IDS Rising Powers in International Development "State of the Debate in China"...
Ashley Sheppard - Building the Canadian Advantage, IR-MRP
1. Supervisor: Lana Wylie
‘Building the Canadian
Advantage’
A Study on the Use of Canadian Foreign Aid to Promote
Commercial Interests Abroad
Ashley Sheppard
6/1/2015
Abstract: The 2013 amalgamation of the Canadian International Development Agency
(CIDA) and the Department of Foreign Affairs and International Trade (DFAIT)
signifies a new era in the Canadian foreign aid industry. Foreign aid policies have long
been connected to donor countries domestic economic and commercial interests.
Under the Harper government however, this commercialization of aid has taken on a
new agenda. That agenda has been to use foreign aid policies as a means of promoting
Canadian commercial interests abroad, which has come at the expense of development
goals. This paper explores how these changes have been implemented and argues that
they have caused a disconnect between aid and the good governance principles of
transparency and accountability which has further resulted in the reduced
effectiveness of aid in developing countries.
McMaster University, M.A. IR
Major Research Paper
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Table of Contents
Introduction………….………………………………………...…….…3
Background Information……………………………………………...4
I. Canada and Foreign Aid………………………………………7
II. Economic Diplomacy…………………………………………10
Section One…………………………….………….….……………….13
I. Corporate Social Responsibility Strategy …………………….13
II. Development Finance Initiative ………..…………………….16
Section Two………………...…..………………………………….…..18
I. Motivations……..………………..……..…………….……….18
II. Transparency………………………………………………….22
III. Social License…………………………………………………24
IV. Accountability…….…………….....…………………........….27
Conclusion…………………………………..………………………...29
Bibliography………………………………………………….……….30
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The Canadian foreign aid industry has undergone many changes in the last two years. In
2013, the Harper government introduced Omnibus Budget Bill C-60. This bill, among other
things, merged the Canadian International Development Agency (CIDA) and the Department of
Foreign Affairs and International Trade (DFAIT). The newly amalgamated Department of
Foreign Affairs and International Trade and Development (DFATD) has made significant
changes to both who gets aid as well as how it is implemented. More specifically, their prime
directive from the Harper government has been to seek “direct returns on aid ‘investment’ in
other countries” (Leahy, 2014). Aid policies have also changed to reflect this stance. One
important change that has occurred is that “civil society aid organisations working with DFATD
are no longer aid delivery partners but sub-contractors bidding on aid programmes and
increasingly forced to work with the private sector” (Leahy, 2014). This means that Canadian aid
organizations are now required to work with sectors of interest, such as mining, natural gas, and
oil, in order to receive funding from the government.
This paper will begin by discussing two specific projects that have been implemented
under the Harper government; the Corporate Social Responsibility Strategy and the Development
Finance Initiative. Each of these projects illustrates the recent shift in Canadian foreign aid
policies towards the use of aid as a means of promoting Canadian commercial interests abroad.
This paper seeks to prove that the main objective of the Harper government’s investment into
these programs is not to advance development under the mandated guidelines of Canada’s
Official Development Assistance Accountability Act, but to advance the development of national
commercial interests. This paper further argues two main points. First is that this shift
demonstrates a lack of transparency stemming from the misrepresentation of the main objectives
of Canadian foreign aid policy under the Harper government. Second is that this lack of
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transparency has led to a decrease in the accountability of Canadian industries and institutions
operating abroad which has resulted in the reduced effectiveness of Canadian foreign aid. To be
clear, the purpose of this paper is not to discuss the positive or negative outcomes of foreign aid
or whether foreign aid has been useful in promoting development in developing countries.
Research on that topic has been conducted thoroughly and has shown that the effectiveness of
aid is reduced when there are conflicting or non-development objectives present in the
implementation of aid (Brown, Heyer, and Black, pg, 75, 2014). Furthermore, it has indicated
that the primary purpose of aid is often not to alleviate poverty; in fact “out of all of the foreign
aid flows, only 1.69% to 5.25% are given to the poorest twenty percent of countries in any given
year” (Qian, pg. 28, 2014). This paper however, seeks to address the issue of the recent changes
to the Canadian foreign aid industry and foreign aid policies, and the subsequent results and
consequences of those changes.
Background Information
The following section will provide a brief, but necessary, overview of the structure,
objectives and uses of foreign aid. There are two main types of foreign aid, humanitarian aid or
development aid, which are distributed by multiple donors including governments (through
official aid agencies), multilateral institutions such as the World Bank (WB), Non-Governmental
Organizations (NGOs), and individuals (through charities). Aid given out by governments (either
bilaterally or multilaterally) is measured by the Development Assistance Committee (DAC) of
the Organization for Economic Co-operation and Development (OECD) and is entitled Official
Development Assistance (ODA). Most ODA is given to developing countries by DAC member
countries, all 29 of whom are developed countries of the global north (including countries in
Western Europe, the United Kingdom, the United States, Canada, Japan, South Korea, New
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Zealand, and Australia). Of the two main types of aid, humanitarian aid is given in the immediate
aftermath of emergency situations, such as natural disasters or famines, and makes up only a
very small portion of total ODA. In the period from 1995 to 2013, humanitarian aid ranged
between only four and nine percent of total ODA (Qian, pg. 14, 2014). Development aid makes
up the rest of total ODA and is composed of debt relief, cash transfers, food aid, low interest
loans, technical assistance, project aid (often involves building infrastructure), and programme
aid (investments in sectors of government, such as education) (Qian, pg. 5, 2014). This paper
will be dealing specifically with development aid (ODA in particular), and therefore from this
point foreword any aid referred to will be development aid unless stated otherwise.
