FAAE Committee Report
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GOVERNMENT RESPONSE The Government of Canada has carefully considered “Driving Inclusive Economic Growth: The Role of the Private Sector in International Development”, the Sixth Report of the Standing Committee on Foreign Affairs and International Development (SCFAID), tabled in the House of Commons on November 7, 2012. The government would like to thank committee members for their efforts in preparing this comprehensive report, as well as the witnesses who appeared before the committee to share their valuable perspectives on this important subject. The Government welcomes the committee’s continuing interest in the role of the private sector in economic growth and poverty reduction. It agrees with the overall thrust of the report and the majority of its recommendations. It shares the committee’s view on the importance of poverty reduction in developing countries, which is the fundamental purpose of all of Canada’s official development assistance efforts, and the role the private sector can play in improving the lives of people living in poverty. To this end, this report offers useful suggestions on how to enhance long-term sustainable prosperity in developing countries. Canada’s approach to increasing prosperity at home and abroad has been built on open trade and free markets governed by prudent policy and sound regulation. This is demonstrated in the Government of Canada’s Economic Action Plan and in the responsible development of Canada’s natural resource sectors. Canada’s pro-trade plan for emerging economies, including recently negotiated and ongoing trade and investment agreements, contributes to job growth and economic prosperity in many developing countries. Canada’s approach to reducing poverty and promoting prosperity is also reflected in Canada’s international assistance. In particular, the Canadian International Development Agency’s (CIDA) Sustainable Economic Growth Strategy sets out an approach for growth, job creation, and poverty reduction in developing countries. The strategy’s three paths – building economic foundations, growing businesses, and investing in people – provide a targeted approach to addressing the specific constraints to achieving higher levels of private sector-led sustainable economic growth. The Sustainable Economic Growth Strategy is complemented by CIDA’s other two thematic priorities. CIDA’s work on Food Security focuses on increasing sustainable agriculture and agricultural productivity by empowering smallholder farmers, particularly women. Within the Children and Youth Strategy, CIDA helps build basic services that address the needs of children and youth through health and nutrition, quality primary education, and safe communities, each of which builds up the human capital that is essential to a modern, adaptable workforce. These priorities are reinforced by crosscutting themes of environmental sustainability, gender equality and governance. In the extractive sector, the Government of Canada, through its Building the Canadian Advantage: A Corporate Social Responsibility (CSR) Strategy for the Canadian International Extractive Sector, helps foster and promote sustainable development and responsible business practices in countries where Canadian extractive sector companies operate. As part of this agenda, the Government is helping to build the capacity of developing countries to manage the development of their minerals, and oil and gas sectors, so that their populations can meaningfully benefit from these resources. The Government is also working with the Canadian private sector to encourage and promote responsible business conduct. As a means of strengthening its efforts to support economic growth, job creation, long-term prosperity and poverty reduction in developing countries, the Government is pleased to provide the following response to the committee’s recommendations: SCFAID Report Recommendation 1 The Committee recommends that the Canadian International Development Agency (CIDA) publish an updated and comprehensive policy position on the role of the private sector in achieving Canada’s international development objectives. This document should address in detail the ways in which private sector actors — enterprises, individuals and non-governmental organizations — can contribute to inclusive economic growth in developing countries within a framework of effective governance, strong public sector institutions and sustainable development (i.e. development that takes into account social, economic and environmental aspects). It should also articulate a strategy that, among other things, outlines:
The Government of Canada agrees with this recommendation. The Government’s international assistance priorities provide a strong framework within which private sector actors can contribute to sustainable economic growth and poverty reduction. In this context, private sector entities can act as development partners and can contribute to sustainable economic growth and sustainable development. The Government is committed to strengthening engagement with private sector actors, whether Canadian or international, as partners to help achieve development results in its thematic priority areas. Leveraging the skills, resources, and innovation of the private sector can help achieve lasting development impact, provide solutions to persistent development challenges, and make a meaningful contribution to reducing global poverty. To understand better the potential role of the private sector in development, CIDA has consulted with a wide range of stakeholders, including academia, civil society and the private sector itself. These consultations have enhanced the Government’s understanding of the development opportunities and challenges for private enterprises operating abroad. In terms of the private sector as beneficiaries of the Government’s development assistance efforts, CIDA’s Sustainable Economic Growth Strategy sets out a systematic and integrated