Hussein Amery, our Performance Measurement Practice Leader, describes and untangles the relationship between the new Canadian Development Finance Institute, Export Development Canada, and existing official development assistance flows. (May 23rd, 2017).
The Rt. Hon. Justin Trudeau and the Hon. Marie-Claude Bibeau, Minister of International Development and La Francophonie, formally announced the Canadian Development Finance Institute’s (DFI) establishment May 5, 2017. According to Global Affairs Canada, the new institute will “enable partnerships with small and medium enterprises from the private sector. It will mobilize its resources and expertise to promote inclusive green economic growth, while promoting the involvement of women and young entrepreneurs in achieving sustainable development objectives.”
The establishment of the DFI, announced in the 2017 Federal Budget, is a substantial new initiative with $300 million over five years in capitalization. In terms of relative scale, Canada compares favorably with the UK which has capitalized its DFI – the Commonwealth Development Corporation (CDC) – with £735m over three years.
Canada joins all other G7 countries which have established DFIs to support the needs of developing countries, using innovative financial instruments to stimulate private sector development. As Dr. Paddy Carter of the Overseas Development Institute (ODI) states, “Development finance institutions (DFIs) are there to make investments happen that would not if the private sector was left to its own devices; that means they make equity investments on terms that private investors would not.”
As a development mechanism, the new DFI , while having a development orientation, is being housed within Export Development Canada (EDC) which specializes in variety of financing, while collaborating closely with Global Affairs Canada (GAC) Development and governed by a Board of Directors. EDC has the systems and capacity to manage the DFI, but will need GAC’s expertise in orienting it towards the international development agenda. According to the Hon. François-Philippe Champagne, Minister of International Trade, “Canada’s Development Finance Institute will be able to draw from the full range of EDC’s financial capabilities, as well as its experience and networks in emerging markets, to deliver flexible and innovative solutions to its clients and to the ultimate beneficiaries, the poor in developing countries.”
Accordingly, when the government rolled out the DFI, it made a compelling case for mobilizing development financing, and packaged it as part of our Canada’s continued commitment to support international sustainable development. According to PM Trudeau, “Canada’s new Development Finance Institute will will promote investment in the countries that need it most, and ensure we reach the poorest and most vulnerable, especially women and girls.”
It is important to note, that the DFI is meant to complement exist Official Development Assistance (ODA), not reduce it. The new DFI is in line with the Addis Ababa Action Agenda which has placed a great emphasis on job creation and economic transformation. The Agenda encourages “both international and domestic development banks to promote finance for micro, small and medium-sized enterprises, including in industrial transformation.”
The DFI and ODA
Due to the complex nature of the variety of aid delivery mechanisms, the government did not spell out in detail the difference between the Canadian DFI contributions and, for example, Canada’s contributions to the World Bank. To support Canadians’ understanding of the DFI, it is useful to briefly explain how it will complement existing ODA.
Canada’s ODA is delivered through a variety of mechanisms, which is best explained through Budget allocations. Canada’s new DFI will be represented in countries eligible to receive official development assistance, taking into account Canada’s most current international priorities, presence and networks to enhance our development impact.
Official Development Assistance (ODA) represents the vast majority of Canada’s international assistance. Canada accepts two definitions of ODA:
- ODA, as defined by the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD-DAC). This definition is used to compare ODA among donors.
- ODA, as defined by Canada’s Official Development Assistance Accountability Act (denoted as ODAAA). This definition is used in Government of Canada publications.
Source: Statistical Report on International Assistance 2014-2015
International assistance includes all financial resources provided by Canadian governments (federal, provincial, or municipal) toward development assistance. The International Assistance Envelope (IAE) is the Government of Canada’s dedicated pool of resources and main budget planning tool to support international assistance objectives. The IAE funds over 90 percent of Canada’s international assistance. The envelope is used to fund the majority of Canada’s ODAAA-related activities and other specific activities that do not meet the definition of ODA, such as certain peace and security efforts
17 departments and agencies (or more) deliver ODA to the developing world. Each one of these departments/ organizations delivers assistance through different channels. For example Global Affairs, handles the bulk of bilateral and partnerships through the Development/ former CIDA Department; Finance Canada manages Canada’s relationship with the World Bank Group, including the International Development Association (IDA), as well as the relationship with the International Monetary Fund (IMF) and the European Bank for Reconstruction and Development (EBRD); the International Development Research Centre (IDRC) funds critical research and partnerships; and Citizenship and Immigration Canada (CIC) provides essential services including access to health care, social services and language training to refugees and vulnerable persons during their first twelve months in Canada. The following figure illustrates this spread.