The long run objective of development aid is generally understood as “the alleviation of
poverty and promotion of welfare in low and middle income countries through budgetary
assistance and access to technology” (Arezki and Banerjee, pg. 48, 2014). Development aid can
quickly become complex however, due to the varied nature of the donors and the many different
ways in which aid can be used in developing countries. As such, it is important to recognize that
there are multiple catalysts behind the dispersal of foreign aid. These catalysts can be charitably
and altruistically motivated, with the intention of alleviating suffering and ending poverty. They
can involve the goal of increasing the economic growth of developing nations in order to
positively affect global growth and security. Or they can have to do with the strategic value
involved in a donor country creating a relationship with the recipient country through the
endowment of foreign aid. This strategic value is often leads donor nations to seek out
relationships with recipient countries for the reciprocal benefit they can offer rather than
providing aid for purely humanitarian reasons (Qian, pg. 5, 2014).
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Within this strategic value there is another subsection of motivational factors that drive
developed countries to pursue aid relationships with certain developing countries. It has been
noted in foreign aid literature that many of the top recipients of aid are countries that are
politically important to top donor countries; “Vietnam features in the top ten recipient countries
in the 1970’s during the peak of America’s war with Vietnam. China features in the 1980s and
1990s, during the early reform era; and Iraq and Afghanistan make it to the list after 2000, during
the war in Afghanistan (2001-) and the Iraq War (2003-2011) (Qian, pg. 10, 2014). Another
example of this is the Cold War. During this time aid was given out with foreign policy concerns
in mind rather than humanitarian criteria (Qian, pg. 17, 2014). This suggests that politics features
prominently as one of the main reasons that countries provide foreign aid. In addition to politics
however, economics is another driving factor behind why developed countries distribute their
foreign aid.
Over the years, providing foreign aid to developing nations has proven to be
economically and commercially valuable for donor countries in several different ways. One such
way is through trade, and more specifically, providing foreign aid opens up major markets for
export. An example of this is ‘tied aid’, which has existed for some time, but became very
popular amongst developed countries in the 1990s and 2000s. This type of aid is given
indiscriminately; however it does require recipient countries to open up to private foreign
investment and spend foreign aid money only on goods and services from the donor country (or
countries). In recent years however, it has become increasingly obsolete due to studies conducted
by various organizations and governments which concluded that the inflexibility of tied aid is
inefficient as well as costly for both the donor and the recipient (OECD, pg. 80, 2006). Another
example of the economic and commercial value of aid for donor countries is that it provides
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access to developing countries’ natural resources. This happens both indirectly (for example,
providing project aid that is used for infrastructure such as roads makes for easier physical access
to valuable natural resources), and directly (maintaining aid relationships with resource rich
developing countries facilitates donor countries access to those resources) (Arezki and Banerjee,
pg. 49, 2014). The third way in which aid can be economically and commercially valuable to a
donor country is through greater access to investment opportunities in a developing country for
the donor countries own domestic industries. In recent years, many developed countries, and in
particular the G7 countries, have begun partnering public financing with private capital (House
and McArthur, 2015). Governments provide funding, from public taxpayer money, for projects
and initiatives that partner private companies and institutions with development organizations,
NGOs or the recipient country directly, for the purpose of furthering development goals in the
developing country (House and McArthur, 2015). This type of aid relationship is largely
dependent on what commercial interests and industries the donor country has an interest in
promoting and whether or not a developing country has what they are looking for. If the recipient
country has a strong connection to these commercial interests and industries, they become a
priority candidate for receiving ODA. The consequence of this is that development goals often
become secondary to commercial objectives. This third type of aid relationship will be explored
further in this paper with specific regard to the Canadian foreign aid industry under the Harper
government.
I. Canada and Foreign Aid
The Canadian foreign aid industry has been relatively stable since the creation of the
Canadian International Development Agency (CIDA) under Pierre Trudeau in 1968. Canadian
aid levels were “consistent at around 0.5 per cent of national income throughout both the Liberal
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and Conservative governments of the 1970s and 80s” (McArthur, 2015). In the 1990s however, it
was a Liberal government that oversaw the “largest aid cutbacks in the country’s history, falling
to 0.22 percent in 2001, before joining a global trend to rebuild over the 2000s” (McArthur,
2015). The current Conservative government continued the upward course, “reaching 0.33
percent in 2010 (adjusting for the accounting tricks of debt relief), before signaling plans to taper
off to 0.25 percent in 2015” (McArthur, 2015). In spite of these steady trends, there was one
important change that occurred in Canadian foreign aid in 2005 when the DAC enacted the Paris
Declaration on Aid Effectiveness. The main purpose of the Paris Declaration was to ‘untie’ aid.
‘Tied aid’, which was referred to earlier in this paper, was proven to be highly ineffective and
detrimental to development and economic growth in developing countries, and so the DAC
created this document which was ratified by 100 developed and developing countries (Paris
Declaration, 2005). The declaration’s main stipulation was that aid receiving countries be
allowed to “set their own development strategies” (Paris Declaration, 2005). In accordance with
this, although a bit late, in 2008 Canada created the Official Development Assistance
Accountability Act (ODAAA).