approach to private sector-led sustainable economic growth in developing countries, recognizing that each country has its own unique mix of challenges and opportunities. The strategy is carried out along three interconnected paths: strengthening the broad investment climate in a sustainable way (building economic foundations); increasing the sustainability and competitiveness of enterprises, especially micro, small and medium-sized and those led by women (growing businesses); and fostering the participation of individuals in economic activities, particularly women and youth (investing in people). Two other CIDA strategies are closely tied to this work: CIDA’s Food Security Strategy is aimed at increasing sustainable agricultural production and productivity for rural smallholder farmers, strengthening agricultural innovation systems, and improving consumption of nutritious foods or supplements for food insecure, undernourished or food aid-dependent populations. CIDA’s Children and Youth Strategy has also successfully drawn on private sector-led approaches to deliver development results in health and nutrition, quality primary education, and security for youth at risk. In delivering results under these thematic priorities, CIDA can draw on over thirty years of experience in supporting the development of a vibrant private sector in developing countries. The Government has also been working with the Canadian and international private sector in public-private partnerships to address development challenges. For example:
SCFAID Report Recommendation 2 As part of the overarching policy recommended above, the Committee recommends that CIDA pursue appropriate public-private partnerships as an important tool of its development programming. The Committee further recommends that CIDA’s approach to partnerships with private sector companies should incorporate:
The Government of Canada broadly agrees with this recommendation. The Government agrees that creating more alliances with a wide range of partners in the private sector, in Canada and around the world, could further expand opportunities to promote private sector-led sustainable economic growth and reduce poverty. Private sector actors can offer capital for investment opportunity, goods and services that people living in poverty need, innovative technology and approaches that improve development outcomes, and know-how from which governments can benefit. The Government has already established successful development partnerships with private sector organizations. For example:
Based on the experience gained through these partnerships, the Government intends to actively pursue new partnerships to leverage private sector resources and expertise for development impact. To accomplish this objective, CIDA is identifying the most appropriate ways to strengthen existing tools and build new mechanisms to engage the private sector as partners in development. The Government will carefully consider the Committee’s recommendations as it moves forward. SCFAID Report Recommendation 3 The Committee recommends that CIDA consider offering loans and utilizing other financial instruments to enable private sector led, sustainable economic growth in developing nations. The Government of Canada agrees with this recommendation. The Government already offers financing to enable private sector-led sustainable economic growth in developing countries through international financial institutions, such as the World Bank. The Government recognizes the need to have a complete toolkit of instruments to partner with the private sector to achieve better results. Further consideration is needed to identify the best ways to deliver these instruments. For example, for CIDA to provide direct concessional loans and other non-grant financial instruments as part of its regular programming, it would need to amend its Terms and Conditions. Canada has experience with innovative financing mechanisms. For example:
As part of continuing efforts to ensure Canada’s development assistance achieves maximum poverty reduction impact, CIDA will work with other Government of Canada actors to examine ways it can leverage its resources for the greatest effect, including exploring new finance mechanisms that can be used to achieve development objectives. This includes applying international best practice to the use of grants and contributions for technical assistance, and exploring the potential use of loans, equities, guarantees and other financial instruments in developing countries. SCFAID Report Recommendation 4 In order to ensure that CIDA has the expertise to engage effectively with the private sector, in compliance with existing Government of Canada conflict of interest rules and guidelines, the Committee recommends that it:
The Government of Canada agrees with this recommendation. The Government recognizes the importance of equipping its staff with the necessary skills, knowledge, and training to engage with the private sector effectively. CIDA already carries out in-depth analysis of learning needs for staff, and future strategies for private sector engagement will be incorporated into CIDA’s corporate learning priorities. These steps will ensure that the learning plans of staff reflect the need to build capacity and expertise to support private sector engagement. In addition, CIDA has tools to access recruits with experience working in the private sector, whether through external recruitment, secondment of experts within the Government, or through programs such as Interchange Canada that enable staff exchanges between public sector and Canadian companies. SCFAID Report Recommendation 5 The Committee recommends that CIDA reallocate attention and resources to working with developing countries to help them establish the institutions, regulations and policies that provide an enabling environment for sustainable economic growth. The Government of Canada supports the intent of this recommendation. The Government considers the enabling environment