FAAE Committee Report

There is no doubt that in the last thirty years there has been a significant shift in the role of the private sector in international development. New Democrats recognize that economic growth is essential for sustainable poverty reduction. However, not all economic growth is necessarily sustainable, nor does it necessarily lead to poverty reduction.

During this study no officials from the Canadian International Development Agency (CIDA) came to testify on CIDA’s existing “Policy on Private Sector Development” [i]  or “Sustainable Economic Growth Strategy”[ii], nor does the report refer to these policies in any substantial manner. We believe that this is a significant oversight of the Committee and this report.

Official Development Assistance:

New Democrats believe that the goal of Canada’s international development should first and foremost be poverty reduction as prescribed by the Official Development Assistance (ODA) Accountability Act.

We note the May 2012 finding of the OECD Development Assistance Committee (DAC) peer review that “Canada lacks a clear, top-level statement that sets out its vision for development co-operation.” 

We recommend that the Government of Canada implement  all recommendations from the 2012 OECD DAC review, including the recommendation that Canada establish “a clear, simple and consistent vision for Canadian [international development] – one that is anchored sustainably within its foreign policy and that remains stable over the long term”. This should include a clear reference to the ODA Accountability Act and how the government’s implementation of the Act is consistent with the Act’s three criteria.

The Committee heard about the importance of public funding for overseas development aid and that Canada’s aid is getting smaller as a proportion of Canada’s wealth.

We recommend that Canada immediately restore the aid budget, in the short term maintaining ODA at 0.31% of GNI, with a view to setting a timetable for reaching the goal of 0.7% ODA to GNI as soon as possible,  as the OECD DAC review recommended.

Private Sector and CIDA:

As the report acknowledges, there are many different types of private sector actors. Like many witnesses, we believe CIDA’s emphasis of private for-profit actors should focus on local businesses in developing countries. Development assistance is important in stimulating growth and development in the local private sector. CIDA’s Sustainable Economic Growth Strategy focuses on strengthening support for the local development and growth of micro-, small-, and medium-sized private sector businesses, with a special emphasis on women and the poor in developing countries.

The report does not take into account CIDA’s existing policy on private sector development, nor does it acknowledge the recent OECD Principles for Public Governance of Public-Private Partnerships. The 2012 OECD DAC Peer Review noted that “Canada needs to ensure that development objectives and partner country ownership are paramount in the activities and programmes it supports”. As the DAC has advised other members, there should be no confusion between development objectives and the promotion of commercial interests.

We recommend that CIDA continue its strategy to grow local businesses through strengthening support for the local development and growth of micro, small, and medium-sized private sector businesses, with a special emphasis on women and job creation for the poor.

We recommend that CIDA maintain and update the 2003 Policy on Private Sector Development incorporating into it the ODA Accountability Act, OECD Principles for Public Governance of Public-Private Partnerships and recommendations from the OECD 2012 DAC peer review.

We further recommend that Canada implement the recommendation from the 2012 DAC peer review that Canada “use analysis and broad consultation to develop a strategy for working with the private sector and ensure that this gives a clear rationale for Canada’s engagement, and includes well-defined aims, strategic objectives and transparent procedures for partnerships with private sector enterprises.”

We do not agree that public-private sector partnerships with Canadian or foreign companies should be a core aspect of CIDA’s development programming, but rather believe that partnerships should complement existing development programming. CIDA already has three strategic priorities. It does not need a fourth.

Furthermore, a separate parallel submission process for funding partnership proposals should not be established. We see no reason why CIDA should be asked to establish a responsive funding mechanism for private-public partnerships just as it has removed such mechanisms for funding civil society. CIDA should continue to improve the existing competitive funding process to ensure that the best proposals are selected, or return to responsive programming for all project proposals.

We therefore recommend that public-private sector partnership proposals are submitted under the a directive call proposal process  as is done for non-governmental organizations and CIDA continue to work to improve the process to ensure the best proposals are selected under a fair, predictable and timely process.

However, we do agree that partners should be required to match CIDA’s resources 1:1 with financing or in-kind contributions.

We recommend that CIDA establish the following: clear criteria for the types of companies with which they will engage; a clear procedure against which it determines the financial additionally of submitted proposals; detailed, publicly-available standards (benchmarks and indicators) to measure the development outcomes of proposals flowing from ODA Accountability Act; and an equally transparent monitoring process, to ensure the partnerships comply with these standards.