The purpose of this act was two-fold: “(1) to ensure that all Canadian official
development assistance abroad is provided with a central focus on poverty reduction and in a
manner that is consistent with Canadian values, Canadian foreign policy, the principles of the
Paris Declaration on Aid Effectiveness of March 2, 2005, sustainable development and
democracy promotion and that promotes international human rights standards. (2) Canadian
official development assistance abroad shall be defined exclusively with regard to these values”
(ODAAA, 2008). The ODAAA is currently still in effect and any provision of Canadian ODA
abroad is subject to these rules. Overall however, Canadian foreign aid has proven to be
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relatively stable, and changes in government do not appear to have had any significant influence
over how much aid is being distributed to developing countries.
With regard to Canada’s international aid standing, it is important to note that Canada is
not a major contributor of foreign aid in comparison with many other OECD countries. Canada’s
Official Development Assistance is one of the lowest among wealthy nations and is only
continuing to drop. “Only Portugal, whose economy has been through the ringer and just
emerged from recession last year, gave a smaller percentage of its Gross National Income (GNI)”
(Logan, 2014a). The DAC also conducted a study which showed that Canada’s global ranking
among aid donors continues to fall. “In 2014, Canada’s aid totalled approximately $4.2 billion (USD),
which is down 22 per cent from 2012 when Canadian aid stood at $5.6 billion (USD)”; and overall
“less than one quarter of one per cent of Canada’s GNI was spent on aid in 2014” (Bhushan, 2015).
This does not make the aid we do provide any less significant, but it does indicate the need for
Canada to step up to meet the United Nation’s (UN) recommended minimum aid contribution for
developed countries of 0.7 per cent of national income (Blanchfield, 2015). Although it is clear
that the amount of foreign aid distributed has not been greatly affected through changes in
Canadian governments, whether or not the recipients and purpose of that aid have changed has
come into question in recent years.
Stephen Brown, an aid expert at the University of Ottawa, argues that trade interests are
increasingly winning out over development goals as the main objective in the Canadian foreign
aid industry (Brown, Heyer and Black, pg. 11, 2014). Overall, the Harper government “seems to
have forgotten that Canadian law defines the purpose of Canadian foreign aid as poverty
reduction” (Mackrael, 2014). Even before the CIDA/DFAIT merger there was significant
emphasis placed on what Canada has to gain, and especially what Canadian private companies
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have to gain, through aid relationships (Mackrael, 2014). CIDA itself, before its merger with
DFAIT, completed an overview of their bilateral aid programs and found that Canada’s
commercial interests have become a key consideration in determining how much aid a
developing country will receive (Mackrael, 2014). The report, titled Reviewing CIDA’s Bilateral
Engagements, does discuss the development issues of poverty, aid effectiveness, domestic
politics and regional security, but overall these issues receive less attention than the possibility of
opening new markets to Canadian goods and services (Reviewing CIDA’s Bilateral
Engagements, 2013). Gabriel Goyette, an aid expert at the University of Montreal, further argues
this point and states that Canada’s “increasingly commercially motivated foreign service and
foreign aid policies are problematic and risk further undermining the effectiveness of aid”
(Brown, Heyer and Black, pg. 11, 2014).
II. Economic Diplomacy
The Harper government’s prioritization of commerce above all else can be seen not only
in the Canadian foreign aid industry but also in the Foreign Service. As previously mentioned,
Canada recently merged the Canadian International Development Agency with the Department
of Foreign Affairs International Trade. The new DFATD now houses all three governmentally
operated departments, Foreign Affairs, Trade and Development under the same roof. One
consequence of this is that the three departments no longer operate independently from one
another, and thus the priorities of the department have changed as a whole. This can be seen in
the Economic Diplomacy strategy recently implemented by International Trade Minister Ed Fast.
Economic Diplomacy is a plan of action developed by the Harper government that outlines a
new strategic direction for Canada's Foreign Service which puts commerce at the heart of foreign
policy and is implemented by the Foreign Service and Canadian diplomats abroad (The Canadian
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Press, 2013). Thus, the priorities of the Department of Foreign Service have become inextricably
linked with those of the Department of Trade. This plan was put into action shortly after CIDA
and DFAIT merged and is another clear indicator of the direction that the Harper government is
leading Canada. The main priority of Economic Diplomacy is to improve Canada’s trade and
investment performance in emerging markets by providing strong government support for
Canadian industries operating abroad. Trade Minister Fast himself said that the Foreign Service
would accomplish the goals of Economic Diplomacy “through vigorous and continual trade
promotion, supported by ambitious trade policy. In short, this new plan will play to our strengths
and ensure that all of Canada’s diplomatic assets are harnessed to support the pursuit of
commercial success by Canadian companies and investors” (DFATD, 2013).
Economic Diplomacy however is just the concept that the Harper government has been
promoting of entrenching commercial success as the core objective for the Foreign Service, the
actual implementation of the strategy will be accomplished by the Global Markets Action Plan
(Ibbitson, 2013). This plan is the finished version of a previous commerce strategy that was
announced by the Harper government in 2007, which sought to harness Canada’s resources in
order to open new relationships with markets in Latin America and Asia, two quickly growing
regions of the world (The Canadian Press, 2013). However, since that time “the only major trade
deal that Canada has successfully established is with the EU, a developed common market with
painfully slow growth, and South Korea” (The Canadian Press, 2013).
The plan targets three sets of countries. First, emerging markets where Canada could
make “broad gains because of rapid growth in the market and a natural fit between what the
country needs and what Canada sells” and include countries such as the BRICs (Brazil, Russia,
India, China and South Africa), among others; second, “emerging markets with specific
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opportunities for Canadian businesses”, such as Mongolia, Uruguay, Ghana, and Kazakhstan;
and third, developed economies (Ibbitson, 2013). The questions that must then be asked are,
what are the practical applications of this new Global Markets Action Plan, and what does it
mean for Canada to be promoting commercial interests abroad through our foreign service? The
plan seeks to improve emerging markets access to small and medium size economies, known as
SME’s, which means that the job of our Foreign Service is now to increase the number of
Canadian SME’s that sell into emerging economies (Ibbitson, 2013). In order to do that,
Canadian diplomats are now wholly devoted to “opening doors, generating leads, and resolving
problems for SME’s and other Canadian businesses” and pursuing new trade agreements;
including “foreign-investment protection agreements, taxation agreements, air transportation
agreements, and science and technology agreements” (Ibbitson, 2013).