to be a critical determinant of success in achieving sustainable economic growth. As the report points out, there is strong evidence that connects the effectiveness of a country’s public institutions and regulatory processes to its level of development. A private sector enabling environment possesses a number of elements, including a strong climate for doing business, and the effective capacity of institutions, firms and individuals to participate in, and benefit from, the opportunities that growth provides. With the launch of its Sustainable Economic Growth Strategy, CIDA has refocused attention and resources on strengthening public financial management at national, regional and local levels and on improving legal/regulatory frameworks and systems to stabilize economies. For example in fiscal year 2011-2012, Sustainable Economic Growth programming accounted for approximately one quarter of the Agency’s programming disbursements. Creating an environment conducive to private sector-led sustainable economic growth requires governments, civil society, and the private sector to work together. Each brings unique resources, knowledge and insights to bear. The Government of Canada, with CIDA in the lead, will continue to play a supportive role in this process in developing countries. This means supporting partner governments to enact reforms and build up institutions; encouraging local governments and civil society, such as cooperatives, local chambers of commerce and business support networks, to represent community needs and concerns, and to provide services to businesses and individuals, and; initiating a dialogue with private sector entities to define priorities and to understand sustainable economic growth constraints. CIDA is working to deepen and broaden its efforts to address these challenges and opportunities, guided by the overall purpose of reducing poverty in developing countries and according to the specifics of each country context. Current examples include:
SCFAID Report Recommendation 6 The Committee recommends that CIDA offer technical assistance to developing country governments that enables more foreign direct investment for the purposes of private sector employment. The Government of Canada agrees with this recommendation. The Government recognizes the importance of attracting foreign direct investment to create private sector jobs. A stable, transparent and accountable environment for business is a precondition for sustainable economic growth and poverty reduction. This means working with development partners in providing technical assistance to support strong fiscal and macroeconomic management, address constraints to doing business, increase access to markets, and improve the quality and transparency of regulation in sectors such as financial services and extractive industries so that investors in businesses do not face unnecessary barriers in accessing markets. CIDA has provided such technical assistance. For example:
More broadly, CIDA is giving greater attention to efforts that facilitate the growth of businesses, particularly micro, small and medium-sized enterprises and those led by women. Strengthening the local private sector creates opportunities for both local and international firms to invest in the local value chain. In addition, because of the particular legal, cultural and practical barriers women entrepreneurs and workers face in exploiting opportunities, CIDA is supporting increased Sustainable Economic Growth programming targeted to women. For example:
In addition, the Canadian Trade Commissioner Service has a network of regional offices across Canada and diplomatic missions around the globe that actively engage with the private sector to enhance business opportunities abroad. The Canadian Trade Commissioner Service supports Canadian businesses looking to expand overseas and promotes Canadian Direct Invest Abroad. Canadian Direct Invest Abroad can result in significant benefits in the recipient country, in particular by increasing participation in global value chains, technology transfers, innovation and capitalization, while also expanding two-way trade. Achieving the greatest development impact also means working with a wider range of partners to harness the potential of foreign direct investment to benefit local communities across a wide range of sectors. For example, in the Americas, CIDA supports the Andean Regional Initiative and works with the International Finance Corporation (IFC) to enhance the development profile of extractive industries. CIDA will continue to place emphasis on facilitating responsible investment in developing countries, including through its work in the extractive sector, consistent with the best practice principles and standards recommended by the G20 in 2011. This includes working with local communities, including women and indigenous groups, to ensure they can realise the benefits of foreign investment in terms of more jobs and public revenue. Finally, the Canadian International Institute for Extractive Industries and Development (CIIEID), announced in November 2012, will build on Canadian leadership in the management of natural resources in developing countries, which is critically important for sustainable economic growth. This institute will deliver knowledge on proven regulation and oversight to help resource-rich developing countries create jobs and economic growth. SCFAID Report Recommendation 7 The Committee recommends that the Government of Canada restate its support of the internationally recognized Equator Principles for corporate social responsibility. The Government of Canada supports the intent of this recommendation. Export Development Canada was one of the first export credit agencies to adopt the Equator Principles in 2007. This was a first for an export credit agency and a first for any Canadian financial institution. The Government recognizes that the Equator Principles, a voluntary set of guidelines, provide the industry benchmark for determining, assessing