The Private Sector and Development, Explained
October 16, 2013
by GRAEME DOUGLAS and SHANNON KINDORNAY
The interweaving of Canadian development and foreign trade and investment promotion has taken on an increasingly important role in the Harper government’s foreign development cooperation efforts.
In the latest development, Minister of International Development Christian Paradis met with representatives of the Quebec extractive industry on September 19. Continuing the messaging of his predecessors, the Minister noted, “Economic growth is the number one way to break the cycle of poverty and build prosperity in places where populations have only ever lived in poverty.”
The new prominence of private sector development is in part the result of declining aid budgets in the developed world, but also reflects a change in the developing world’s relationship to the global economy.
The developing world is currently witnessing a major influx of foreign direct investment and remittances into their economies. This influx is reducing the stature foreign aid once had in these countries. Global aid, once over 70 percent of financial flows into developing economies, now amounts to a mere 15 percent.
Citing this change, the Canadian government has increasingly touted the need for greater partnerships with the private sector in its development programming.
But “what does private sector development mean?”
As a new report by The North-South Institute shows, Canada has long contributed to the promotion of local private sector development overseas. This promotion meant encouraging the growth of small and medium sized enterprises in the developing world. It also meant institutional reforms to facilitate the growth of local businesses and to attract foreign investment.
Most importantly for development, it meant empowering the most marginalized individuals in these countries so that they could benefit from growth.
Since the mid-1990s, we have been clear about our goals with private sector development. Now, however, the nature of this programming has become less clear, seeming to take on multiple objectives – promoting Canada’s commercial interests and development objectives.
While Canada continues to support activities that promote the local private sector in developing countries, the government is also using aid money to partner with Canadian companies investing overseas.
This programming attaches aid to Canadian investments, particularly in the extractive sector, to add development results to for-profit activities originating from our country. The goal, according to the Minister, is to “pursue policies that support a responsible and sustainable investment environment in the best interests of both workers and businesses.”
If Canada is to have the most positive impact possible, development objectives must be front and centre in all of our aid programming.
We will have the best results for development from partnerships with the private sector if we take the following steps:
First, establish transparent policies for Canada’s aid partnerships with the private sector. What are the conditions for these partnerships? What concrete benefits will they confer on the recipient communities?
Second, make sure that Canada’s previous experiences with private sector development and the Industrial Cooperation program (CIDA-INC) inform our aid policies. These partnerships must serve both commercial and development objectives, if they are to be worthwhile.
Third, demonstrate how Canadian development financing supports activities and development outcomes beyond what the private sector would and/or should do on its own. Taxpayer dollars should not pay for private entities’ responsibilities. Canadians should not have to rely on government funding to finance our companies’ responsible behaviour overseas.
Finally, this programming goes beyond any one project. Partnerships with the private sector that harness core business practices promote long-term outcomes.
By adopting these steps into our private sector partnerships, Canadians will have greater assurance that our development dollars are going to help the people who truly need our help.
Graeme Douglas is a Research Assistant at The North-South Institute. Shannon Kindornay leads The North-South Institute’s work on development and the private sector.