A good example of how this is implemented on the ground is that of Madagascar. In
Madagascar the priority for Canadian diplomats is to protect a mammoth $5.5-billion nickel-
cobalt mine, which is 40-per-cent owned by Sherritt International Corp. of Toronto (York, 2013).
In their visits to Madagascar since the coup, Canada’s diplomats have spent much of their time
lobbying the government to ensure that Sherritt secures an operating license for its mine. In
exchange for reconsidering its approval of the project, the post-coup government asked for
Ottawa’s cooperation and assistance – which it was provided in the form of government services
such as the issuance of letters of support, advocacy efforts in foreign markets and participation in
government trade missions (York, 2013). Overall, this new Global Markets Action Plan has
converted Canadian diplomats into business people, and ensured that the primary activity going
on at Canadian embassies abroad is the promotion of commercial interests above all else.
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The Economic Diplomacy strategy implemented by the Harper government provides an
example of how the new Department of Foreign Affairs and International Trade and
Development has now linked the priorities of Canadian Foreign Affairs to the priorities of
Canadian International Trade. What this shows is a larger pattern of the entire DFATD
department towards prioritizing commercial interests This paper will show that this trend not
only exists with two of three amalgamated departments but the third as well; foreign aid.
Specifically, two specific initiatives undertaken by the Harper government will be examined in
order to show this; the Corporate Social Responsibility Strategy, and the Development Finance
Institution. The following section will examine these two strategies in order to determine
whether or not commercial interests have taken over as the main priority of Canadian foreign aid
and whether that change has come at the expense of development goals.
SectionOne
I. Corporate SocialResponsibility Strategy
The first of the three projects that this paper will be discussing is the Corporate Social
Responsibility (CSR) Strategy. In order to discuss this strategy it will first be necessary to
understand why and how it came to be established. In 2005 and 2006 there were a series of
recommendations made by parliament with regards to establishing legal frameworks for CSR
that would be tough on Canada’s extractive sector (Ravensbergen, 2014). When Canadian
mining company heavyweights Barrick Gold, Goldcorp Inc., and Rio Tinto Alcan became aware
of these recommendations they decided to act independently to establish their own standards of
CSR, rather than have the order come down from above (Ravensbergen, 2014). Their response
was to organize a series of meetings with several NGOs, including the Canadian branches of well
known organizations such as World Vision, Save the Children, and Engineers Without Borders
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(Ravensbergen, 2014). The result of these meetings was the creation of the Devonshire Initiative
(DI), which is a private group whose mandate is to “improve social and community development
outcomes wherever Canadian mining companies operate overseas” (Devonshire Initiative, 2015).
The mining companies involved in the DI banded together to lobby the Harper government for
public funding for the initiative. The mining companies wanted money that was “earmarked” as
Official Development Assistance to fund their CSR initiatives on the ground, “all without
submitting to new rules or regulations that would have been required under parliamentary legal
frameworks” (Ravensbergen, 2014). The subsequent result of this process was the creation of the
Harper government’s Corporate Social Responsibility Strategy in 2009. This original strategy,
which was implemented before the CIDA/DFAIT merger in 2013, was titled ‘Building the
Canadian Advantage: A Corporate Social Responsibility Strategy for the Canadian Extractive
Sector’ and its purpose was to provide public funding to the private sector, specifically the
extractive industry, in order to “enhance the sector’s entrepreneurial advantage in a competitive
world market” (DFATD, 2009). The strategy argued that “corporate social responsibility makes
good business sense since it enables companies to better manage the social and environmental
risks of their operations” (DFATD, 2009).
The official stance of the strategy was to utilize public funding in the form of Official
Development Assistance in order to “improve resource governance, transparency and
accountability in developing countries, which is critical to ensuring that the extractive sector
contributes to poverty reduction, and creates a business and investment environment conducive
to responsible corporate conduct in countries where Canadian companies operate” (DFATD,
2009). However, as was stated previously, the strategy did not require companies’ in the
extractive industries to change their practices in developing countries. Additionally, although the
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strategy did require them to partner with an NGO, it did not require them to coordinate with that
NGO on how the funding would be utilized or how the projects would be implemented
(Ravensbergen, 2014). Furthermore, the strategy only required that companies involved in the
initiative submit to “CIDA counsellor assessments, ongoing participation in CIFA’s Investors’
Panel, quarterly meetings, conference calls and field visits to projects” and that those managing
the public funds “promote CSR in a way consistent with the Building the Canadian Advantage
Strategy for the Canadian international extractive sector” (DFATD, 2009). Due to tremendous
amounts of criticism that this strategy “provided policy cover for the government to
put ODA directly at the disposal of the extractive sector,” the CSR strategy was reformatted in
2014 under a new name, ‘Doing Business the Canadian Way’ (Ravensbergen, 2014). The
purpose of the new strategy remains the same; the CSR strategy receives ODA funding and then
uses ‘programs’ to provide that funding directly to companies in the extractive industry, so long
as those companies are partnered with an NGO (Torrance, 2014). However, there are now
stricter consequences for companies that do not conform to CSR standards set forth by the
strategy. If companies do not adhere to these standards they will not have access to ‘Enhanced
Government of Canada Economic Diplomacy’, which as mentioned previously, includes
government services such as the issuance of letters of support, advocacy efforts in foreign
markets and participation in government trade missions (Torrance, 2014).