While we agree that CIDA should have the expertise to engage effectively with the private sector, the committee heard no evidence to suggest CIDA lacks this capacity. In addition, we are concerned with the recommendation regarding recruitment of employees from the private sector and staff exchanges under the Interchange Canada Program, which could lead to potential conflicts of interest. Above all, robust, transparent and public mechanisms must exist to avoid potential conflicts of interest.

Most witnesses agreed that strengthening governance frameworks in developing countries will help to ensure that private investment will be of net benefit to developing countries as a whole and contribute to poverty reduction. Governance is already a crosscutting theme at CIDA, focusing on human rights, rule of law, democratization, conflict prevention and public sector capacity building.  The committee heard no evidence about the initiatives CIDA has undertaken to help developing countries strengthen their governance frameworks.  

We recommend that CIDA continue to work with developing countries to strengthen governance frameworks and ensure that development assistance contributes to sustainable development in accordance with the ODA Accountability Act.

The report recommends that CIDA consider offering loans to enable private sector growth in developing countries. The committee did not hear any testimony about the controversial Investment Cooperation Program (INC), which was transferred to DFAIT from CIDA in 2010. Its objective “is to support responsible, developmentally beneficial, private sector engagement in developing countries leading to sustained economic growth and poverty reduction”. Yet a 2007 evaluation of the INC program noted a “tension between the ability of the INC program to deliver on CIDA's mandate, priorities and policies while responding to the profit-driven objectives of the Canadian private sector”[iii]. In May 2012, the Minister of International Trade suspended the INC program due to financial irregularities and it is currently under review. CIDA should not offer loans to enable private sector growth in developing countries.

The report also recommends that CIDA offer technical assistance to developing countries to enable more foreign direct investment. Again, the committee heard no evidence that CIDA does not offer this assistance under CIDA’s Economic Sustainable Growth Strategy.

The committee heard from several witnesses who argued that public funds from CIDA should not be used to promote the interests of Canadian businesses overseas, nor should it finance activities that the private sector should do anyway, such as reversing environmental damage it caused.

Private sector in development

Some witnesses pointed out that the interests of private sector actors, the Canadian government, and developing economies are all different. As already noted, the latest OECD Development Assistance Committee peer review advised Canada that “there should be no confusion between development objectives and the promotion of commercial interests.”  

We recommend that the Canadian Government ensure that Canada’s self-interest in promoting its economic interests remain distinct from its international development programs and goals.  

The committee heard about negative development outcomes that can stem from some economic development, including social conflict, environmental degradation, human rights violations and corruption. Some witnesses pointed out that Canada lacks an effective framework to ensure Canadian companies respect international human rights, labour, and environmental obligations when operating overseas. We note with concern the evidence heard surrounding the negative practices of Canadian mining companies overseas. New Democrats continue to support initiatives that strengthen transparency, accountability, and responsibility of Canadian companies who operate overseas. 

We recommend that the Government of Canada, in cooperation with key stakeholders, adopt a strong effective legal corporate accountability framework for Canadian companies operating abroad, including clear standards with robust sanctions for non-compliance; a strong independent oversight body; and access to judicial remedy.

We further recommend that the Government of Canada encourage and support key stakeholders, provinces and territories to develop a mandatory mechanism for disclosure by companies of the payments they make to foreign governments.

Conclusion

Most of the recommendations contained in the committee report do not reflect evidence heard during the study. CIDA officials did not appear before the committee to discuss its policies, initiatives and activities relating to the private sector. We believe that it is irresponsible for a majority of committee members to put forward recommendations without that knowledge. It is particularly alarming that this report recommends that CIDA consider a program similar to one that is currently under suspension for financial irregularities and was found to be at odds with development goals in departmental evaluations.

The private sector plays a significant role in international development and CIDA already recognizes this in their Policy on Private Sector development and Sustainable Economic Growth Strategy. Any future partnerships between CIDA and the private sector should follow international best practices, like the OECD Principles for Public Governance of Public-Private Partnerships.  However, the Canadian International Development Agency is currently undergoing $320 million in cuts over the next three years. CIDA has also been missing a clear and coherent vision for development, shifting its focus and priorities every year. Implementing public-private partnerships should not be a priority for CIDA at the moment. CIDA’s priority should be to refocus and redouble its efforts to develop a sustainable long-term vision coherent with Canada’s foreign policy that puts poverty reduction at the heart of international development.