Canada can do more with less foreign aid spending, says Finance Minister Bill Morneau, and that includes relying on a new profit-driven financial lending institution to help fight poverty in poor countries.
Morneau’s recent federal budget drew widespread criticism from international development and anti-poverty organizations because it did not contain an increase in foreign aid.
But in a post-budget interview with The Canadian Press, Morneau made no apologies for the lack of new spending.
Instead, Morneau is touting a new anti-poverty tool — a so-called development finance institution, which will lend money to private companies to help them pay for projects to reduce poverty in the developing world.
While DFIs are seen as a potentially good way to attract private companies, some analysts say more needs to be done to make sure companies are in fact investing the money properly and not just grabbing a government handout.
The previous Conservative government proposed the idea in its final 2015 budget, and Morneau brought it to life with a $300-million investment that will get it up and running under Export Development Canada.
“We do have a view that we can do more with less, and that creating economic success is important,” Morneau said.
“We believe that there’s more than one tack we can take in making a difference in development. Certainly, there’s a role for agencies that are dealing with enormous basic challenges.
“There’s also a role for thinking about how we can create more economic activity in places in the world, where economic activity may be too scarce.”
The budget said the newly created DFI would “expand Canada’s ability to make an impact” on reducing poverty, promoting economic growth, creating jobs, advancing women’s economic empowerment and reduce poverty “in areas where alternative financing is scarce.”
But Martin Fischer, the policy director for World Vision, said a DFI can’t replace real foreign aid because private companies are too risk averse to take on projects in the poorest countries they are needed the most.
“DFI is good in stable economies and transitioning markets; it’s not good in the Somalias and South Sudans where private capital is just too scared to go.”
Fraser Reilly-King, a senior policy analyst with the Canadian Council for International Co-operation, said Canada needs to find a way to ensure its DFI doesn’t repeat the mistakes seen in European programs: money being shielded offshore, and no transparent way of ensuring that it actually gets spent on poverty reduction projects.
The government plans to establish an independent board that will include outside experts in order to manage the DFI and ensure transparency, said James Haga, vice-president of the organization Engineers Without Borders, which has strongly advocated for DFIs.
Even though his organization sees the new DFI as essential for making gains on foreign aid, it is no substitute for boosting traditional aid spending, said Haga.
“It’s hard to look at that budget and see that we are stepping up on the global development side, and really trying to lead,” he said. “It’s a different kind of value, frankly, in terms of what it means to have a DFI.”
Anti-poverty advocates say the lack of new aid spending means the government simply isn’t living up to its rhetoric on wanting to be a leader on international development, including its rebranded efforts to champion the plight of women and girls in poor countries.
The ONE Campaign, the global anti-poverty organization co-founded by U2 singer Bono, is calling on Canada to double the amount of money it spends on girls’ education, saying that would cost each Canadian four cents a day.
“This government’s focus on girls and women reflects a savvy understanding of what many experts believe to be the most effective means of ending extreme poverty,” said ONE’s Canadian director Stuart Hickox.
“That’s why we were hopeful the smart strategy would be backed up by smart money.”Report Typo/Error