Unfortunately, these consequences are only enacted if companies do not take part in the
dialogue facilitation processes of Canada’s NCP and Office of the Extractive Sector CSR
Counsellor (Coumans, 2014). The ‘NCP’ is the National Contact Point for the implementation of
the OECD Guidelines for Multinational Enterprises. Yet, both of these institutions have
“consistently failed to make a meaningful contribution to resolving conflicts instigated by
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Canadian companies;” and merely requiring companies to participate in their processes is highly
unlikely to change this (Coumans, 2014). The outcome of this new CSR strategy is as yet
unclear; and there is a possibility, however small, that the changes that have been made will
prove to be successful in implementing on the ground Corporate Social Responsibility. This does
not change the fact however, that the purpose of the CSR strategy is to use Official Development
Assistance to support the Canadian extractive sector abroad. It is therefore clear that although the
development goals of eradicating poverty and improving economic growth in developing
countries is an objective of this strategy, it is not the main objective and any development or
growth that occurs through this program is a secondary effect from the actions of private
corporations in the extractive industry.
II. DevelopmentFinance Initiative
The third and final project that this paper will be examining is the Development Finance
Initiative. This is the most recent of the three projects, having been revealed in the Harper
government’s 2015 federal budget under the Economic Action Plan, and is an initiative that
provides public funding to the private sector for the purpose of development. Specifically, DFI’s
are meant to provide “government backed loans to private companies and entrepreneurs in
developing countries, a high risk investment sector, who would otherwise have no access to
investment capital” (Laverdiere, 2015). Before now, Canada was the only G7 member to not
have a Development Finance Initiative (DFI). The Canadian DFI announced by the Harper
government this year will be a five-year, $300 million DFI that will be located within Export
Development Canada (EDC), an already existing crown corporation, for the purpose of cutting
down on set-up costs and enabling it to quickly get off the ground (House and McArthur, 2015).
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This is different from the other G7 countries however as most DFI’s are independent and not
connected to other governmental departments.
The official purpose of the new DFI, as promoted by the Harper government, is to use
government funding to help finance private investment in emerging markets and thereby
stimulate economic growth and development in developing countries (Laverdiere, 2015). The
DFI will “provide a mix of financing, technical assistance and business advisory services to
enterprises operating in line with the government’s international assistance priorities” (House
and McArthur, 2015). The issue here is that, as we have seen in the Harper government’s CSR
strategy, the main priority of Canadian international assistance has shifted in recent years. Rather
than the main objective being to increase development in aid receiving countries, the goal of
Canadian foreign aid has become promoting Canadian industries abroad.
There is also little evidence showing that DFI’s have resulted in significant increases in
developmental growth in developing countries (House, 2015). Research has shown that DFI’s
that have been implemented in other G7 countries “do not place a high priority on poverty
reduction in their focus on profit generation, and some do not even monitor the impact of their
projects on development” (House, 2015). Furthermore, research conducted in 2010 showed that
“a large portion of DFI investments – roughly 50 per cent – go to the financial sector, which has
limited local knowledge of development issues, in comparison to local organizations”
(Laverdiere, 2015). Not to mention that “rather than catalyzing investment in dollar-starved
markets, DFI funding is most often funnelled into industries that promise lower risks and more
secure returns rather than the high risk sectors for which they are intended” (Laverdiere, 2015).
Thus, the businesses and entrepreneurs that are most in need of investment, and that the DFI’s
are mean to be supporting, do not receive the government money that is provided for that
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purpose. Using the financial sector as an intermediary for DFI funding makes it almost
impossible to ensure transparent and effective distribution of invested money to those that need it
in developing countries (House, 2015). Overall, the new Canadian DFI does not seem especially
promising for making advancements in development goals and, similar to the CSR and
Economic Diplomacy strategies, it seems more likely that it will prove to be another exercise in
private sector promotion by the Harper government.
Section Two
I. Motivations
The two projects examined above provide evidence that the shift towards prioritizing
commercial interests above all else is not only evident in the Foreign Affairs Department, as seen
in Economic Diplomacy, but also in the Department of International Development. It is apparent
that from these two strategies that the main priority of Canadian foreign aid under the Harper
government has shifted from that of facilitating development to promoting commercial interests
abroad. This section seeks to examine the possible motivations for this shift.
There is no question that foreign aid given by governments either bilaterally or
multilaterally has always had motivations outside of the realm of altruism (Bandyopadhyay and
Vermann, pg. 334, 2013). It is a common practice for donor countries to use foreign aid to ensure
either a political, economic, or military advantage in a developing country through the influence
that an aid relationship provides (Bandyopadhyay and Vermann, pg. 330, 2013). However, the
central motivation of aid has remained in facilitating development and any additional benefits to
a donor nation have long been internationally understood as by-products of aid rather than as
main objectives. “As many poorer nations started on their path of development in the
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postcolonial period, former colonial powers tried to facilitate this process through provision of
resources in the form of foreign aid. This motive was central in foreign aid flows throughout the
1960s and still today remains a main objective in determining aid” (Bandyopadhyay and
Vermann, pg. 334, 2013).
