McLeod Group Blog, June 20, 2016
A year ago, in July 2015, the great and the good of the world’s development community gathered in Addis Ababa to talk money at a conference on “financing for development”. It had become clear, in the lead up to the agreement on the Sustainable Development Goals, that the world’s foreign aid budgets were not going to come anywhere near the price tag. Action was required.
What emerged was an “Action Agenda” that had 134 paragraphs, none of them promising any actual action, much less new or additional financing for development. A UN press release called the meeting “historic” and “ground-breaking,” but in fact where aid financing was concerned the conference was a disaster.
But wait, there’s more. There were 14 paragraphs dealing with private business and finance, and here, it seemed, was the bright light of the conference, or at least its saving grace. If the traditional donors were not going to pony up, then the private sector would save the day.
Christian Paradis, then Canada’s Development Minister, spoke in Addis and everywhere else during his mandate about “blended finance,” calling it “an exciting new field of investment that uses public and philanthropic funds to unlock massive amounts of private capital for development.”
Why these “massive amounts” were locked up in the first place, and why private capital needed public and philanthropic funds to do the unlocking was never made clear, but mostly this sort of talk and some of the keys under discussion—such as a development finance initiative—were really about opening doors for Canadian business interests in developing countries.
Foreign direct investment (FDI) is usually welcomed by developing countries if it creates jobs and generates tax revenue. But this is not the same thing as education, food security, vaccination programs and infrastructure development. It isn’t even about the promotion of local business or the small and medium enterprises that typically drive genuine job growth. In fact FDI often competes with local initiatives, stunting them in the cradle. Moreover, foreign investors often repatriate most of their profits and withdraw FDI at the first whiff of a downturn, creating significant capital outflows from the developing country that can exacerbate economic problems and instability.
The Trudeau government’s current consultation process on the future of Canadian development assistance has so far been quiet on this “exciting new field”. Behind the scenes, Global Affairs Canada has been moving ahead with the Harper-announced Development Finance Initiative (see our policy brief here), but what role the private sector is expected to play, and how it will unlock the “massive amounts of private capital for development” that so excited Christian Paradis, remains unknown.
There are many pro-development initiatives that can be undertaken with, through and by the private sector. For example, Canada has dabbled with support for small and medium enterprise in a few African, Asian and Caribbean countries. This could be ramped up significantly. (See our policy brief here).
But sooner or later Canada will have to do more than talk about these things; it will have to do more than consult and it will have to move beyond platitudes. The prime minister has warned against throwing “buckets of money” at (presumably ill-conceived) aid programs. So far, so good. The challenge now will be to avoid doing the same with ill-conceived “blended finance.”