Major Distributors of the International Assistance Envelope
Source: Statistical Report on International Assistance 2014-2015
The details of each departments spending is detailed in the Statistical Report on International Assistance 2014-2015, and are on the following page for reference.
|Canadian international assistance by department or source 2014–2015|
|Programs funded by the IAE||ODA: ODAAA (Statistical Report)1||ODA: OECD-DAC2|
reporting under the ODAAA
|Global Affairs Canada||3,743.61||3,720.62||3,614.56||3,614.56|
|Department of Finance Canada3||1,344.42||1,344.42||1,344.42||1,344.42|
|International Development Research Centre||193.67||193.67||193.67||193.67|
|Department of National Defence||4.94||–||4.94||4.94|
|Royal Canadian Mounted Police||25.94||25.94||25.93||25.93|
|Public Health Agency of Canada||20.28||–||20.28||20.28|
|Environment and Climate Change Canada||8.56||–||8.56||8.56|
|Natural Resources Canada||–||–||–||–|
|Employment and Social Development Canada||1.00||–||1.00||1.00|
|Innovation, Science and Economic Development Canada||0.98||–||0.98||0.98|
|Canadian Intellectual Property Office||0.05||–||0.05||0.05|
|Canada Revenue Agency||0.68||–||0.68||0.68|
|Immigration, Refugees and Citizenship Canada (refugee costs)||126.66||–||126.66||126.66|
|Services received by Global Affairs Canada from other government departments||19.01||7.41||19.01||19.01|
|Subtotal – Departments reporting under the ODAAA||5,491.93||5,292.06||5,362.86||5,362.86|
|% of international assistance||96%||98%||98%|
|Other departments, sources|
|Cost of refugees in Canada (provincial costs)||144.39||–||–||144.39|
|Foreign student subsidies||172.22||–||–||172.22|
|Provincial and municipal assistance programs||33.42||–||–||33.42|
|Subtotal – Other departments, sources||350.02||–||–||350.02|
|% of total international assistance||91%||92%||98%|
Export Development Canada: Not ODA
EDC provides Canadian exporters with trade financing, export credit insurance and bonding services, as well as foreign market expertise. As can be seen from the previous table, Export Development Canada’s (EDC) allocations are not considered part of Canadian international assistance. Consequently, when EDC works with the Department of Finance on loan forgiveness to heavily indebted countries, these expenditures show up in the annexes of the Statistical Report on International Assistance, but not as ODA.
According to EDC, its job is “to support and develop Canada’s export trade by helping Canadian companies respond to international business opportunities.” It is a self-financing, Crown corporation that operates at arm’s length from the Government, and operates much like a commercial institution. It collects interest on loans and premiums on insurance products, and has a treasury department that sells bonds and raises money in global capital markets. During the financial crisis, EDC was given an expanded scope and mandate to stimulate growth and recovery but supporting and encouraging Canada’s exports through a variety of new mechanisms.
DFI a New Part of EDC that will be ODA
Allocations made to EDC under the DFI mandate will in the future show up as ODA in the Statistical Report on International Assistance, in line with February 2016 OECD Development Assistance Committee guidelines for aid to the private sector. These changes allow donors to record the full value of money they give to development finance institutions as aid.
The DFI ‘s operational framework is being developed under a team of specialists at EDC’s Development Finance unit with the support of GAC and the Department of Finance, and its specific operational approach and functions continue to be developed. It is likely the DFI will have a similar orientation in operations like EDC’s other products and services. However, it will have much more concessional lending terms, take an active ownership/ equity stake in overseas investments (rather than insurance), and develop a development orientation.
Recognizing and acknowledging these differences, the DFI will be managed differently from the rest of EDC, and as such will operate as a wholly owned subsidiary of EDC. Taking on the challenge of establishing and managing the DFI as a subsidiary will make EDC a new link in Canada’s ODA delivery chain and offer more options to support and promote international development .
Hussein Amery is Practice Leader, Performance Measurement and a Senior Universalia Consultant who works actively on projects and programs financed by Global Affairs Canada, the World Bank, International and Regional Financial Institutions