In Canada, this objective is still the main concern of aid according to the Canadian
Official Development Assistance Accountability Act. This paper’s examination of the two
projects above however, has determined that through their actions the Harper government has not
maintained the main purpose of aid as facilitating development. Rather, their actions suggest that
the main objective of Canadian foreign aid has become facilitating Canadian economic growth
through the use of foreign aid to promote national commercial interests. This shift can be seen
through the CSR strategies titled ‘Building the Canadian Advantage CSR Strategy’ and ‘Doing
Business the Canadian Way’, and the clearly articulated purpose behind the new DFI of
supporting private business that adhere to Canadian ‘priorities’, i.e. commercial interests, when
making investments. Each of these strategies indicates that the main objective of Canadian
foreign aid has moved from facilitating development goals to promoting commercial interests
abroad.
One explanation for this shift can be seen in the Rational Actor Model (RAM), which has
been used by numerous academics in discussions of the foreign policy decisions that nations
make and is based on rational choice theory. Rather than examining the preferences of
individuals, as rational choice theory does, the RAM uses the state as the primary unit of analysis
and argues that states make decisions based on preference ranking and profit maximization
(Kafle, pg. 3, 2011). This model has been criticized for its realist perspective on foreign policy
analysis. However, in the case of the fiscally and economically conservative Harper government
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and foreign aid, the RAM can be extremely useful in analyzing foreign aid policy decisions.
Several studies done by Tingley in 2010 indicate that the more economically conservative the
ideological orientation of the donor government, the less money there is in the overall aid budget
and the more that budget is used with the economic benefit to the donor country in mind
(Bandyopadhyay and Vermann, pg. 333, 2013). In the RAM, the decision maker aims to emerge
from the situation with the greatest value maximizing choice (Kafle, pg. 4, 2011). This is done
through a rational decision making process in which the first step is goal setting and ranking, the
second step is consideration of options, the third step is assessment of consequences and finally
the last step is profit maximization (Kafle, pg. 4, 2011). In the Canadian case, there are two
possible outcomes that could be reached by this decision making process; the first is to use
Canadian aid to promote Canadian industries and interests abroad, the second is to use aid help
facilitate development in developing countries.
What we have seen in the foreign aid policies that have been enacted by the Harper
government is that the choice has already been made to use aid for the first reason; promoting
Canadian industries and interests abroad. This decision has likely been made because it had the
greatest value maximizing results. When the industries that are being promoted are examined, it
becomes clear why this is the case. The Canadian extractive sector, specifically the natural gas
and oil industry and the mining industry, which has been vehemently promoted by the Harper
government, has grown to be particularly large and wealthy in the past few decades. Canada has
the third largest oil reserve in the world, is a world leader in hydroelectric power, and overall
“Canada’s oil exporting and other energy related products make up 2.9% of the country’s GDP”
(Groff, 2013). Additionally, mining and exploration companies based in Canada account for 43
percent of global exploration expenditures (DFATD, 2015). In 2013, “Canadian-headquartered
21. P a g e | 21
mining and exploration companies accounted for nearly 31% of global exploration expenditures;
and over 50% of the world’s publically listed exploration and mining companies were
headquartered in Canada. These 1500 companies had an interest in some 8000 properties in over
100 countries around the world” (DFATD, 2015).
The second choice on the other hand, using aid to help facilitate the development of
developing countries, has not had such a successful history. Many studies indicate that aid
distributions that have been provided by developed countries to developing countries have not
resulted in a significant increase in development. While aid programs have successfully targeted
health issues such as polio, malaria, tuberculosis, smallpox and other such diseases, there have
not been as many gains made in the areas of economic growth and development (McArthur,
2015). “Many of the world’s poorest countries still face a long road out of poverty that requires
long-term financial assistance focused on development. As a rough rule of thumb, countries
require aid to provide population-wide basic services until they graduate to middle-income status.
Today there are 36 countries below the World Bank’s technical middle-income threshold of
$1,025 in per capita income (McArthur, 2015). Using the Rational Actor Model in a comparison
of these two decisions, it is likely that the first option would provide the greater value
maximizing choice. This is therefore, one possible explanation for the shift in the Harper
government’s foreign aid policy away from concerns of development and towards prioritizing
commercial interests. Understanding the possible motivations behind this shift in foreign aid
policy is a beneficial exercise in helping to understand why an individual, or in this case a
government, makes certain decisions. This then allows for further examination as to why that
government would seek to hide those decisions, and in this specific case can help explain why
22. P a g e | 22
the Harper government would not be forthcoming about the changes being made to Canadian
foreign aid.
II. Transparency
The following section seeks to establish that the Harper government’s lack of full
disclosure about the main objectives of Canadian foreign aid portrays a lack of transparency
about their true intentions and motivations. In this case, we have seen that the Canadian
extractive sector is very lucrative for the Canadian economy, and thereby for the Canadian
government. This presents the issue of conflict of interest. “When a country such as Canada that
has powerful mining interests not only advocates foreign investment in mining as a path to
development, but uses ODA funds — legally committed to fighting poverty in developing
countries — in ways that benefit its own industry, there is a major conflict of interest” (Brown,
pg. 289, 2014). There are several examples of this prior to the CIDA/DFAIT merger; “CIDA
funds helped rewrite the Colombian mining code in ways that favour Canadian companies,
including by reducing the royalty rates that foreign companies have to pay. In Peru, Canada will
help ‘streamline’ the environmental impact assessments that proposed mining projects must
undergo” (Brown, pg. 289, 2014). Additionally, although it is as yet too soon to tell whether or
not the new DFATD will fall into the same patterns, prior to the merger there was a call in the
academic community for “close monitoring” of the newly amalgamated department (Brown, pg.