and managing social and environmental risk in project financing. The Equator Principles are consistent with the International Finance Corporation’s Performance Standards. It should be noted that the Government of Canada endorses the International Finance Corporation’s Performance Standards through its Corporate Social Responsibility Strategy. In addition to Export Development Canada, the five largest Canadian commercial banks have adopted the Equator Principles. The Government takes this opportunity to commend those institutions for this ongoing relationship. SCFAID Report Recommendation 8 The Committee recommends that CIDA work to strengthen institutional capacity — including taxation, regulation, monitoring and reporting functions — in developing countries with significant natural resource sectors, focusing in particular on strengthening governance and consultative processes at the local level to improve development outcomes. The Government of Canada agrees with this recommendation. CIDA recognizes the importance of assisting governments to establish and implement the policy, regulatory and democratic governance frameworks needed to secure the greatest sustainable social and economic benefit from natural resources, especially in relation to the extractive sector and its contribution to sustainable economic growth. The extractive sector has the potential to transform developing economies. The associated revenues from royalties and taxes, if managed transparently and responsibly, can be invested to provide often scarce public goods and services. As an international leader in extractive sector development, Canada has helped ensure that extractive resource endowments led to sustainable prosperity in developing countries, notably through the Government of Canada’s Corporate Social Responsibility Strategy for the Canadian International Extractive Sector and CIDA’s Sustainable Economic Growth Strategy. CIDA’s approach to helping resource-rich developing countries to benefit from their extractive sectors includes building resource governance capacity and enabling communities to maximize benefits from the extractive sector to promote sustainable economic growth. Strengthening a partner country’s governance and institutional capacity, from the local to national level, has been a focus of CIDA’s extractive work, particularly in Latin America. Building on this experience, CIDA will work towards increasing institutional capacity within the relevant ministries of developing countries to generate and effectively manage extractive sector revenues for long-term national benefit; strengthening institutional capacity to regulate and monitor sector operations throughout all phases of the extractive life cycle, from exploration to production, to closure and remediation, and; improving coordination between national and regional governments, ministries and regulatory authorities in the management of the extractive sector. For instance:
Improved consultation mechanisms among governments, local communities and other relevant stakeholders to facilitate meaningful dialogue, build consensus, and strengthen relationships based on trust and transparency, are essential in ensuring that extractive development provides maximum benefits to communities, while minimizing risks. CIDA has made focused interventions in the Americas, where the extractive sector is key to economic growth. It has facilitated the transfer of specific Canadian expertise to partner governments to develop their capacity in managing their extractive sector in a more sustainable manner. For example, CIDA helped implement a new natural gas regulatory framework and build capacity within the relevant regulatory agencies in Peru. CIDA also serves as the Secretariat for the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development, a voluntary partnership for global dialogue on mining issues and sustainable development that has developed a Mining Policy Framework. The Forum provides a visible demonstration of Canadian leadership in the extractive sector and development, and is an ideal mechanism for Canada to engage directly with developing countries to help promote responsible extractive sector development. As a leading source of extractive sector investment and a global best practice leader, the Government has been engaged with the private sector for some time, in particular with respect to the Extractive Industries Transparency Initiative (EITI) that contributes to the full publication and verification of company payments and government revenues from oil, gas and mining. Canada is currently the second leading donor to the EITI. SCFAID Report Recommendation 9 As part of recommendation 8, the Committee further recommends that CIDA support work to strengthen democratic oversight capacity in developing countries with significant natural resource sectors. Such support could include the establishment and maintenance of a network and/or roster of retiring and retired Canadian public servants interested in such work. The Government of Canada supports the intent of this recommendation. The Government recognizes the importance of ensuring that developing countries have the legal, policy and institutional frameworks in place to enable effective, participatory and transparent democratic oversight, particularly in the extractive sector. Sustainable poverty reduction rests on efficient and effective governance systems that reflect the will and needs of their citizens. CIDA’s efforts to address these issues reflect the importance of democratic values and principles to Canadian international assistance, and include the integration of democratic governance principles through all of CIDA’s programming to reinforce capable, responsive and accountable government systems and processes. CIDA will continue to provide support consistent with Canada's commitment to uphold freedom, democracy, human rights and the rule of law. These goals can foster a stable investment environment of host countries. For example:
The Government is also working to promote the application and dissemination of international voluntary standards to guide responsible and sustainable development and investment in the extractive sector. In its Corporate Social Responsibility Strategy, the Government endorsed four internationally recognized standards: the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, the Voluntary Principles on Security and Human Rights, the International Finance Corporation's Performance Standards on Environmental and Social Sustainability, and the Global Reporting Initiative. In selecting these four standards, the Government carefully considered the international extractive sector focus of the strategy and the various aspects of corporate social responsibility that needed to be addressed by Canadian firms in order to assure their long-term global competitiveness, including social, gender equality, environmental, and disclosure and accountability issues. CIDA’s work in the extractive sector seeks to leverage Canadian expertise and experience in federal and provincial government, civil society, academic institutions and the private sector. This includes the new Canadian International Institute for Extractive Industries and Development (CIIEID), which will be an independent centre of world-class expertise in strengthening resource governance under the auspices of the University of British Columbia, working with Simon Fraser University. CIDA will explore additional mechanisms that deploy Canadian expertise in this sector. SCFAID Report Recommendation 10 In light of recent developments in other jurisdictions, the Committee recommends that the Government of Canada review the policy recommendations, when completed in 2013, of the Resource Revenue Transparency Working Group related to mandatory disclosure requirements for payments that are made by Canada-based natural resource companies to governments in developing countries. The Government of Canada agrees with this recommendation. The Government will review the work of the Revenue Transparency Working Group related to the development of mandatory disclosure requirements for payments from Canadian-based natural resource companies to developing country governments when it is available. The Working Group, which is made up of industry and civil society actors, is expected to complete this work by June 2013, at which time it will make policy recommendations to federal government policymakers and/or provincial security regulators for the Canadian adoption of mandatory disclosure requirements. SCFAID Report Recommendation 11 The Committee recommends that CIDA work with financial institutions and mobile phone companies to help facilitate the expanded availability in low-income countries of financial and information services based on mobile platforms. The Government of Canada agrees with this recommendation. CIDA will continue to support projects that improve the provision of financial services to people living in poverty, including those based on mobile platforms, given the strong alignment with the Agency’s Sustainable Economic Growth Strategy. CIDA has some experience with projects involving mobile banking. For example:
SCFAID Report Recommendation 12 The Committee recommends that CIDA continue to provide development assistance for microfinance initiatives, but that it focus its support on those institutions which have demonstrated results in lifting people out of poverty and in reaching the poorest and most vulnerable members of society, and on those institutions that have demonstrated reputable practices with respect to interest rates and client indebtedness. SCFAID Report Recommendation 13 In order to implement recommendation 12, the Committee further recommends that CIDA help microfinance organizations to establish standards of behaviour for the industry and metrics to monitor whether social objectives are being realized from microfinance products. The Government of Canada agrees with these recommendations. Access to a broad range of financial services allows people living in poverty, particularly women, to improve their lives, build assets and be less vulnerable. CIDA’s Sustainable Economic Growth Strategy stresses support for micro, small- and medium-sized private sector businesses, as well as increasing availability of financial services to the poor, including microfinance. Canada has supported microfinance and financial inclusion for over 40 years, and remains committed to providing the poor with access to credit, savings and insurance services. In additional to supporting microfinance projects, CIDA has emphasized broader efforts that promote financial inclusion among people living in poverty. The Agency’s extensive experience in working with financial cooperatives has yielded results. For example:
CIDA supports a wide range of microfinance initiatives that promote transparent, accountable and ethical practices and target economically active people living in poverty, with a particular focus on women. Many of CIDA’s current microfinance projects focus on providing training, such as bookkeeping, liquidity management, performance monitoring, as well as technical assistance to strengthen institutional capacity of both informal and formal microfinance institutions. SCFAID Report Recommendation 14 The Committee recommends that the Government of Canada establish a statistical profile of remittance flows from Canada and explore all possible mechanisms to reduce the costs within Canada associated with sending remittances to developing countries. The Government of Canada supports the intent of this recommendation. The Government recognizes the importance of remittance flows to developing countries and of efforts to ensure safe, sound and efficient remittance transactions. The Government will review the recommendations, including the merits of a statistical profile of remittance flows from Canada and the use of innovative financing mechanisms, involving the private sector, to reduce the cost of sending remittances. |