Ottawa is launching a profit-driven finance initiative aimed at boosting investments and reducing poverty in low-income countries.
The new initiative will be part of Export Development Canada, a Crown corporation designed to support exporters and investors. The move, announced in the 2015 budget, brings Canada into line with other Group of Seven countries, all of which have development finance tools of some kind.
It is the second time in recent years that Ottawa has used its annual fiscal plan to announce major changes to Canada's international development regime. The 2013 budget included the surprise news that the Canadian International Development Agency would be eliminated, with its functions absorbed into the Department of Foreign Affairs, Trade and Development.
The initiative announced on Tuesday will receive $300-million over the next five years. Proponents see the move as a good first step that could eventually put Canada in the ranks of other developed countries that are making a profit on loans and other financing options for Canadian, international and local businesses operating in developing countries. However, some aid experts worry the plan carries additional risks and that the government could use it as a substitute for boosting current levels of official development assistance.
A recent report by the Organization for Economic Co-operation and Development put Canada's official development spending at 0.24 per cent of GDP in 2014 – the lowest level since 2003, and far behind a global target of 0.7 per cent of GDP. Tuesday's budget does not increase that level.
International Development Minister Christian Paradis has suggested in the past that contributions to aid and development can no longer be measured by official government spending alone.
The initiative will provide financing to firms in low- and middle-income countries whose activities "complement" the government's existing aid and development priorities, the budget says. Ottawa also sees possible benefits in expanding its reach to developing country markets that are key trade priorities for the Conservative government.
"This initiative will enhance Canada's ability to advance its international assistance objectives by partnering with the private sector to address critical financing gaps in developing countries," the budget says. "The expansion of Canada's development finance capability will also deliver benefits for Canada beyond supporting the government's international development objectives, including laying the groundwork for future trade and investment in emerging and frontier markets."
Engineers Without Borders and the Centre for International Governance Innovation have been calling on Ottawa to create a development financing mechanism for more than a year.
"A Canadian development finance initiative has the potential to be an important tool to amplify Canada's impact in the movement towards the end of global poverty," Engineers Without Borders chief executive Boris Martin said in a statement.
However, he added that the initiative should work in tandem with official funding for aid and development. "This is why we also urge the government to allocate additional funding to invest in this new endeavour, and not to finance it using funds from the aid budget," Mr. Martin said.
Brett House, a senior fellow at the Jeanne Sauvé Foundation, called the initiative a "good pilot" that he hopes will be scaled up over time.
A statement from CARE Canada president Gillian Barth said the new initiative must be created according to the principles outlined in Canada's official development assistance accountability act, and maintain a central focus on poverty reduction over profit and other concerns.
Editor's note: A previous version of this article said incorrectly that Canada's new development finance initiative will be housed in the Economic Development Corp. In fact, the Crown corporation in which it will housed is Export Development Canada. The previous article also used an incorrect title for Brett House, who supported the creation of the initiative. Mr. House left his post at the Centre for International Governance Innovation in November, 2014, and is now a senior fellow at the Jeanne Sauvé Foundation.