289, 2014). This was due to concerns that “CIDA’s absorption into DFATD would increase
political pressure for the use of ODA funds for commercial purposes” (Brown, pg. 289, 2014).
Recently, we have seen that “DFATD’s first post-merger policy blueprint mentions the
government’s intention to leverage development programming to advance Canada’s trade
interests” (Brown, pg. 289, 2014).
23. P a g e | 23
When a conflict of interest of this magnitude is present, such as is the case in the
Canadian government and the extractive sector, the question then arises about whether or not the
government is being fully transparent about their actions. In this case, the fact is that the
extractive industry is extremely lucrative for the Canadian economy but has also been criticized
in the past for their exploitative and unsustainable extraction practices in developing countries.
This likely results in the Canadian government being less forthcoming about the true motivations
and purpose behind their providing foreign aid to developing countries. What has been seen from
the examination of the CSR strategy and the DFI strategy examined above, is that what the
Harper government is doing and what they are saying are not matching up. The Harper
government says that the new foreign aid policies it has enacted are working towards a ‘win-win’
outcome for both developing countries receiving Canadian foreign aid and the Canadian
economy. What we have seen however, is that the main objective of this aid has not been to
facilitate development in these countries, but to push Canadian industries and investments onto
them in order to promote and improve those Canadian industries and thereby improve Canadian
economic growth. This disconnect between what is being said by the Harper government and
what policy changes are being enacted in reality indicates that they are not being forthcoming
about their main objective in distributing Canadian foreign aid, and this shows a very serious
lack of transparency. The next section of this paper will discuss how this lack of transparency
has affected the accountability of Canadian companies and institutions operating in foreign
countries, and what the consequences have been for the effectiveness of Canadian foreign aid.
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III. SocialLicense
As stated above, this section deals with what the result has been of the Harper
government’s lack of transparency concerning the main objective of foreign aid. The argument
will be made that the Harper government’s lack of transparency has led to a reduction in the
effectiveness of aid in developing countries by not holding Canadian companies and institutions
operating abroad accountable for their actions. First however, the question of why these
Canadian companies and industries are choosing to partner with the Canadian government as
well as development organizations and NGOs, rather than operating independently and free of
governmental and other restrictions needs to be answered. What benefits do Canadian companies
and industries operating abroad receive that make it worthwhile to do so?
There are several explanations for this. First of course is the monetary explanation. By
linking themselves to the Canadian government, Canadian companies and institutions receive
public funding for their private operations and investments. As discussed previously, this can
only be done if they have connected themselves to an NGO or a development organization, and
therefore is a mandatory step in the process of applying for government funding. There is
however, one other important reason why these companies and institutions would want to align
themselves with a government and development organizations and NGOs that often attempt to
impose restrictions on their actions in developing countries. That is the concept of the ‘Social
License’. This concept has not only been discussed by academic communities, but has also been
implemented by many companies and institutions as part of their mandate when operating in
foreign countries. The ‘Social License’ allows big corporations, which often have a history of not
taking local voices and communities into account, to include the locals in the processes that they
are trying to implement. “The Social License has been defined as existing when a project has the
25. P a g e | 25
ongoing approval within the local community and other stakeholders, ongoing approval or broad
social acceptance and, most frequently, as ongoing acceptance” (Common Ground Consultants
Inc and Robert Boutilier and Associates, 2014). A Social License is usually granted on a site-
specific basis, and the more expansive the social, economic and environmental impacts of a
project, the more difficult it becomes to get the Social License. For example, “an independent
fisherman who is member of an indigenous group will normally get an automatic Social License
from his community but a mining company wanting to relocate an entire village faces a much
bigger challenge” (Common Ground Consultants Inc and Robert Boutilier and Associates, 2014).
The reason that companies seek out a Social License however, once again links back to
the Rational Actor Model. Throughout the years there have been many incidents involving local
communities from developing countries who were never consulted when big corporations came
and set up projects that involved the tearing apart of local land, polluting waterways, and other
environmentally dangerous practices. Due to this, an issue that has arisen around the world,
including in South America, is local community opposition to mining projects or mining
company policies or aspects of these. In Peru, for example, “companies such as Barrick Gold and
Newmont have been subject to protests by local communities worried about water supply and
water pollution issues and/or demanding a greater say in mining policy, regulation and approval.
On top of this, mining operations can be “held hostage” in disputes that have nothing to do with
mining. Again, in Peru, early this month Canadian company Rio Alto had to temporarily suspend
some of its operations at its La Arena gold mine because the main road to the mine was blocked
during protests against the country’s police and judicial system” (Campbell, 2013). The Social
License therefore provides two important functions. The first is to make local communities feel
like they are being heard, and including them in the projects those companies are undertaking;
26. P a g e | 26
although this is often in a minimalist fashion and many times is only for show rather than
resulting in a true relationship between the communities and the companies. The second, is that it
allows companies and institutions to promote themselves as being socially responsible to their
stockholders, investors, and to the public back at home in the developed country. This means that
they face less lawsuits and legal actions taken against them, and also ensures public support for
their operations, both among communities in the developing country and back at home. The
Social License is a large part of the CSR strategy that the Harper government implemented in
2009 and renewed in 2014. It provides a safety net for both the Canadian government as well as
companies and institutions abroad, to say that rigorous measures were taken to ensure that the
principles of corporate social responsibility were upheld, and if those principles were not upheld
then the fault does not lie with them.
