that in view of the target population that Canada is aiming to have an impact on, namely the poorest and most vulnerable, that thinking about the availability of loan guarantees as a way to de-risk access to capital and investment for women entrepreneurs is a widely regarded strategy and approach to helping to make our DFI successful and truly catalytic in pursuing its mission and mandate.

I think it's important that Canada also leverage the expertise that has been hard-earned by other DFIs, and also then choose to apply itself in ways that address some of the institutional gaps that are currently left. In view of that, that's part of the reason we're also encouraging that a smaller segment of the portfolio go toward a higher-risk type of SME investment. We know that the opportunity for building markets that address the needs of people who are left out of the system today is a harder task and one that requires more patience. A lot of DFIs have not taken on the hard challenge of doing that, and Canada can distinguish itself among the group internationally by attempting that.

I want to give a very specific example of how that translates and what that looks like. There is an entrepreneur in southern Africa whom I know very well who runs a business called Zoona. It is now southern Africa's largest mobile money provider. They transact over a billion dollars a year through mobile-based lending that essentially makes capital available to people who don't have bank accounts, or access to finance. This is a significantly impactful business model.

The IFC, as a multilateral development institution, has led a series B investment round of $15 million into Zoona. This is the kind of business that a DFI should be looking toward making an investment in, not only because it's now at a point where it's scaling operations across large regions and having a very strong impact and performing strongly from a commercial perspective, but the ability to provide employment opportunities and access to goods and services that are otherwise not available to the poorest people is built into the design of the business.

Zoona didn't jump to the point where it could then access $15 million in investment from a DFI. It needed seven or eight years of higher-risk investment from a range of other institutional partners, and that's part of why I underscore that recommendation around 15% toward higher-risk investment. You can't expect these businesses, against the odds and all the constraints they face in operating in environments that are higher risk by nature, to simply jump to that point of being operationally and commercially viable. To me, that example provides both a prospect for how a Canadian DFI could invest in a later-stage business and also how they could choose to put in risk capital at the earlier stages as well.

[Rod Lever]

I think there's a bit of a risk in trying to replicate other models. We're going to have our own approach. If we're going to sit back and design this thing, we'll say to ourselves that we want to enable it to do this high-risk business and to stay focused on three or four sectors. How are you going to get there? That's the question, and that's where I think partnering with the likes of an IFC or others that have had some experience doing a Zoona-like investment is an opportunity to learn, but not to go down the path to start doing what everybody else is doing. That would be a danger. You know your strategy, where you want to go, which is to carve out this space for yourselves in sectors A, B, and C. We don't necessarily have the tools and expertise in-house right now to get the experience. Therefore, co-investing with others is not a means unto itself—that's super important—but a means to an end.

[Raj Saini, Liberal, Kitchener Centre, ON]

Let me just pick up on that point for one second. We have models that have been successful in the past. You're asking us to differentiate from those models.

[Rod Lever]

Yes.

[Raj Saini, Liberal, Kitchener Centre, ON]

Part of the issue is that we're trying to fill a gap between the public and the private sector. How would you see that differentiation from other models that have been successful?

[Rod Lever]

We can talk about a whole bunch of different examples there. I do the energy sector. That's where I focus most of my time, so I'll just use that as an example.

There are lots of DFIs working in energy. They're investing into renewables projects and they're taking some risk. There are also development agencies doing targeted approaches, but the market is huge. The niches that may present themselves to us, and which could be interesting, could be around women-led renewables projects. No one is touching that.

I guess my answer to your question is that this sort of issue of learning from others... they're not mutually exclusive at all. Yes, we want to adopt best practice, but we can totally do that and it shouldn't be seen as a danger to try to do it.

[The Chair, Liberal, Bob Nault]

Colleagues, I apologize, but we'll have to wrap it up.

I want to thank Mr. Lever and Mr. Haga for their presentations. It is always a short period of time, but we're already over time.

Next week, we're going to hear directly from some of the players who have had DFIs for some time, so we'll get to quiz them a little about their experiences. The U.K. will be in front of us, hopefully Germany, and maybe the U.S.

With that in mind, have a good weekend and we'll see you on Tuesday.

The meeting is adjourned.