Good morning, Chair. Good morning, members and colleagues.
The organization I head, CIGI, has been working on the broad area of finance and development finance for several years. We've published a number of papers. I have spent the better part of three decades, first at the International Development Research Centre and previously at the University of Toronto, working on the subject. It's a privilege to be with you and to be able to speak with you on this subject.
In the seven or so minutes I have, I thought I would do three things and then we can have a conversation thereafter. They are to provide comments that start with the concept, then lead into the construct of the organization, and then the operation of the proposed DFI.
I'll begin by saying the DFI for Canada is a good and timely idea, mainly because it's in keeping with the transition worldwide from development assistance to development partnerships. That is a good thing. However, globally, capital shortage is not the problem. There is is ample capital for investable opportunities. Rather it's the know-how for making sound investments that is often what is lacking. The main thrust of my comments is going to be that what goes along with the finance is at least as important as the finance itself.
Now that's important to note because the capitalization and therefore the potential lending capacity of Canada's DFI is quite small. In fact, frankly, it's puny; $300 million over five years is going to be about $50 million, $60 million annually, perhaps. Just to give you a benchmark, the International Finance Corporation, which is the multilateral institution that is broadly in the same business, has an annual outlay of $10 billion U.S. dollars. The Nordic Investment Bank, which works both in the nordic countries and overseas, has an annual outlay of $3.5 billion. So Canada's DFI, if it wishes to punch above its weight, has its work cut out for it.
My first point here would be that growth and expansion of the DFI should be in-built from the start and it should be related to the benchmarks of success. We certainly can discuss what those benchmarks might be, but growth and expansion connected to benchmarks make sense.
Since the DFI is going to be funded from EDC's revenues, one thought is that over time a higher proportion of the EDC revenues might be devoted to the DFI. This way the expansion of the DFI is not a net call on the public exchequer in Canada. At the end of the day this is meant to be a private sector-type of activity.
To focus by region or theme when you're this small is also going to be important. There are a number of ways that we can be looking at this. The leverage ratio, meaning the amount of other dollars that the DFI's activities will crowd in, is currently set at about 5:1. My suggestion to you would be that this should be a minimum. In fact, the IFC's leverage ratio is 7:1. In an era when private sector capital outnumbers public money by many factors, I think 5:1 is modest, but It is a very good start.
This, however, has to be compensated for by other forms of assistance that go with finance. We might want to think about what that is. Is it technical assistance? Is it capacity building in sound lending? Is it market research and promotion? Is it technology transfer? I don't know, but it seems to me that these are the kinds of issues we should be talking about.
The second aspect of focus has to do with what exactly the DFI lends about or on. Here again, it's an open field. One thought is to stay within current ODA priorities, which would mean working in industries that work in the maternal and child health sector or perhaps extractives. The other thought is to go completely in the opposite direction, and to complement Canada's official development assistance program by investing in areas that are outside its ambit: green tech comes to mind, new technologies more broadly, or funding start-ups. I'm from Waterloo, so that resonates with me.
Finally, it occurred to me last week, when I was listening to the minister unveil Canada's new feminist foreign aid policy, that perhaps investing in women's entrepreneurship, or in organizations or forums led by women, or primarily concerned with producing products and services for women and children, might be the way to go. I don't know for sure, but it seems to me that choices have to be made and have to made early.
My final set of comments has to do with the operationalization of the DFI. Here I should sound a cautionary note that the institutionalization of the DFI within the EDC is not ideal.
The main reason it's not ideal is that the corporate culture of the promotion of trade and export is not the same as the banking culture, and it's not the same as the development culture. The skill sets, the ethos, and the objectives that each of these requires is different, and I fear that if care is not taken to situate the DFI appropriately within the EDC, it might not be fully effective.
I've been following—and associated with in some ways—the development of the DFI for some time. My first reaction was that this is a situation that cries out for a crown corporation set-up, which Canada does so well. Crown corporations are independent, and they provide good governance, diversity in partnerships, and effectiveness, all of which are built into their boards and operating structures.
In fact, one of the committee's questions to us was how this might connect with IDRC. Now, that's a very good example of a small and independent crown corporation that is effective precisely because it has the crown corporation structure.
The Montreal location of the DFI also poses a question in my mind. I believe that the reason for situating the DFI within EDC was to generate economies of scale in things like shared services, location, and staff. If EDC is headquartered in Ottawa, however, and the DFI is in Montreal, I would wonder to what extent the economies of scale from shared services would in fact be achieved.
My final thought is that this is a good idea that must be nurtured. How it starts is critical to how it develops and ends. Keep the operation small but technical and professional. Do not Christmas-tree it with lots of vague objectives that don't add up. If we get it right, though, this will be a feather in Canada's cap and a great benefit to the developing world.
Thank you very much.