This concept of the Social License also relates back to the actions of the Harper
government. The Harper government promotes and financially supports strategies like CSR and
Development Finance Initiatives in order to maintain their own Social License with the Canadian
public. By doing so they not only protect their own image with Canadians, but they also enable
themselves to give financial support to sectors that they believe will benefit the Canadian
economy, such as the extractive sector. However, it is not in the best interest of the Canadian
government to promote commercial interests and industries abroad if the companies they support
are not holding up the principles of CSR that enabled them to give those companies money in the
first place. When this happens, it is not uncommon for the actions of those companies to go
uncommented on in the Canadian news, and for the Harper government to not hold them
accountable for their actions in order to protect their own image with the Canadian public at
home (Logan, 2014b). This will be discussed further in the following section.
27. P a g e | 27
IV. Accountability
There are several examples of how the Harper government has failed to hold Canadian
companies in the extractive sector accountable for their actions. A report by the Canadian
Working Group on Mining and Human Rights in Latin America linked Canadian mining
operations to “forced displacement, violence, and disregard for indigenous rights” as well as
argued that although Canadian companies control as much as 70 per cent of mining operations in
Latin America they are “reaping profits while leaving local communities to deal with an array of
problems in the aftermath” (Logan, 2014b). The same report argues that “the Canadian
government’s foreign policy in developing countries is fundamentally tied to the ambitions of the
mining sector” (Logan, 2014b). Furthermore, only two Canadian laws apply internationally to
mining practices. “One is against having sex with children and the other is against bribery and
corruption” (Paul, 2013). These laws however are “difficult to apply” and “although American
companies can be prosecuted for environmental and social policies abroad under the U.S. Alien
Tort Statute, Canada does not have any such laws holding companies accountable for their
actions” (Paul, 2013). A further example comes from a leaked report in 2012 that was funded by
the Prospectors and Developers Association of Canada which found that “of the 171 high-profile
incidents of pollution, human rights violations, and unethical behavior, 34 percent were
committed by Canadian companies” (Paul, 2013). These actions and the government’s inability
to regulate them have gained Canada a reputation as “the worst offenders in environmental,
human rights and other abuses around the world” (Paul, 2013). Mining Watch Canada also
argues that in addition to providing “loans, insurance, and an extensive range of diplomatic
services,” the recent changes made by the Harper governments’ foreign aid policy use Official
Development Assistance to “support mining projects abroad and promote mining code reforms
28. P a g e | 28
that are favourable to corporate interests and damaging to Indigenous and collective human
rights” (Mining Watch Canada, 2014).
These are only a few examples of many which clearly show that by shifting the priority
of Canadian foreign aid to the interests of the commercial sector rather than focusing on
development goals, the Harper government has enabled the companies and institutions it
supports through ODA programs to avoid being held accountable for their actions. The result of
this lack of accountability is that the public funding being provided by the Harper government in
the form of ODA for projects that is provided in order to improve the practices and corporate
social responsibility of Canadian companies operating abroad has had little to no effect. These
companies operate with the same exploitative and unsustainable practices as they always have
and yet continue to receive government support despite not having to submit to any further
government regulation. The reason this has been able to occur is that the objective of Canadian
foreign aid has changed under the Harper government; and the result has been that the foreign
aid given out by the Harper government has been used not to promote development goals, but to
further the interests of the commercial sector. This redirection of resources means that foreign
aid is not being provided to NGOs or development organizations that could be using that money
to directly contribute to the goals of foreign aid as laid out by the Canadian Official
Development Assistance Accountability Act; i.e. poverty reduction, sustainable development and
democracy promotion. This redirection of resources, which has been the direct result of the
government making commercial interests the main priority of foreign aid, has resulted in a
significant reduction in the effectiveness of Canadian foreign aid.
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Conclusions
Overall, the world has seen a significant reduction in global poverty; “nearly 1 billion
people have been taken out of extreme poverty since 1990. Between 1990 and 2008 (the last year
a global figure can be calculated, over 660 million people had been taken out of extreme poverty
and it is estimated that in 2010 this number rose to nearly one billion” (Menon, 2013). However,
what this number means literally is not that those people are out of poverty, but just that they
have risen above the extreme poverty line, which according to the UN is when people live on
less than $1.25 USD per day (Menon, 2013). Therefore there is still an extraordinary amount of
work to be done globally to improve the lives of the world’s poorest people. Foreign aid has the
potential to be an extremely valuable contributor to that process, and to make big gains in
fighting global poverty. However, this will never come to pass if foreign aid is only used as a
means to improve the lives of those already living in wealth. By shifting the main priority of aid
to focus on Canadian commercial interests rather than on facilitating development in the world’s
poorest nations, the Harper government has not only reduced the effectiveness of aid, as shown
in this paper, but seriously inhibited the good work that aid can do globally.
Despite the many negative conclusions that this paper has reached, there is a potential for
the merging of public funding and private interests in the aid sector to bring about development
in developing countries. Certainly the two sectors cannot function completely independent of one
another. The public sector needs the private sector to provide “important innovations in service
delivery”, and the private sector “needs public partners in health, education and infrastructure in
order to reach low-income populations at scale” (House, 2015). However, the research I have
revealed in this paper indicates that in order for this potential to be reached, and for this merger
to be successful, it is vital that in the future commercial interests take a back seat to development
30. P a g e | 30
goals in the distribution of foreign aid to developing countries. There is a way forward for aid
that does not focus solely on self-interest and self promotion. However this can only be achieved
by making the decision to prioritize the needs of others rather than seeking to improve one’s own
situation. If Canada can re-align their foreign aid in the interests of developing countries rather
than using it as a tool to make economic gains domestically we will likely see a vast
improvement in the distribution and effectiveness of Canadian foreign aid in the future.
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